[2024] KETAT 734 (KLR)

Minet Kenya Insurance Brokers Limited v Commissioner of Domestic Taxes (Appeal E033 of 2023) [2024] KETAT 734 (KLR) (9 May 2024) (Judgment)

Neutral citation: [2024] KETAT 734 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E033 of 2023

Grace Mukuha, Chair, G Ogaga, Jephthah Njagi, W Ongeti & E Komolo, Members

May 9, 2024

Between

Minet Kenya Insurance Brokers 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 and licensed under the Insurance Act as an insurance broker and medical insurance provider in respect of the healthcare business.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 460 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. The Respondent, in a letter dated 3rd February 2022, notified the Appellant of its intention to conduct an audit covering the period January 2017 to December 2021 on the Appellant’s Value Added Tax (VAT), Excise duty, Pay as You Earn (PAYE) and Withholding tax (WHT) obligations.

4. The Respondent issued the Appellant with a notice of assessment in a letter dated 7th October 2022 upon completion of the audit wherein the Respondent notified the Appellant of additional assessments covering the years 2017, 2018, 2019, 2020 and 2021 amounting to principal tax of Kshs. 67,380,627. 00 of Excise duty and Kshs. 73,200,583. 00 of VAT, plus interest and penalties.

5. The Appellant objected to the entire assessment via a notice of objection dated 2nd November 2022, and the Respondent issued its objection decision on 28th December 2022 partially allowing the objection and confirming additional assessments covering the years 2017, 2018, 2019, 2020, and 2021 amounting to a principal tax of Kshs. 53,514,443. 00 of Excise duty and Kshs. 50,461,383. 00 of VAT, plus interest and penalties.

6. Dissatisfied with the Respondent’s objection decision, the Appellant lodged its Notice of Appeal dated and filed on 27th January 2023.

THE APPEAL 7. The Appeal is premised on the Memorandum of Appeal filed on 8th February 2023 which raised the following grounds: -a.That the Respondent erred in law and fact by erroneously classifying hospital discounts received by the Appellant as “other fees” as defined by the Excise Duty Act and subjecting the discounts to Excise duty.b.That the Respondent erred in law and fact by failing to take into account that it had already assessed Excise duty for the period 2014 - 2017 thereby erroneously confirming the Excise duty assessment on non-excisable fees earned for the period September 2017 from the National Police Service and Kenya Prisons Service medical scheme.c.That the Respondent erred in fact by finding that the Appellant was paid administrative fees when in fact a related entity was appointed the administrator in the National Police Service and Kenya Prisons Service medical scheme, thereby erroneously assessing Excise duty on the Appellant.d.That the Respondent erred in law by failing to consider the relevant documentation provided by the Appellant thereby erroneously confirming an Excise duty assessment of Kshs. 14,126,941. 00 arising from an alleged variance between the VAT and excise duty returns.e.That the Respondent erred in law and fact by erroneously classifying hospital discounts received by the Appellant as a “taxable supply” as defined by the VAT Act and subjecting the discounts to VAT.f.That the Respondent erred in law and fact by failing to take into account that it had already assessed VAT for the period 2014 - 2017 thereby erroneously confirming the VAT assessment on non-excisable fees earned for the period September 2017 from the National Police Service and Kenya Prisons Service medical scheme.g.That the Respondent erred in fact by finding that the Appellant was paid administrative fees when in fact a related entity was appointed the administrator in the National Police Service and Kenya Prisons Service medical scheme thereby erroneously assessing VAT on the Appellant.h.That the Respondent erred in law by failing to consider the relevant documentation provided by the Appellant thereby erroneously confirming a VAT assessment of Kshs. 2,894,537. 00 arising from an alleged variance between Excise duty and VAT returns.

Appellant’s Case 8. The Appellant’s case is premised on the following documents filed before the Tribunal: -a.Its Statement of Facts dated filed on 8th February 2023 and the documents attached to it.b.Its Witness Statement of Mr Walter Koech dated 19th September 2023, filed on 20th September 2023 and adopted in evidence under oath by the Tribunal on 22nd November 2023. c.Its Written Submissions dated and filed on 6th December 2023.

9. The Respondent, in a letter dated 3rd February 2022, notified the Appellant of its intention to conduct an audit covering the period January 2017 to December 2021 on the Appellant’s Value Added Tax (VAT), Excise duty, Pay as You Earn (PAYE) and withholding tax (WHT) obligations.

10. The Respondent issued the Appellant with a notice of assessment in a letter dated 7th October 2022 upon completion of the audit wherein the Respondent notified the Appellant of additional assessments covering the years 2017, 2018, 2019, 2020 and 2021 amounting to principal tax of Kshs. 67,380,627. 00 of Excise duty and Kshs. 73,200,583. 00 of VAT, plus interest and penalties.

11. The Appellant objected to the entire assessment in a notice of objection dated 2nd November 2022, and the Respondent issued its objection decision on 28th December 2022 partially allowing the objection and confirming additional assessments for the years 2017, 2018, 2019, 2020 and 2021 totalling principal tax of Kshs. 53,514,443. 00 of Excise duty and Kshs. 50,461,383. 00 of VAT, plus interest and penalties.

12. Dissatisfied with the Respondent’s objection decision, the Appellant filed its Notice of Appeal dated and filed on 27th January 2023.

13. The objection decision confirmed Excise duty and VAT assessments under the categories of ‘marketing/efficiency fees and commissions’ (labelled by the Appellant as “hospital discounts”), administration fees for the National Police Service contract and administration fees from VAT-excise duty returns variances.

14. The Appellant outlined the issues it desired the Tribunal to determine under the following headings:a.Whether the Respondent erred by classifying “hospital discounts” received by the Appellant as “other fees” as defined by the Excise Duty Act.b.Whether the Respondent erred by classifying “hospital discounts” received by the Appellant as “taxable supply” under the Value Added Tax Act.c.Whether the Respondent erred in law and fact by failing to consider that it had already assessed Excise duty for 2014 to 2017 and erred in fact that the Appellant was paid administrative fees in the National Police Service and Kenya Prisons Service medical scheme.d.Whether the Respondent erred in law and fact by failing to consider that it had already assessed VAT for 2014 to 2017 and erred in fact that the Appellant was paid administrative fees in the National Police Service and Kenya Prisons Service medical scheme.e.Whether the Respondent erred in law by failing to consider the relevant documentation in support of variances in the VAT and excise duty returns.

a. On whether the Respondent erred by classifying “hospital discounts” received by the Appellant as “other fees” as defined by the Excise Duty Act. 15. The Appellant stated that it is licensed under the Insurance Act as an insurance broker to undertake insurance brokerage and as a medical insurance provider to provide healthcare insurance administration services and that these two services are separate and distinct and are subjected to different regulatory requirements under the law.

16. The Appellant further stated that insurance brokerage services typically involve working for clients in the insurance process by presenting them with alternatives in terms of insurance and self-funded medical products.

17. The Appellant highlighted that healthcare insurance scheme administration services include vetting and monitoring of healthcare service providers such as hospitals, managing members of the medical insurance scheme, receiving and processing medical claims, developing policies for medical schemes and providing customer care services to both the medical service providers and members of the medical scheme.

18. The Appellant explained that in a typical scheme administration assignment, it would contract directly or as part of a consortium, with an employer for medical scheme administration services with specific terms of business. The Appellant further explained that it then enters into contracts with various service providers such as hospitals, medical clinics and laboratories for the provision of medical services to the members of the medical schemes managed by the Appellant.

19. The Appellant clarified that it is a licensed entity providing scheme administration services. That it only charges fees to employers and uses the funds received from them to settle invoices issued by medical service providers.

20. The Appellant asserted that it does not charge any fees to the medical service providers. Further, that service providers give discounts to the Appellant on the cost of the medical services provided as a commercial incentive for the Appellant to settle medical invoices faster. That these discounts are negotiated on a case-by-case basis.

21. The Appellant submitted that contrary to the erroneous assessment by the Respondent, the discount is not a fee charged by the Appellant to any person. That where the discount is not passed on to the employers, the Appellant declares “hospital discounts” as income and applies appropriate taxes to it.

22. The Appellant submitted that Excise duty can only be charged when expressly listed as chargeable under the Act. The Appellant referred to Section 5 of the Excise Duty Act to submit that excise duty is due on the provision of excisable services. That excise duty can only be charged on goods and services expressly specified under the Excise Duty Act as being excisable; that if the goods or services are not listed as excisable then they are not.

23. The Appellant further submitted that the Excise Duty Act lists the specific services that can attract Excise duty in Part Il of the First Schedule to the Act. It contended that the discounts in issue are not expressly provided in law as excisable and that the Respondent charged Excise duty where the law does not provide for such a charge.

24. The Appellant highlighted that Part II of the First Schedule to the Excise Duty Act emphasises the fact that when charging Excise duty on other fees,“other fees” must be those fees that relate to licensed activities of the financial institution in issue.

25. The Appellant argued that the Respondent misapplied these provisions by taking them completely out of context. That the discounts in issue do not fall within the definition of “other fees” at all for the following reasons:a.That the provision states, that a financial institution, when charging fees for services they have rendered attracts Excise duty. The discounts in issue are discounts on payments being made out by the Appellant to service providers, for services the Appellant’s customer/employers have consumed or received, not fees being earned or received.b.That the intention of the provision as it expressly states is that the tax point is the point when the chargor of the fees or commission receives fees, in which case they become obligated to charge Excise duty.

26. It was the Appellant’s submission that the provisions of the Excise Duty Act highlighted above, do not expressly provide that discounts are to be considered as “other fees”. The Appellant submitted that in interpreting the provisions, the Tribunal is to be guided by the words of Lord Simonds in the House of Lords’ decision of Russel v Scott (1948) 2 ALLER 5 who reiterated that: -“…there is a maxim of income tax law which, though it may sometimes be over-stressed, yet ought not to be forgotten. It is that the subject not to be taxed unless the words of the taxing statute unambiguously impose the tax on him.”

