https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/205

 REPUBLIC OF KENYA IN THE TRIBUNAL OF KENYA AT NAIROBI COUNTY COURT NAME: TAX APPEALS TRIBUNAL CASE NUMBER: TATC/E1101/2025 MU-BEI STAINLESS AND TOUGHENED GLASS LIMITED VS KENYA REVENUE AUTHORITY JUDGMENT # BACKGROUND 1. The Appellant is a private limited company duly incorporated in Kenya under the provisions of the Companies Act engaged in the construction industry as a contractor. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws. 3. The Respondent, undertook a review of the Appellant's VAT compliance and on **25th June 2025** issued a pre-assessment notice relating to VAT for the tax periods of **December 2024** and **March 2025**. In respect of December 2024, the Respondent compared sales declared in the Appellant's VAT returns with sales reported through the Electronic Tax Invoice Management System (eTIMS) and established an under-declaration of sales amounting to Kshs. 8,400,958.62, resulting in additional VAT of Kshs. 1,344,153.38 together with penalties and interest. For March 2025, the Respondent conducted a bank deposits analysis and compared the banking transactions with sales declared in the VAT returns, finding an alleged under-declaration of sales amounting to Kshs. 2,344,500 and assessing additional VAT of Kshs. 375,120 together with penalties. 1. Subsequently, on **23 July 2025,** the Respondent issued additional VAT assessments under Assessment Numbers **KRA202594512057** and **KRA202594512541** for the periods December 2024 and March 2025 respectively, resulting in a total assessed VAT liability **of Kshs. 1,718,357.21.** 2. The Appellant lodged an objection which was escalated for review before the Independent Review of Objections (IRO) on **28 July 2025.** 3. Upon consideration of the objection, the Respondent issued an **Objection Decision dated 23rd September 2025**, rejecting the Appellant's objection in its entirety and confirming the additional VAT assessments. 1. Dissatisfied by the Respondent’s decision, the Appellant filed this appeal vide the Notice of appeal dated and filed 3rd October 2025. # THE APPEAL 1. The Appeal is premised on the Memorandum of Appeal dated and filed on 3rd October 2025 raising the following grounds of appeal: 1. That the commissioner erred in fact and law by issuing assessment on client money which is not income to the company. The appellant merely made a disbursement to a third party as an agent of his client, then such disbursement should be excluded from the taxable value. This is contrary to Section 13(5) of Value Added Tax Act of 2013. 2. That The commissioner errored in facts and principal by comparing Banking deposits from January to June with sales declared in VAT returns from January to March. # THE APPELLANT’S CASE 1. In support of the appeal, the Appellant relied on its Statement of facts dated and filed on 3rd October, 2025 and written submissions dated 7th May 2026 and filed on 8th May 2026. 1. The Respondent undertook a review of the Appellant's VAT compliance for the period January 2024 to May 2025. Following the review, the Respondent issued a Pre-Assessment Notice dated 25 June 2025 in which it informed the Appellant that an analysis of the sales declared in the VAT returns against sales transmitted through the eTIMS platform that had revealed significant variances. The Respondent found that for December 2024, the Appellant had transmitted invoices amounting to Kshs. 9,800,958.62 through eTIMS but had declared sales of only Kshs. 1,400,000 in its VAT returns, resulting in an under- declaration of Kshs. 8,400,958.62. On that basis, the Respondent proposed an additional VAT liability of Kshs. 1,344,153.38 together with penalties and interest. 2. The Respondent further conducted a banking analysis in respect of the year 2025 and compared the Appellant's bank deposits with the sales declared in its VAT returns. The Respondent established that the Appellant had bank deposits amounting to Kshs. 9,319,500 against declared sales of Kshs. 6,975,000, resulting in an alleged under-declaration of Kshs. 2,344,500. Consequently, the Respondent proposed an additional VAT liability of Kshs. 375,120 together with penalties. The Respondent invited the Appellant to provide explanations, reconciliations, or documentary evidence within seven days, failing which the proposed assessments would be confirmed. 3. Upon considering the information available, the Respondent proceeded to issue additional VAT assessments dated 23th July 2025. The first assessment, Assessment No. KRA202594512057, related to the tax period December 2024 and assessed additional VAT of Kshs. 1,344,153.38. The second assessment, Assessment No. KRA202594512541, related to the tax period March 2025 and assessed additional VAT of Kshs. 374,203.83. The total additional VAT assessed amounted to Kshs. 1,718,357.21. 4. Being dissatisfied with the assessments, the Appellant lodged a notice of objection on 29th July 2025. The Respondent thereafter reviewed the objection together with the supporting documents presented by the Appellant. In the course of that review, the Respondent found that although the Appellant admitted transmitting invoices through the eTIMS platform, it had not provided a reconciliation explaining the discrepancy between the invoiced amounts and the sales declared in its VAT returns. The Respondent further found that the Appellant had failed to adduce sufficient evidence to explain the variances identified through the banking analysis. 5. The Respondent also considered the Appellant's contention that the assessments were inconsistent with Section 12 of the Value Added Tax Act on the time of supply and that the income in question had already been declared upon invoicing. However, the Respondent concluded that under Section 12(1) of the Value Added Tax Act, VAT becomes due at the earlier of invoicing, payment, or delivery and therefore the additional assessments had been properly raised on the basis of the invoiced amounts and banking records. The Respondent further rejected the contention that the assessments were based on estimates, maintaining that the figures relied upon were drawn from actual eTIMS invoices and banking records. 6. Consequently, through an Objection Decision dated 23rd September 2025, the Respondent rejected the Appellant's objection in its entirety and confirmed the additional VAT assessments. The Respondent found that the assessments had been lawfully raised and that the Appellant had failed to demonstrate any basis for their amendment or withdrawal. Aggrieved by that decision, the Appellant lodged the present Appeal before the Tribunal. 7. The Appellant submitted that it is a private limited company engaged in the construction industry and that, in the course of executing construction contracts, it is often required by its clients to procure construction materials on their behalf. The Appellant stated that it appealed against the Respondent’s Objection Decision dated 23rd September 2025, which confirmed additional VAT assessments amounting to Kshs. 1,718,357.21. It further submitted that it maintained an active payment arrangement with the Respondent in respect of undisputed taxes and that the present appeal was confined solely to the disputed VAT assessments. 8. The Appellant submitted that on 25th June 2025 the Respondent issued a Pre-Assessment Notice alleging under-declaration of sales for December 2024 and the period of January to March 2025. It stated that the Respondent identified a variance between sales transmitted through eTIMS and sales declared in VAT returns for December 2024 and further compared bank deposits against declared sales for the period of January to March 2025. The Appellant submitted that it objected to the additional assessments issued on 23rd July 2025 and provided bank statements, sales receipts, Z-reports and other supporting documentation. However, the Respondent rejected the objection through an Objection Decision dated 23rd September