27. That Lord Russel of Killowen in Inland Revenue Commission v Duke of Westminster stated: -“the subject is not taxable by inference or by analogy but only the plain words of a statute applicable to facts and circumstances of his case.”

28. The Appellant contended that whereas the fees chargeable to Excise duty in the legislation are fees received for a service rendered by a financial institution, the Respondent, contrary to the law, is seeking to charge Excise duty on payments made out, not received, and for services which were received by the Appellant, rather than for services being rendered by the Appellant.

29. The Appellant stated that it is an agent who only settles medical bills on behalf of the various employers who have contracted it. That the Appellant has not contracted with the service providers to provide any services which would be deemed excisable services under the Excise Duty Act.

30. The Appellant submitted that hospital discounts are not charges by the Appellant in line with the requirements of Part III of the First Schedule to the Excise Duty Act. The Appellant contended that because the Excise duty law does not define the term “charge”", the ordinary definition of the term should apply in line with the principle in National Bank of Kenya Limited v the Commissioner of Domestic Taxes (Income Tax Appeal Nos. E155 & 533 of 2020) that, where a term is not defined in tax legislation, the word/term should be given its plain and literal meaning.

31. The Appellant further submitted that the literal rule of statutory interpretation requires that a statute’s words be given their literal meaning. The Oxford Learners’ Dictionary defines ‘charge’ as: -“to ask an amount of money for goods or a service”

32. That the charges referenced above arise where one provides services in exchange for consideration. The Appellant averred that discounts are not in their nature payments made to a party in exchange for a service. That the effect of the discount in the Appellant’s case is that the Appellant will pay its service providers less than what it had been billed.

33. The Appellant argued that hospital discounts were merely incentives and could not be charged by the Appellant as it did not provide any services to the service providers.

34. The Appellant submitted that any demand for tax must be made based on an express statutory provision, citing Republic vs Kenya Revenue Authority Exparte Cooper K-Brands Ltd (2016) eKLR in which Justice Odunga adopted the decision in Vestley vs. Inland Revenue Commissioner (1979) 3 ALLER at 984

35. The Appellant made clear that under no circumstances, particularly under the contractual agreements entered into between the parties in issue, would the Appellant be providing licensed services to healthcare service providers in the context provided by the Respondent.

36. That the “hospital discounts” are deductions from the usual payment obligations that would otherwise have been required to be paid out by the Appellant to the healthcare service providers, for the services given by the healthcare service providers and are not in respect of any services rendered by the Appellant in the course of carrying out licensed activities as misinterpreted by the Respondent. That there was no licensed activity that the Appellant provided that necessitated it being “rewarded” or “paid” for as fees earned by the Appellant.

37. The Appellant averred that the “services” that the Respondent alleges are excisable in its objection decision are not services but are an incentive granted for the timely payment of moneys owed by the Appellant to healthcare service providers and sometimes discounts granted for recommending specific service providers if this is evidenced.

38. The Appellant submitted that the making of timely payments is not the rendering of a service but the efficient facilitation of the performance of trade terms in a commercial relationship. The Appellant further submitted that the terms and conditions of entitlement to the “hospital discounts” are trade terms and were not a reward nor a consideration for the provision of insurance brokerage and administration services.

39. The Appellant relied on the decision in the case of Euro RSCG Advertising Limited v. Commissioner of Service Tax, Bangalore 2007-TMI-1721-CES TAT BANGALORE where the Indian Tribunal held the following regarding a definition of cash discount:“cash discount is an income from payment of bills in advance and not from services rendered to clients and does not attract service tax.”

40. The Appellant also cited Kerala Publicity Bureau v Commissioner of Central Excise 2008-TMI-2534-CestatBangalorewhere the Indian Tribunal held that: -“incentives in the form of discounts are not leviable to service tax.”

41. The Appellant further submitted that had the legislature intended to impose Excise duty on discounts offered to financial institutions without necessarily charging for such fees, it would expressly capture this in the wording of the Excise Duty Act, which as currently drafted, requires financial institutions to subject “other fees” to excise duty only where such institutions obtain excisable fees by way of charge.

42. The Appellant submitted that the “hospital discounts” it received arose from the medical service providers allowing the Appellant to pay less than the usual cost than the service provider would invoice and was an incentive for early payment. The Appellant cited that “hospital discount” was in line with the meaning of the term “discount” in the Oxford Learners’ Dictionary, which it submitted defines it as: -“An amount of money that is taken off the usual cost of something.”

43. The Appellant further submitted that the discounts in issue are not payments made to the Appellant for any professional advice or services, as the Appellant only acts as a payment agent to forward money from the employer to the service providers. It submitted that the term fee is defined as: -“A payment made to a professional person or to a professional or public body in exchange for advice or services.”

44. It was the Appellant’s submission that the discounts in issue are not charges, because they are amounts taken off payments due to be made to service providers. That a charge is defined as:“Demand (an amount) as a price for a service rendered or goods supplied.”

45. The Appellant cited that Black’s Law Dictionary defines commission as: -“A fee paid to an agent or employee for a particular transaction, usually as a percentage of the money received from the transaction.”

46. That in MTN Uganda Ltd v Uganda Revenue Authority (TAT Application No. 8 of 2019) 2020 UGTAT 8, the court noted as follows in respect of the difference between discounts and commissions: -“A commission and a discount are not one and the same thing. A commission is defined by the Black’s Law Dictionary page 327 as "A fee paid to an agent or employee for a particular transaction usually as a percentage of the money received from the transaction." A discount is defined by the Black’s Law Dictionary (supra) page 564 as "A reduction from the full amount or value of something, especially a price. When a commission is paid to an agent the value of the service is not reduced. The commission is factored in the price of the item or service. When there is a discount on a price, in most cases the commission is reduced accordingly. A discount is therefore not synonymous with a commission.”

47. The Appellant submitted that from the definitions of fees, charges and commissions, it is notable that they relate to some form of reward given for the provision of a service. That the Appellant is an agent who only settles medical bills on behalf of the various employers who have contracted it. That the Appellant has not contracted with the medical service providers to provide any services for which it is seeking a reward which would be deemed excisable services under the Excise Duty Act.

48. The Appellant averred that discounts are not in their nature payments made to a party in exchange for a service. That,the effect of the discount is that the Appellant will pay its medical service providers less than what it had been billed. That the Appellant would pay out the full invoice amount from the client fund and retain any amounts that constitute “hospital discounts”.

49. The Appellant further averred that it already treated “hospital discounts” as income and accordingly paid income tax on the same, but that it disagrees that “hospital discounts” are liable to excise duty and VAT.

50. The Appellant submitted that the “hospital discounts” it receives occur in the general course of trade when making payments to medical service provider to settle invoices. That this is not a licensed activity under the Insurance Act, that the Appellant can only charge Excise duty when being paid consideration for the provision of licensed services.

51. The Appellant relied on the holdings in Misc. Application No. 1223 of 2007, R v The Commissioner of Domestic Taxes ex-parte Barclays Bank of Kenya Ltd, and also cited Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others [2007] KLR 240 where it was held: -“taxation can only be done on clear words, and cannot be on intendment Linked to this is that a penalty must be imposed in clear words. Finally even where the inclination of the legislature is not clear or where there are two or more possible meanings, the inclination of the court should be against a construction or interpretation which imposes a burden, tax or duty on the subject.”

52. The Appellant submitted that from the above, the nature of “hospital discounts” does not conform to the definition of “other fees” under the Excise Duty Act and that the Respondent ought not to have charged and confirmed the excise duty of Kshs. 32,927,502. 00 on the “hospital discounts”.b.On whether the Respondent erred in law and fact by classifying “hospital discounts” received by the Appellant as a “taxable supply” under the Value Added Tax Act.

53. The Appellant stated that the Respondent alleged that the “hospital discounts” granted to the Appellant are taxable supplies that should be subject to VAT.

54. The Appellant reiterated that it did not provide any services to its service providers that would trigger obligations under the VAT Act. That Section 5 of the VAT Act provides that: -“(1)A tax, to be known as value added tax, shall be charged in accordance with the provisions of this Act on (a) a taxable supply made by a registered person in Kenya;”

55. The Appellant averred that it would only be liable to pay VAT if it had been the party that supplied a service to the service providers in issue. That Section 2 of the VAT Act defines the supply of services as below: -“"supply of services" means anything done that is not a supply of goods or money includinga.the performance of services for another person”

56. The Appellant maintained that it was not engaged by the health service providers which the Appellant contracted with to provide health services to its clients, to supply any services to them. That the discounts it obtained were merely a result of the expedited settlement of invoices within specific timelines. That these are trade terms and could not be a reward or for any services. The Appellant submitted that the Respondent erroneously attributed the discounts received by the Appellant to a supply of a service, the service allegedly being a ‘marketing and efficiency’ service.

57. The Appellant explained that it is a licensed entity and would not engage in the provision of services such as marketing and efficiency services which is contrary to the provisions of the Insurance Act.

58. On the above basis, the Appellant disputed the Respondent’s objection decision confirming the VAT of Kshs. 36,197,245. 00 on the “hospital discounts”.

c) On whether the Respondent erred in law and fact by failing to consider that it had already assessed Excise duty for 2014 to 2017 and erred in fact that the Appellant was paid administrative fees in the National Police Service and Kenya Prisons Service medical scheme. 59. The Appellant disputed the Respondent’s assessment of the Excise duty of Kshs. 6,460,000. 00 for September 2017 from the National Police Service and Kenya Prisons Service medical scheme.

60. The Appellant stated that despite there being an earlier assessment for Excise duty for January 2014 to December 2017, the Respondent confirmed the September 2017 assessment on the ground that the impugned assessment relates to undisclosed “other fees” which were not assessed in the previous assessment.

61. The Appellant further stated that in 2019, the Respondent, through a notice of assessment dated 8th January 2019, assessed Excise duty for January 2014 to December 2017 in respect of “other” fees earned by the Appellant. That the Respondent admitted to this fact in its objection decision.

62. That the Appellant objected to the assessment and ultimately entered into a settlement agreement during an appeal at the Tribunal. That the agreement, annexed to this Appeal, formed a full and final settlement of Excise duty matters from January 2014 to December 2017, and that the terms of the agreement are binding and enforceable by this Honourable Tribunal.

63. The Appellant stated that the prior assessment and the parties’ settlement agreement dealt with all Excise duty matters from 2014 to 2017. That the settlement agreement dealt with the same taxpayer, the same tax period and the same tax head that the impugned 2022 assessment relates to.

64. The Appellant referred to Mahan Limited vs Commissioner of Domestic Taxes TAT 487 of 2021 where the Tribunal when faced with a similar issue determined as follows: -“The Tribunal further notes that for the first assessment of the same tax period, December 2016, that is the subject of the current appeal, the Respondent closed off the matter and issued a tax decision based on an audit that it undertook. The Tribunal therefore believes that there must have been sufficient documentation provided by the Appellant and reviewed by the Respondent in arriving at its initial final decision dated 20th December 2018. Due to the foregoing, the Tribunal is clear that the Respondent’s actions, in closing this matter in 2018 in the manner that it did, created a legitimate expectation which the Appellant relied on in establishing that any tax issue relating to the tax period December 2016 was fully audited and settled. In this regard, the Tribunal has also confirmed from the pleadings that the Appellant settled the taxes demanded by the Respondent in its 2018 Objection Decision without further ado.”

65. The Appellant contended that the 2019 assessment and settlement, having been concluded and adopted as a Judgment of the Tribunal attracts the principles of the doctrine of res judicata, which as held in the Independent Electoral & Boundaries Commission v Maina Kiai & 5 Others (2017) eKLR is designed to protect the public interest as was held that: -“The principle of res judicata is conceived in the larger public interest which requires that all litigation must, sooner than later, come to an end. The principle is also founded in equity, justice and good conscience which require that a party which has once succeeded on an issue should not be permitted to be harassed by a multiplicity of proceedings involving determination of the same issue. The practical effect of the res judicata doctrine is that it is a complete estoppel against any suit that runs afoul of it, and there is no way of going around it- not even by consent of the parties because it is the court itself that is debarred by a jurisdictional injunct, from entertaining such suit.”

66. The Appellant argued that the objection decision is contrary to the legal doctrine on finality of dispute resolution. That the principle of finality is a matter of public policy and is one of the pillars on which a judicial system is founded. That once a judgement becomes conclusive, the matters in issue covered thereby cannot be reopened unless fraud, mistake or lack of jurisdiction is cited to challenge it directly at a later stage.

67. The Appellant urged the Tribunal to intervene and resist the invitation to perpetuate the illegality, which will greatly prejudice the Appellant, and set aside the demand in its entirety.

68. The Appellant further contended that once the assessment in respect of 2014 to 2017 was concluded, it created a legitimate expectation that there would be no further assessments from the Respondent on the same tax head.

69. That the Supreme Court in Communications Commission of Kenya & 5 Others v Royal Media Services Limited & 5 Others [2014] eKLR held that a public body creates a legitimate expectation based on the following principles: -“(a)There must be an express, clear and unambiguous promise given by a public authorityb.The expectation is reasonableb.The representation is lawfulb.The legitimate expectation is not against clear provisions of the law or the constitution.”

70. The Appellant submitted that the settlement agreement entered into by the parties is a clear and unambiguous promise that the issues addressed therein are settled in full and with finality. That there is a legitimate expectation that the Respondent would not depart from the terms of the agreement.

71. The Appellant further urged the Tribunal to be guided by the decision of the Supreme Court in Kenya Revenue Authority v Export Trading Company Limited Petition No. 20 of 2020 (E021 of 2020) where the Supreme Court held that the principle of legitimate expectation in tax matters and taxpayers’ right to fair administrative action are intertwined.

72. That the attempt by the Respondent to allege that the amounts assessed in 2022 had not been disclosed in 2019 is without merit, and that the Respondent has merely made an allegation without proof. That the Tribunal in London Distillers (K) Limited v Commissioner of Domestic Taxes held that the moment the Respondent accused the Appellant of tax evasion the burden of proof shifted to it to prove the allegation and the standard of proof was higher than the normal standard of the balance of probability.

73. The Appellant disputed the Respondent’s assertion that the Appellant was appointed as the administrator of the National Police Service and Kenya Prisons Service medical cover. The Appellant also disputed the Respondent’s claim that under the consortium agreement, AAR Insurance Company Limited (the "Lead Insurer") would allegedly pay the Appellant administration and brokerage fees.

74. The Appellant stated that during September 2017, the Appellant earned Kshs. 64,600,000. 00 from the Lead Insurer which were recorded as non-excisable brokerage commissions in the Appellant’s ledgers. The Respondent contended that the income was earned by the Appellant for the provision of administration services and demanded Excise duty on the income.

75. The Appellant submitted that it entered into a Consortium Agreement (annexed to this Appeal) with AAR Insurance Company Limited (as the "Lead Insurer"), Jubilee Insurance Company Kenya Limited and UAP Insurance Company Limited (all referred to as "Consortium") for bidding for a tender for the provision of the comprehensive medical insurance cover to the National Police Service and Kenya Prisons Service (NPS & KPS) for 2016 to 2017.

76. That the Consortium Agreement provided the rights and obligations of all parties to the Consortium including the Appellant should the parties be successful in their bid for the tender. The Appellant claimed that it was contracted to provide insurance brokerage services and administration services as in recital III of the Consortium Agreement and clause 6. 2 of the Administration Agreement in Appendix MKIB 7.

77. That to ensure the efficient provision of services, the NPS & KPS medical scheme was split into insured and capitation schemes by the Lead Insurer. That under the insured Scheme, the Lead Insurer would pay premiums periodically, and that under the capitation scheme, the Lead Insurer made lump sum payments periodically to the medical service providers which constituted a fund against which claims would be settled.

78. The Appellant argued that as a result of the split of the NPS & KPS medical scheme, the Appellant was retained under the insured scheme where it exclusively provided insurance brokerage services. That there are no administration services were needed in the insured scheme.

79. The Appellant further explained that for the capitation scheme, the Consortium appointed several service providers (health clinics and medical institutions) to provide services to the members of the NPS & KPS medical scheme. That as consideration for the provision of outpatient and in-patient medicare and treatment services, the Consortium paid a specified fixed amount for the duration of the contract in respect of the members of the NPS & KPS scheme tied to the specific service provider. The Appellant annexed a copy of a contract for the provision of medical services between the Consortium and Bliss GVS Healthcare Limited.

80. That since the entire lump sum received from the Ministry of Interior and Coordination of National Government was distributed to the service providers, there was no fund for the Appellant to administer. The Appellant stated that the service providers engaged the services of scheme administrators to manage the capitation payment made to them under the NPS & KPS medical scheme.

81. The Appellant averred that as is the practice in the insurance business, there is normally no separate agreement providing for the Appellant’s duties as an insurance broker. That for its role in the insured scheme, the Appellant was paid commissions.

82. The Appellant further averred that all the payments it declared in respect of the NPS & KPS medical scheme were brokerage commissions. That the Respondent’s allegation that the Appellant misrepresented the payments is therefore without basis. The Appellant submitted that the pendulum of proof of such an allegation shifts to the Respondent to prove such an allegation in the face of the evidence provided by the Appellant herein.

83. The Appellant further stated that the Lead Insurer paid WHT on the sum since the amount constituted a payment for professional services following the provisions of the Income Tax Act and would have applied to both brokerage and administration fees. The Appellant submitted that the fact that the Kshs. 193,800,000. 00 was subjected to WHT by the Lead Insurer does not imply that the payment was intended to form administration fees.d.On whether the Respondent erred in law and fact by failing to consider that it had already assessed VAT for 2014 to 2017 and erred in fact that the Appellant was paid administrative fees in the National Police Service and Kenya Prisons Service medical scheme.

84. The Appellant disputed the Respondent’s assessment of VAT of Kshs. 11,369,600. 00 for September 2017 from the National Police Service and Kenya Prisons Service Medical Scheme.

85. The Appellant stated that the Respondent through the 2019 notice of assessment dated 8th January 2019 already assessed the Appellant for VAT for the period January 2014 to December 2017 in respect of “other fees” earned by the Respondent.

86. The Appellant submitted that it would be contrary to the principles of natural justice to allow the Respondent to disregard principles of law providing for the finality of decisions.

87. The Appellant further submitted that it was not paid administrative fees that should be subjected to VAT and that the administration fees under the medical scheme were paid to Minet Kenya Insurance Consulting Limited, a separate entity from the Appellant.e.On whether the Respondent erred in law by failing to consider the documentation provided by the Appellant and confirming an excise duty assessment of Kshs. 14,126,941. 00 arising from a variance between the VAT and excise duty returns.

88. The Appellant stated that the Respondent conducted a reconciliation of administration fees declared in the Appellant’s VAT returns and Excise duty returns and determined that there was an alleged under-declaration of administration fees in the Excise duty returns. That in its objection decision, the Respondent confirmed the Excise duty assessment of Kshs. 14,126,941. 00 because the Appellant allegedly failed to provide a reconciliation and breakdown for lumped sales.

89. The Appellant further stated that it explained in its notice of objection that the income classified as ‘administration fees’ in its VAT returns consists of income items that are not subject to Excise duty such as rental income and income on the disposal of assets resulting in the variance that the Respondent had pointed out. That to support this position, the Appellant provided a detailed reconciliation, as annexed to this Appeal.

90. The Appellant’s witness further stated that the income items which the Respondent assessed Excise duty on, but that are not subject to Excise duty include rent, disbursement access/card fees being for services provided by a third party and thus no income to the Appellant, and additional brokerage commission negotiated with the TSC group excess of loss and other schemes.

91. The Appellant asserted that the Respondent in its objection decision, did not consider the documents and explanations provided. That the Respondent’s objection decision contains a vague response that indicates that the Respondent did not give due consideration to the documents provided.

92. The Appellant submitted that the Respondent’s failure to consider the documents provided by the Appellant is an affront to the Appellant’s right to fair administrative action. That the court in SBI International Holdings Ag Kenya v Commissioner, Customs and Border Control, of Kenya Revenue Authority E009 of 2021 paragraph 52 held that: -“However, it must always be remembered that persons charged with statutory powers and duties ought to exercise the same reasonably and fairly. Accordingly, the court is perfectly entitled to intervene where it is alleged that the discretion is not being exercised judicially, that is to say, rationally and fairly and not arbitrarily, whimsically, capriciously or in flagrant disregard of the rules of natural justice.”

93. That had the Respondent reviewed the documents provided in the notice of objection the Respondent would have noted that the variance is explained and that there is no Excise duty due.

94. The Appellant submitted that as a result of the Respondent’s failure to consider and give a reasoned decision as to why it did not consider the explanations given by the Appellant, it reiterated and relied on the same reasons, grounds and documents presented in the Appellant’s notice of objection annexed to this Appeal.f.On whether the Respondent erred in law by failing to consider the documentation provided by the Appellant and confirming a VAT assessment of Kshs. 2,894,537. 00 arising from a variance between the VAT and excise duty returns.

95. The Appellant stated that the Respondent conducted a reconciliation of administration fees declared in the Appellant’s VAT returns and Excise duty returns and determined that there was an alleged under-declaration of administration fees in the VAT returns. That in its objection decision, the Respondent confirmed the VAT of Kshs. 2,894,537. 00 because the Appellant allegedly failed to provide a reconciliation and breakdown for lumped sales.

96. The Appellant argued that in its notice of objection, it provided the Respondent with a detailed explanation that the VAT demanded by the Respondent was declared and remitted to KRA in May 2019, July 2019 and March 2020 as part of lump sum amounts declared in the respective VAT returns in these months and that it provided the requisite schedule as annexed to the Appeal showing the amounts of VAT declared and paid to KRA.

97. The Appellant’s witness further stated that the income items which the Respondent assessed VAT on included sales to customers not registered for VAT and already accounted for in lumpsum in the VAT returns as taxable, and reversals of payments made by clients.

98. The Appellant reiterated that by failing to consider the documents the Appellant provided, the Respondent trampled upon the Appellant’s right to a fair hearing.

Appellant’s prayers 99. The Appellant prayed that: -a.This Appeal is allowed.b.The Respondent’s confirmation of principal tax of Kshs. 103,975,825. 00 in its objection decision dated 28th December 2022 be vacated and set aside.c.Any other orders that the Tribunal may deem fit.

Respondent’s Case 100. The Respondent’s case is premised on the following documents:a.Its Statement of Facts dated and filed on 9th March 2023 and the documents attached to it; andb.Its Written Submissions filed on 21st December 2023.

101. The Respondent stated that it conducted a review/audit of the Appellant’s tax compliance status and upon the conclusion of the audit, the Respondent issued a notice of assessment on 7th October 2022 which the Appellant objected to through a notice dated 4th November 2022.

102. The Respondent further stated that the Appellant objected to the assessments through a notice dated 4th November 2022 which after various correspondence between the parties and the Appellant providing additional documents to support its objection, it issued its objection decision in a letter dated 28th December 2022 partially accepting the objection and that the Appellant appealed this decision to the Tribunal.

103. In response to the Appellant’s grounds of appeal, the Respondent listed the issues it wished the Tribunal to determine as follows:a.Whether the Appellant erred in characterising fees/consideration earned on services rendered to medical service providers as“discounts”; and as a consequence, whether the Respondent was right to impose Excise duty assessments on other fees earned by the Appellant and VAT on taxable supplies made by the Appellant.b.Whether the assessments (Excise duty and VAT) subject to this Appeal had previously been concluded vide an ADR agreement dated 5th December 2019 subject to an assessment dated 8th January 2019. c.Whether the administrative fees earned by the Appellant in relation to the administration of the National Police Service and Kenya Prisons Service medical schemes are subject to Excise duty and VAT.d.Whether the Appellant provided relevant documents and information to the Respondent to explain the variance between VAT and excise duty returns.

a. On whether the Appellant erred in characterising fees/consideration earned on services rendered to medical service providers as “discounts”; and as a consequence, whether the Respondent was right to impose excise duty assessments on other fees earned by the Appellant and VAT on taxable supplies made by the Appellant. 104. The Respondent stated that an audit of the Appellant’s affairs established that the Appellant received discounts in relation to medical services from various service providers after meeting certain agreed performance parameters, such as timely payment of medical bills and in some cases, based on the volume of sales as in the agreement between the Appellant and Omega Opticians (Omega). That the Respondent also established that these discounts do not directly benefit the clients under the scheme,

105. The Respondent further stated that Omega further requested the Appellant to add Omega as the “preferred optician” to more schemes in its pool of clients. That others such as AKUH gave discounts termed “efficiency discount” at a rate of 10% for every invoice paid within 30 days from the date of receipt and that the Appellant signed a contract on the same with AKUH.

106. The Respondent averred that the said “hospital discounts” represent fees for services rendered in the course of carrying out business and therefore should be subjected to Excise duty as part of “other fees” as defined in Part BI. of the First Schedule to the Excise Duty Act.

107. The Respondent highlighted that it is important for the Tribunal to interrogate and determine whether the Appellant’s assertions that the“hospital discount” it received ought not to be subjected to Excise duty and VAT as alleged.

108. The Respondent submitted that it is not enough to say that a transaction results in a discount merely because of the form/name given to it. That the Tribunal is required to interrogate the substance/character of the transaction to ascertain whether indeed a discount could arise, and that the form/name assigned to a transaction is immaterial if its character materially deviates from the name given.

109. The Respondent further submitted that the Appellant’s position that it receives a discount is erroneous and reiterated that the Appellant provided a service to the hospitals/medical service providers. That in consideration for the services rendered to the medical service providers, the Appellant accrued income in the form of fees retained/withheld from the medical service providers.

110. The Respondent argued that the amounts that the Appellant erroneously averred to be “hospital discounts” are the payments made by the Appellant by the medical service providers forgoing the amount that the medical service providers ought to have received from the Appellant in exchange for the Appellant’s services rendered to it.

111. The Respondent outlined its understanding of the role of the Appellant and other parties in relation to the transaction giving rise to the assessment as follows: -a.That the Appellant is a licensed insurance broker and healthcare insurance scheme administrator (see paragraphs 10 & 11 of the Appellant’s witness statement).b.That the medical insurance scheme administrator, the Appellant, is engaged by various corporate bodies (its clients) for example National Police Service and Kenya Prisons Service to provide the medical scheme administration services.c.That the nature of the transaction is such that the corporate bodies (Appellant’s clients) upon setting up a medical fund, engage the Appellant to manage the fund for the sole benefit of its clients (see paragraph 12 of the Appellant’s witness statement)d.That the medical services by the medical service providers (the hospitals) are rendered directly to the Appellant’s clients and it is the Appellant’s clients (for example National Police Service and Kenya Prisons Service) which pay for the costs of the medical services offered to it through its various employees who visit the hospitals. The amounts are paid out by the Appellant from its clients’ medical fund set out for that purpose. There are no services rendered by the hospital medical providers to the Appellant.e.That the Appellant, on the other hand, has a separate agreement with the medical service providers (hospitals) wherein it is entitled to a sum of money (which they erroneously mischaracterize as a discount) whenever the Appellant efficiently facilitates settlement of medical invoices issued to the Appellant’s clients (for example National Police Service and Kenya Prisons Service) by the hospitals (see paragraph 15 read together with paragraph 16 of the Appellant’s witness statement)f.Out of for example Kshs. 3,000. 00 paid out of the medical fund by the Appellant’s clients (for example National Police Service and Kenya Prisons Service), the Appellant withholds/ retains part of this amount as its income as a consideration for efficiency services to the hospitals rendered by way of prompt settlement of medical invoices due to the hospitals. (see paragraph 15 read together with 16 of the Appellant’s witness statement)g.It is the amount of money that was retained by the Appellant (out of the total sum due to the hospitals) as a consideration for the services offered to the hospitals (efficiency services for facilitation of prompt settlement of invoices) that the Appellant has mischaracterised as discounts.

112. It was the Respondent’s submission that the Appellant’s treatment of this income was erroneous. That for any discount to accrue (as alleged by the Appellant) on any services rendered, two parties must be present that is:a.the service provider (in this case medical service providers)- is the person who renders a service and offers to give a discount on the cost of the services rendered.b.The payer/ recipient of the service (in this case the Appellant’s clients)-the person who receives services from the service provider, benefits from the services, and pays for the same. They are the beneficiaries of the discount, if any.

113. That from the forgoing, if indeed there were to be any discount, the same ought to have been offered by the hospital/medical services providers to the Appellant’s clients (for example, the National Police Service and Kenya Prisons Service) as beneficiaries of the discount since the clients are the payers/recipients of the services which have been offered on its behalf by the hospital/medical service providers. That in the present case, the purported discounts were not offered to the Appellant’s clients and they were not the beneficiaries of the same.

114. The Respondent contended that contrary to the Appellant’s witness admitting during the hearing that the Appellant is neither the recipient/payer of any services nor do hospital service providers render any service to the Appellant for a consideration leading to the accrual of the purported discounts, the amount earned by the Appellant (as stated under paragraph 16 of its witness statement) represents fees for the efficiency facilitation services rendered by the Appellant for ensuring that the invoices are promptly settled by its clients for the benefit of the medical service providers (the nature of this service is stated at paragraph 15 of the Appellant’s witness statement).

115. The Respondent asserted that the Appellant grossly mischaracterised the nature of income earned from the hospital service providers (effected by way of withholding the amount due to the hospitals) and willfully disguised this income as discounts when in reality, the amounts, which the Appellant concedes to be income, are other fees under the Excise Duty Act and relate to a consideration for a supply of a service within the meaning under the VAT Act.

116. The Respondent submitted that whereas the Appellant argued that the resultant outcome of its transaction with medical service providers is a discount to its benefit, the substance of the transaction reveals that there is no discount and the income received by the Appellant amounts to “other fees” within the meaning provided in the Excise Duty Act and a consideration for a supply of services within the meaning in the VAT Act.a.Justification for the Excise duty assessments

117. The Respondent submitted that according to Section 5 of the Excise Duty Act as read together with Paragraphs 2 and 4 of Part II of the First Schedule to the Excise Duty Act, the Excise duty assessed on the Appellant meets the threshold of the law for the following reasons:-a.That the income it subjected to the tax is not a “discount” as alleged but is a fee, a charge or a commission charged by the Appellant within the meaning of the Excise Duty Act. That by the Appellant withholding/retaining part of the amount due to the hospital service providers in exchange for efficiency services rendered to the hospitals for facilitating prompt settlement of invoices, the same amounts to a charge for the services rendered which ought to be subjected to Excise duty.b.That the fees, charges or commissions have been charged by the Appellant in its capacity as a financial institution within the meaning of the Excise Duty Act. That this position is not disputed by the Appellant.c.That the charges/fees/commissions that have been imposed by the Appellant relate to its licensed activities. The Respondent submitted that the “other fees” earned by the Appellant, precipitated the imposition of Excise duty related to its licensed activities being the provision of healthcare insurance scheme administration services. That the Appellant, in paragraph 1 of its Statement of Facts and 10 of its witness statement stated that it is licensed under the Insurance Act as an insurance broker and medical service provider in respect of healthcare businesses. That the Appellant expounds on the nature/scope of licensed services/activities in paragraphs 10, 11 and 12 of its Statement of Facts as follows:“10. The Appellant is licensed as an insurance broker and also as a medical services provider under the Insurance Act, it is important to note that these two services are separate and distinct for that reason and are subject to different regulatory requirements under the law.” “11. The Appellant is licensed to undertake both insurance brokerage, as well as healthcare insurance administration services, which services as earlier stated, are distinct.“12. Whereas the insurance brokerage typically involves working for clients in the insurance process by presenting them with alternatives in terms of insurance and self-funded medical products, healthcare insurance scheme administration services in a summarised form,include vetting and monitoring of healthcare service providers, for example, hospitals, managing members of the medical insurance scheme, receiving and processing medical claims, developing policies for the medical scheme and provision of the customer care services to both the medical services providers and members of the medical schemes managed by the Appellant”d.The Respondent highlighted that the Appellant has not adduced any evidence of any exemption for the scope of the insurance activities stated above, therefore, the Appellant’s licensed activities which gave rise to the fees, commissions or charges imposed by the Appellant for the services rendered to the medical service providers relate to healthcare insurance scheme administration services rather than brokerage services as alleged in its Statement of Facts and submissions. That the medical insurance scheme administration services which the Appellant renders as part of its licensed activities have been amply covered under paragraph 12 of its Statement of Facts and include “receiving and processing medical claims, provision of the customer care services to both the medical service providers and members of the medical schemes managed by the Appellant”.e.It was the Respondent’s submission that the Appellant, together with others, entered into a Consortium Agreement for the provision of medical insurance cover for the National Police Service and Kenya Prisons Service. That under Clause 8 of the said Agreement, the rights and obligations of the administrator include customer services, care and case management, reporting, medical scheme financial and reporting services. That these services were in the nature of the Appellant's licensed activities, for which it earned other fees for services rendered to the hospital service providers.

118. The Respondent submitted that Excise duty is chargeable on the fees and commissions or charges earned by the Appellant for the services rendered by the Appellant to medical service providers in the course of its licensed activities. The Respondent cited paragraphs 40-44 of the decision in KCB Insurance Agency Ltd v Commissioner of Domestic Taxes (Income Tax Appeal No. E087 of 2021) in support of this position.b.Justification for VAT assessments

119. The Respondent submitted that fees/charges/commissions in consideration for the services being efficiency services rendered by the Appellant to the medical service providers, which the Appellant erroneously baptised and mischaracterised as “discounts” are subject to VAT as the services rendered by the Appellant amount to a taxable supply of services within the meaning in Section 2 of the VAT Act.

120. The Respondent further submitted that in paragraph 15 of its witness statement, the Appellant conceded that whenever it facilitates faster settlement of medical invoices due to the hospitals, they charge, through withholding or retention of its portion of income and as consideration thereof, part of the amount due to the hospital service providers.

121. The Respondent argued that the amounts so withheld/retained by the Appellant from money that ought to wholly benefit the hospital service providers for the services offered to the Appellant’s clients are not discounts to the Appellant for the following reasons:a.That it is not enough to say that a transaction results in a discount merely because of the form/name given to it. That the mere fact that the Appellant has indicated that it receives a discount is not enough and the Tribunal should interrogate the substance/character of the transaction to ascertain whether indeed a discount could arise. That the form/name assigned to a transaction is immaterial if its character materially deviates from the name given.b.That for any discount to accrue (as alleged by the Appellant) on any services rendered, two parties must be present i.e.i.The service provider (in this case medical service providers) is the person who renders a service and offers to give a discount on the cost of the services rendered.ii.The payer/recipient of the service (in this case, the Appellant’s clients) is the person who receives and benefits from the services of the service provider, and is the beneficiary of the discount, if any.c.From the forgoing, if indeed there were to be any discount, the same ought to have been offered by the hospital/medical providers to the Appellant’s clients (for example, National Police Service and Kenya Prisons Service) as beneficiaries of the discount since the clients are the payers/recipients of the services which have been offered on its behalf by the hospital/medical service providers. That in the present case, the purported discounts were not offered to the Appellant’s clients and they were not the beneficiaries of the same.d.The Appellant is neither the recipient/payer of any services nor do hospital service providers render any service to the Appellant for a consideration leading to accrual of the purported discounts. The Appellant’s witness admitted this fact during the hearing as evidenced by the record of proceedings thereof.e.To the contrary, the amount earned by the Appellant represents a consideration with respect to the efficiency facilitation services rendered by the Appellant for ensuring that the invoices are promptly settled by its clients for the benefit of the medical service providers.f.That the Appellant has grossly mischaracterized the nature of the consideration earned from the hospital service providers (effected by way of withholding the amount due to the hospitals) and willfully disguised them as discounts when in reality, the amounts, which the Appellant conceded to be income, relates to a consideration for a supply of a service within the meaning under the VAT Act.

122. The Respondent averred that the services rendered by the Appellant relate to efficiency facilitation services by ensuring that the invoices by the medical service providers are settled faster. That these services may be properly construed to be management services. That no provision in the VAT Act exempts the nature of these services from VAT liability.

123. The Respondent further submitted that contrary to the Appellant’s position in paragraphs 59-61 of its submissions, the Respondent did not classify the nature of the Appellant’s services as exclusively marketing services. That to the contrary, the Respondent’s notice of assessment unequivocally stated that the services were either in the nature of marketing or efficacy services.

124. The Respondent submitted that the services rendered by the Appellant are not exempted from VAT as alleged by the Appellant in paragraph 62 of its submissions, as they relate to management and related insurance consultancy services under Paragraph 2(a), Part II of the First Schedule to the VAT Act. That the Appellant has not stated under which specific paragraph of Part II of the First Schedule to the VAT Act its exemption status applies.

125. The Respondent referred to paragraphs 29-39 of the High Court’s decision in KCB Insurance Agency Ltd v Commissioner of Domestic Taxes, Income Tax Appeal No. E087 of 2021 which settled the VAT status of the Appellant’s scope of services, a decision which is binding to the Tribunal. That the Court reiterated that medical insurance scheme administration services, which were similarly undertaken by the Appellant herein amount to management and related insurance consultancy services which are not exempted from VAT.

126. The Respondent reiterated that not all licensed insurance activities undertaken by the Appellant under the Insurance Act are exempt from VAT. That the Appellant provides healthcare insurance scheme administration services which as per the decision of the KCB Insurance Agency Ltd (supra) are not exempt services under the VAT Act as such services amount to management and related insurance consultancy services.

127. In further support of its submissions, the Respondent relied on the following cases to submit that the court is bound by the express texts of the Act and once it has expressed its intention in words which have a clear significance and meaning, the court is precluded from speculating: -a.Republic v Commissioner of Domestic Taxes Large Taxpayer’s Office ex-parte Barclays Bank of Kenya Ltd, [2012] eKLR.b.Cape Brandy Syndicate v Inland Revenue Commissioner (1921) 1 KB 64. c.Kenya Revenue Authority v Republic (ex-parte Fintel Ltd) NRB CA Civil Appeal No. 311 of 2013 [2019] eKLR citing Lord Atkinson in Inland Revenue Commissioners v Duke of Westminster (1936) AC 1.

128. The Respondent concluded that the income earned by the Appellant does not amount to a discount and that both VAT and Excise duty assessments as confirmed in the objection decision are due and payable.b.On whether the assessments (excise duty and VAT) subject to this appeal had previously been concluded vide an ADR agreement dated 5th December 2019 subject to an assessment dated 8th January 2019.

129. The Respondent stated that the assessments in this current dispute specifically constitute Excise duty charged on undisclosed “other fees” earned in the year 2017 from the Consortium Agreement for the provision of comprehensive medical cover for NPS and KPS that had not been subjected to excise duty.

130. The Respondent affirmed that the income streams dealt with previously in the 2018 audit were not duplicated in the assessments issued in 2022. Further, that the Respondent had issued the assessment in 2019 based on the information available at the time. That in line with the provisions of Section 31(6) of the Tax Procedures Act (TPA), the Respondent reserves the right to issue assessments whenever new information becomes available.

131. The Respondent submitted that the Appellant in its Appeal asserted that the Respondent’s assessment issued on 7th October 2022 (covering January 2017 to December 2021) was related to the previous assessment dated 8th January 2019 covering January 2014 to December 2017, which taxes in the 8th January 2019 assessment were settled vide an ADR agreement dated 5th December 2019.

132. The Respondent submitted that the assessment that is the subject of this dispute is distinct and separable from the previous assessment. That this is supported by the following grounds: -a.That the two assessments covered separate periods save for the year of income 2017. b.That it is not enough as the Appellant averred to state that both assessments are similar merely based on the headings as per the notice of assessment or that they both covered the same period (2017). Rather, that the issues/services that gave rise to the assessments is a material consideration and must equally be similar for the Appellant’s position to hold.c.That in the previous assessment which was settled vide ADR agreement of 5th December 2019, the services that were subject to audit and which culminated in the tax liability were premium-based commissions and other fees earned by the Appellant for services offered to Teachers Service Commission and AON London. That this position is clear from the ADR agreement dated 5th December 2019 in Paragraph 11- issues for determination, Paragraph 11-17-Taxpayers contentions, paragraphs 18 & 19- Commissioner’s contention and Paragraphs 24, 26 & 27-ADR deliberations.d.That in the Respondent’s assessment subject to the Appeal before the Tribunal, the issue giving rise to the same are the services rendered to and income earned from National Police Service and Kenya Prisons Services, distinct from the previous assessment which related to services rendered to and income earned from Teachers Service Commission and AON London.

133. The Respondent argued that exempting the Appellant from tax liability of a transaction between it and the National Police Service and Kenya Prisons Services on an account of an earlier assessment arising from a completely different transaction with the Teachers Service Commission and AON London would amount to rewriting an ADR Agreement dated 5th December 2019 and waiver of taxes contrary to Article 210 of the Constitution.

134. The Respondent cited Section 24(2) of the TPA which gives the Respondent the power to rely on available information in the issuance of the assessment and argued that what is important therefore is that in arriving at an assessment, there is material/information in the hands of the Respondent to base its judgement on. That Section 29 and Section 31 of the TPA mandate the Respondent to exercise the best judgement in arriving at an assessment as confirmed by the Tribunal in its judgment in the case of Digital Box Limited v Commissioner of Investigations & Enforcement (TAT 115 of 2017) wherein the Tribunal found favour with the UK case of Van Boeckel v C&E QB Dec 1980, [1981] STC 290 where Woolf J.

135. The Respondent reiterated the information on which it exercised its best judgement is the services to National Police Service and Kenya Prisons Services which had previously not been considered by the Respondent in its earlier assessments. That the Respondent cannot be faulted for subjecting to tax the income earned from these services for the reasons given above.c.On whether the administrative fees earned by the Appellant in relation to the administration of the National Police Service and Kenya Prisons Service medical schemes are subject to excise duty and VAT

136. The Respondent submitted that it is not disputed by the parties that there was a Consortium Agreement for the provision of medical insurance cover for the National Police Service and Kenya Prisons Service for which AAR company was the lead insurer. That in the said agreement, the lead insurer, AAR would pay the Appellant administration fees.

137. The Respondent stated that the Consortium Agreement for the provision of comprehensive medical cover for NPS and KPS indicated that the lead insurer (AAR) would pay the administrator, that is, the Appellant, administration fees and brokerage commissions.

138. The Respondent further stated that during the period October 2016 to September 2017, the Appellant declared brokerage commissions amounting to Kshs. 200,000,000. 00 as part fulfilment of the Agreement. That the Appellant earned an additional Kshs. 64,600,000. 00 per month for March 2017, June 2017 and September 2017 totaling Kshs. 193,800,000. 00. That these fees were subjected to withholding tax by the lead insurer and the same had not been contested by the Appellant.

139. The Respondent averred that the Appellant misrepresented these fees amounting to Kshs. 193,800,000. 00 in its books where they were classified as brokerage commissions while they constituted administration fees that formed part of “other fees” as defined in the Excise Duty Act.

140. The Respondent subjected the Kshs. 193,800,000. 00 to Excise duty and VAT, however after objection review, the Respondent confirmed the Excise duty and VAT assessments for the period September 2017 and vacated the assessments for March 2017 and June 2017 as they had been issued out of time.

141. The Respondent reiterated that the Appellant in its Appeal and submissions averred that the Excise duty assessment imposed was erroneous as it did not receive any administration fees for services offered to the National Police Service and Kenya Prisons Service Medical Scheme.

142. The Respondent averred that the Appellant mispresented the Kshs. 193,800,000. 00 in its books of accounts as if it amounted to a brokerage commission. That the amount Kshs. 193,800,000. 00 is as a result of the review of the Appellant’s own self-assessed Excise duty returns and income ledgers and has not been disputed by the Appellant, save during the hearing when the Appellant’s witness alleged that he did not know where that figure originated from. That if the amount of Kshs. 193,800,000. 00 is erroneous as alleged by the Appellant’s witness during the hearing, the burden lies on the Appellant to produce the self-assessment Excise duty returns and income ledgers, the source documents for this figure to disprove the Respondent’s findings.

143. That it is also not in dispute that upon being successful with the bid, as per the Consortium Agreement, a group cover was executed with the Ministry of Interior and Coordination of National Government.

144. The Respondent submitted that, without providing any proof, the Appellant alleges in paragraphs 78-83 of its submissions that to ensure efficient provision of services, the NPS & KPS Medical Scheme was split into insured and capitation schemes, wherein the Appellant was retained under the insured scheme to provide brokerage services. That the Consortium Agreement, however, does not provide this distinction and specifically that the Appellant was to administer the purported insured scheme.

145. That the Appellant failed to provide any proof, in the form of an agreement wherein it was charged with administering the insured scheme after the alleged split of the NPS & KPS medical scheme. That it appears that this position has only been recreated by the Appellant at the point of objection and appeal purely to manufacture and hold onto a storyline to discredit the Respondent’s assessment.

146. The Respondent further submitted that other than providing an agreement wherein the Appellant was obligated to administer the alleged insured scheme which related to insurance brokerage services, the Appellant, to justify the split, provided an agreement between the lead insurer and Bliss GVS Healthcare Limited with respect to administration of the capitation scheme and another agreement between Bliss GVS Healthcare Limited and AON Consulting Ltd.

147. Further, that these agreements are unrelated and do not support the Appellant’s assertion that there was an insured scheme that it administered relating to insurance brokerage services. That these agreements are not relevant and competent evidence to discharge the burden of proof by the Appellant that there existed an insured scheme that it administered for which it earned brokerage services.

148. The Respondent posited the importance of relevant and material evidence as emphasised in the case of National Social Security Fund Board of Trustees v Commissioner of Domestic Taxes, Kenya Revenue Authority (2016) eKLR and the case of Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) where it was held that: -“26. From the above, it is clear that the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner. I have emphasized and underlined ‘competence ‘and ‘relevance’ because it is only evidence that meets these two tests that demolishes (the) presumption of correctness and swings the burden to the Commissioner. This means that even if one avails evidence but then it is found that the sane is incompetent or irrelevant, then the burden continues to remain with the tax payer.”

149. The Respondent submitted that a fundamental split of this nature in the Consortium Agreement resulting in an insured scheme as alleged by the Appellant cannot be proved by a mere assertion. That tangible proof in the form of an agreement must be provided. That indeed, the Appellant has proved the existence of what it calls a capitation scheme through various agreements but has failed to do so for what it describes as an insured scheme, attempting to prove its existence only by way of an assertion in its pleadings and witness statement.

150. That further, Madan J in his Judgment in CMC Aviation Ltd v Cruisair Ltd (1) [1978] KLR observed that:“Pleadings contain the averments of the parties concerned. Until they are proved or disproved, or there is an ad1nission of them or any of them by the parties, they are not evidence and no decision could be founded upon them. Proof is the foundation of evidence. Evidence denotes the means by which an alleged matter of fact, the truth of which is submitted for investigation. Until their truth has been established or otherwise, they remain un-proven. Averments in no way satisfy, for example, the definition of “evidence” as anything that makes clear or obvious; ground for knowledge, indication or testimony; that which makes truth evident, or renders evident to the mind that it is truth.”

151. The Respondent concluded that following the review of the Appellant’s Excise duty returns and income ledgers provided the amount Kshs. 193,800,000. 00 related to administration fees which were mischaracterized as brokerage services on account of unproved administration of the insured scheme are subject to taxes and the taxes as assessed are due and payable.d.On whether the Appellant provided relevant documents and information to the Respondent to explain the variance between VAT and Excise duty returns.

152. The Respondent stated that upon review of the Appellant’s Excise duty and VAT returns, the Respondent established a variance of administration fees not brought to charge for Excise duty purposes by the Appellant. That the amounts giving rise to the variance were shared with the Appellant, and the position is not disputed.

153. The Respondent stated that it reviewed all documents as provided by the Appellant and as empowered under Section 59 of the TPA, requested the Appellant to submit additional documents through an email dated 7th December 2022.

154. The Respondent reiterated that during the review of the objection, the Appellant was requested to reconcile the variance and provide a breakdown for lumped sales as declared in its VAT returns, but that the Appellant failed to provide a reconciliation to confirm that all administration fees chargeable to Excise duty had been fully declared under the self-assessment. That as a result, the Respondent had no basis to support the amendments that the Appellant sought.

155. The Respondent further stated that Section 56 of the TPA places the onus of proof on the taxpayer, who in this case, failed to provide evidence that would support a contrary assessment or that would have guided the Respondent in arriving at a different objection decision.

156. The Respondent referred to the Appellant’s assertion in paragraphs 92-95 of its submissions that the reconciliation was provided, which the Respondent failed to consider. That the Appellant has attached a schedule of the purported reconciliation on pages 296-298 of its record of appeal. The Respondent averred that the Appellant’s assertion was incorrect and submitted that the purported reconciliation had only been provided at the point of filing its Appeal. That this position is supported by the following facts:-a.That from the review of the parties’ correspondences during the objection as shown in annexure marked as KRA 2 of the Respondent’s Statement of Facts, the Respondent, vide an email dated 7th December 2022, requested the Appellant to provide the following documents: -i.Audited financial statements (2017-2021).ii.Memorandum of appeal and ADR agreement in relation to the notice of assessment dated 8th January 2019. iii.Detailed VAT & Excise duty income reconciliation for the years 2017 to 2021. b.That vide an email dated 8th December 2022, the Appellant indeed provided partial records of the information requested being items (1) and (2) above and undertook to provide the item (3), being detailed VAT & Excise duty income reconciliation for the years 2017 to 2021 by 12th December 2022. c.That vide an email dated 9th December 2022, the Appellant was requested to provide the information for review by close of business given the strict timelines for reviewing objection and issuing a resultant objection decision.d.That as at the lapse of 12th December 2022 when the Appellant committed to providing the requested documents until the date when the objection decision was issued on 28th December 2022, the Appellant did not provide the information requested and there is no correspondence to demonstrate that the information was provided as alleged by the Appellant in its pleadings and submissions. That the Respondent in its objection decision confirmed the assessment on the basis that the reconciliations requested were not provided by the Appellant.

157. The Respondent asserted that the purported reconciliation, which the Appellant now relies on in its submissions was not availed at the point of objection review, despite the Appellant having sufficient time to do so. That providing the purported reconciliation at the point of filing the appeal does not in any way enable the Appellant to discharge its burden of proof and an appeal cannot be allowed for the following reasons:a.That the Appellant’s action to provide new documents and grounds which were never provided at the point of objection goes contrary to Section 56(3) of the TPA.b.That the effect of this provision is that the grounds of the appeal should be matched with the Appellant’s grounds of objection giving rise to the Respondent’s decision subject to appeal. Further, that information or documents that were submitted to the Respondent and which informed its decision subject to appeal must be similar to the ones adduced during the appeal, unless leave is granted by the Tribunal to adduce new information other than which was provided to the Respondent informing its appealable decision. That this is the only way that the Respondent’s decision can be interrogated or faulted in any case. That the Appellant’s purported reconciling documents filed before the Tribunal, in so far as no leave has been granted to adduce the same under Section 56(3) of the TPA, ought to be accordingly struck out.c.That the action of the Appellant to provide documents at the appeal stage, which were not adduced at the point of objecting amounts to converting the Tribunal to act in place of the Respondent and assume the role of reviewing objections, an issue that is beyond the mandate of the Tribunal, whose sole function is to review appeals of Respondent’s objection decisions.

Respondent’s prayers 158. The Respondent prayed that:a.Its objection decision dated 27th January 2023 be upheld.b.The Appeal herein be dismissed for want of merit by the Appellant.

Issues for Determination 159. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issues for determination as follows:a.Whether the Respondent was justified in issuing Excise duty and VAT assessments for September 2017 in relation to the National Police Service contract.b.Whether the Respondent was justified in classifying “hospital discounts” as “other fees” under the Excise Duty Act, and as taxable under the VAT Act.c.Whether the Respondent was justified in issuing Excise duty and VAT assessments on variances arising from Excise duty and VAT return analysis.

Analysis and Findings 160. The Tribunal analyses the issues that call for its determination as hereunder, having reviewed all the pleadings, information and documents adduced by the Appellant and the Respondent concerning the impugned objection decision.a.Whether the Respondent was justified in issuing Excise duty and VAT assessments for September 2017.

161. The Appellant disputed the Respondent’s assessment of the Excise duty of Kshs. 6,460,000. 00 and VAT of Kshs. 11,369,600. 00 charged for the period September 2017 on income from the National Police Service and Kenya Prisons Service Medical Scheme contract.

162. By consent of the parties, as documented in the Partial Consent entered by the parties dated 19th March 2024 and adopted as a judgment of the Tribunal on 9th April 2024, the Respondent entirely vacated the Excise duty assessment of Kshs. 6,460,000. 00 and VAT assessment of Kshs. 11,369,600. 00 charged for the period September 2017.

163. In light of the foregoing, the Tribunal finds that the tax assessments of VAT and excise duty charged for the period September 2017 are vacated in their entirety.b).Whether the Respondent was justified in classifying “hospital discounts” as “other fees” under the Excise Duty Act, and as taxable under the VAT Act.

164. The Respondent issued to the Appellant an Excise duty assessment of Kshs. 32,927,502. 00 and interest and penalties for the periods 2018, 2019, 2020 and 2021 charged on “hospital discounts”, and a VAT assessment of Kshs. 36,197,245. 00 and interest and penalties for the periods 2018, 2019, 2020 and 2021 on amounts declared by the Appellant as “hospital discounts”. The Appellant disputed in their entirety, the Excise duty and VAT assessments on “hospital discounts”.

165. To ascertain the nature of the transaction that gave rise to the income referred to by the Appellant as “hospital discounts” and whether Excise duty and VAT apply to that income under the Excise Duty Act and the VAT Act, respectively, the Tribunal analysed the transaction in question in view of the pleadings and evidence submitted by the parties regarding this income.

166. The Appellant described “hospital discounts” as an incentive deduction granted for paying money owed by the Appellant to healthcare service providers on time and at times and upon proving the same, for recommending specific service providers. Additionally, the Appellant repeatedly asserted in its pleadings that it is a payment agent who settles medical bills on behalf of the various employers who have contracted it.

167. The Appellant further stated that it is licensed under the Insurance Act as an insurance broker to undertake insurance brokerage and as a medical insurance provider to provide healthcare insurance administration services, and that the “hospital discounts” it receives when making payments to medical services providers to settle invoices do not arise from a licensed activity under the Insurance Act.

168. The Appellant also submitted that the nature of “hospital discounts” does not conform to the definition of “other fees” under the Excise Duty Act and based on the foregoing explanations, entirely disputed the Respondent’s Excise duty assessment of Kshs. 32,927,502. 00 on the “hospital discounts”.

169. The Appellant further averred that making timely payments is not the rendering of a service but the efficient facilitation of the performance of the terms and conditions of entitlement which are customary trade terms required in any event in any commercial relationship. The Appellant asserted that “hospital discounts” were not a reward nor a consideration for the provision of insurance brokerage and administration services.

170. The Appellant contended that the Respondent erroneously attributed the discounts received by the Appellant to a supply of a service, purportedly a “marketing and efficiency” service. Additionally, the Appellant claimed that the discounts it received were merely a result of the expedited settlement of invoices within specific timelines and that they were commercial terms rather than a payment for any services.

171. The Appellant reiterated that only if it had been the party supplying a service to the concerned service providers would it have been liable to pay VAT. For the above-stated reasons, the Appellant disputed the Respondent’s objection decision confirming the VAT of Kshs. 36,197,245. 00 on the “hospital discounts”.

172. The Respondent, on the other hand, averred that the Appellant received discounts in relation to medical services from various service providers after meeting certain agreed performance parameters, such as prompt payment of medical bills and based on the volume of sales. That the said “hospital discounts” represent fees retained/withheld from the medical service providers for services rendered to the hospitals/medical service providers in the course of carrying out business and therefore should be subjected to Excise duty as part of “other fees” as defined in Part III of the First Schedule to the Excise Duty Act.

173. The Respondent contended that the Appellant’s treatment of this income was erroneous and that the Appellant grossly mischaracterised the nature of income earned from the hospital service providers (effected by way of withholding the amount due to the hospitals) and willfully disguised this income as discounts when in reality, the amounts, which the Appellant concedes to be income, are “other fees” under the Excise Duty Act thus subject to Excise duty.

174. The Respondent further averred that the “hospital discounts” are a consideration for a supply of a service under the VAT Act and that the services resulting in the income may be construed to be management services and are not exempted from VAT, as they relate to management and related insurance consultancy services under Paragraph 2(a), Part II of the First Schedule to the VAT Act.

175. The Tribunal’s considered view of the underlying transaction that gives rise to the “hospital discounts” is that the Appellant undertakes a financial service akin to invoice discounting. Invoice discounting is a type of trade financing where an “invoice discounter” pays a business that is owed by its customer a part of an invoice amount upfront to facilitate the business’ cash flow management and retains a part of the invoice amount. The amount retained by the “invoice discounter” in such an arrangement comprises administration charges or fees for facilitating the business with cash enabling the business to avoid cash flow challenges associated with awaiting payment of outstanding invoices.

176. Tribunal observes that the transaction which the Appellant undertakes to give rise to “hospital discounts” can be classified as trade financing through a service similar to invoice discounting.

177. The Tribunal notes that the Appellant by conduct, applies its clients’ funds to enter into these trade financing arrangements, pays a portion of the invoice amounts due to medical service providers to enable them to manage their cash flow, and in turn, earns a consideration from the medical service providers which it refers to as “hospital discounts” by way of retaining the invoice amounts so discounted by the medical service providers. This is, in the Tribunal’s view a financial service provided by the Appellant to medical service providers for consideration.

178. It is undisputed that the Appellant is a financial institution licensed under the Insurance Act. According to Paragraph 4 of Part II of the First Schedule to the Excise Duty Act, financial institutions are subject to an Excise duty of 20% on other fees charged by them, based on their excisable value. Part III of the First Schedule to the Excise Duty Act provides that “other fees”: -“includes any fees, charges or commissions charged by financial institutions relating to their licensed activities, but does not include interest on loan or return on loan or any share of profit or an insurance premium or premium based or related commissions specified in the Insurance Act or regulations made thereunder;”

179. Following the Tribunal’s review of the licensed activities of the Appellant and the reading of the Insurance Act, under which the Appellant is licensed as a financial institution, the Tribunal keenly observes that the “hospital discounts” that the Appellant earns for services which it provides to the medical service providers are not fees related Appellant’s licensed activities.

180. The Appellant is licensed under the Insurance Act as an insurance broker to undertake insurance brokerage and as a medical insurance provider to provide healthcare insurance administration services.

181. The Tribunal notes that the Appellant is not licensed to provide invoice discounting services or financial services similar to invoice discounting services. The Appellant’s provision of trade financing to earn the consideration labelled “hospital discounts” is not related to its licensed activities. For these reasons, the Tribunal observes that Excise duty does not apply to the “hospital discounts” earned by the Appellant as the fees or charges charged by it do not relate to its licensed activities.

182. The Tribunal is guided by the holding in Vesty v Inland Revenue Commissioners [1979] 3 All ER at 98 that: -“A citizen cannot be taxed unless he is designated in clear terms by a taxing Act as a taxpayer and the amount of his liability is clearly defined.”

183. Furthermore, as pointed out by Lord Atkinson in Commissioners v Duke of Westminster [1936] AC 1; [1] 19 TC 490: -“no tax can be imposed on a subject by an Act of Parliament without words in it clearly showing an intention to lay the burden upon him, that the words of a statute must be adhered to, and that so-called equitable constructions of them are not permissible…”

184. Consequently, the Tribunal finds that the Respondent erred in classifying the Appellant’s income from “hospital discounts” as “other fees” under the Excise Duty Act and erred in assessing Excise duty of Kshs. 32,927,502. 00 on the Appellant’s “hospital discounts” in the tax periods in 2018, 2019, 2020 and 2021.

185. The Respondent issued to the Appellant a VAT assessment of Kshs. 36,197,245. 00 and interest and penalties for the periods 2018, 2019, 2020 and 2021 charged on “hospital discounts.” The Appellant contended this VAT assessment, averring that according to the VAT Act, it did not provide any service to medical service providers and that it would only be liable to pay VAT if it had been the party that supplied a service to the service providers in issue. The Appellant alluded to the transaction resulting in“hospital discounts” being out of the scope of VAT.

186. The Tribunal considered the pleadings by the Appellant and the Respondent and reviewed the applicable law to determine the VAT treatment of the transaction under review.

187. Section 2 of the VAT Act provides that the term ‘supply of services’ means:-“…anything done that is not a supply of goods or money, including—a.the performance of services for another person;b.the grant, assignment, or surrender of any right;c.the making available of any facility or advantage; ord.the toleration of any situation or the refraining from the doing of any act”

188. The Tribunal’s analysis of the transaction that gave rise to the “hospital discounts” illustrates that the Appellant supplied a service to the medical service providers by way of making available a facility or advantage, being access to cash flow by the medical service providers. On this basis, the Tribunal finds that the Respondent did not err in finding that the Appellant supplied a service under the VAT Act.

189. Having determined that the Appellant supplied a service under the VAT Act, the Tribunal reviewed the Appellant’s and Respondent’s pleadings on the VAT treatment of the transaction.

190. The Tribunal finds that the transaction that the Appellant undertakes to give rise to “hospital discounts” is not listed as exempt in the First Schedule to the VAT Act. Further, the transaction is not of the description specified in the Second Schedule to the VAT Act as zero-rated. Based on this, the Tribunal finds that the transaction is a supply of taxable services, taxable at the general rate under Section 5 of the VAT Act.

191. Section 62 of the VAT Act clearly states that the onus of proving that any goods or services are exempt from VAT lies with the taxpayer. The provision states that: -“In any civil proceedings under this Act, the burden of proving that any tax has been paid or that any goods or services are exempt from payment of tax shall lie on the person liable to pay the tax or claiming that the tax has been paid or that the goods or services are exempt from payment of tax.”

192. The Tribunal observes that the Appellant misapplied the law in its contention that VAT does not apply to the transaction that gave rise to the “hospital discounts”, having relied on the notion that it did not supply a service. Further, the Appellant failed to discharge its burden of proving that the supply it made was exempt from VAT and, therefore, failed to persuade the Tribunal that the Respondent erred in assessing VAT on “hospital discounts”.

193. Having determined that the Appellant in generating income known as “hospital discounts” supplied a service as per the meaning of supply of services under the VAT Act, the Appellant in contesting the assessment, ought to have demonstrated with evidence that the services it supplied are exempt from VAT as required under Section 62 of the VAT Act.

194. Section 30 of the Tax Appeals Tribunal (TAT) Act and Section 56 of the Tax Procedures Act (TPA) place on the taxpayer the burden of proving that the Respondent’s assessments are incorrect or excessive. The law provides as follows:Section 56(1) of the Tax Procedures Act: -“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

195. Further Section 30 of the Tax Appeals Tribunal Act with regard to burden of proof: -“In a proceeding before the Tribunal, the appellant has the burden of proving—a.where an appeal relates to an assessment, that the assessment is excessive;b.in any other case, that the tax decision should not have been made or should have been made differently.”

196. In analysing this matter, the Tribunal also relied on its holding in Ushindi Exporters Limited v Commissioner of Investigation and Enforcement (Tax Appeals Tribunal No. 7 of 2015) on the issue of burden of proof where the Tribunal held that: -“The burden of proving that the tax assessment is excessive or should have been made differently never shifts to the Respondent and is placed squarely on the Appellant as Section 30 (a) and (b) of the Tax Appeals Tribunal Act states:Where an appeal related to an assessment, that the assessment is excessive; orIn any other case, that the tax decision should not have been made or should have been made differently.By purporting to shift the burden of proving that the tax assessment against it was incorrect or should have been made differently, the Appellant failed in discharging the burden, placed upon it by law.”

197. Based on the foregoing, the Tribunal finds that the Appellant failed to discharge its burden to prove that its supply of services without charging VAT was legally supported.

198. Given the foregoing, the Tribunal finds that the Respondent did not err in assessing VAT on the amounts of hospital discounts in the tax periods in 2018, 2019, 2020 and 2021, save for the Respondent’s failure to exclude from its ascertainment of the taxable value of the supply the Excise duty that the Respondent incorrectly assessed on the “hospital discounts”.c).Whether the Respondent was justified in issuing Excise duty and VAT assessments on variances arising from Excise duty and VAT returns analysis.

199. The Appellant stated that the Respondent confirmed the Excise duty assessment of Kshs. 14,126,941. 00 in its objection decision, because the Appellant allegedly failed to provide a reconciliation and breakdown for lumped sales.

200. The Appellant further stated that the Respondent in its objection decision confirmed VAT of Kshs. 2,894,537. 00, because the Appellant allegedly failed to provide a reconciliation and breakdown for lumped sales.

201. By consent of the parties as documented in the Partial Consent entered by the parties dated 19th March 2024 and adopted as a Part Judgment of the Tribunal on 9th April 2024, the Respondent amended the Excise duty assessment from Kshs. 14,126,941. 00 to Kshs. 7,951,477. 15 comprising principal tax of Kshs. 5,097,100. 74, interest of Kshs. 2,599,521. 37 and penalty of Kshs. 254,855. 04.

202. By consent of the parties as documented in the aforesaid partial consent entered by the parties dated 19th March 2024, the Respondent entirely vacated the VAT assessment of Kshs. 2,894,538. 00.

203. Consequently, the Tribunal finds that the Excise duty assessment revised to Kshs. 7,951,477. 15 comprising principal tax of Kshs. 5,097,100. 74, interest of Kshs. 2,599,521. 37 and penalty of Kshs. 254,855. 04 is payable subject to the conditions in the consent, and that the VAT of Kshs. 2,894,538. 00 is vacated in its entirety.

Final Decision 204. The upshot of the above analysis is that the Tribunal finds that the Appeal partially succeeds and accordingly proceeds to make the following Orders:a.The Appeal be and is hereby partially allowed.b.The Respondent’s objection decision dated 28th December 2022 be and is hereby varied as follows:-i.The Excise duty assessment of Kshs. 6,460,000. 00 and interest and penalties charged for September 2017 be and are hereby set aside.ii.The VAT assessment of Kshs. 11,369,600. 00. 00 and interest and penalties for September 2017 be and are hereby set aside.iii.The Excise duty assessment of Kshs. 32,927,502. 00 and interest and penalties for the periods 2018, 2019, 2020 and 2021 charged on “hospital discounts” be and are hereby set aside.iv.The VAT for the periods 2018, 2019, 2020 and 2021 charged on “hospital discounts” be revised to exclude the VAT charged on the Excise duty that the Respondent incorrectly charged on the “hospital discounts”.v.The Excise duty assessment of Kshs. 14,126,941. 00 and interest and penalties for the periods 2018, 2019, 2020 and 2021 charged on variances in declared administration fees be and are hereby set aside and revised to a principal tax of Kshs. 5,097,100. 74, interest of Kshs. 2,599,521. 37 and penalty of Kshs. 254,855. 04. v.The VAT assessment of Kshs. 2,894,537. 00 and interest and penalties charged by the Respondent for the periods 2019 and 2020 on variances in declared administration fees be and are hereby set aside.c.Each party to bear its own costs.

205. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF MAY, 2024. GRACE MUKUHA - CHAIRPERSONGLORIA A. OGAGA - MEMBERJEPHTHAH NJAGI - MEMBERDR WALTER J. ONGETI - MEMBERDR. ERICK KOMOLO - MEMBER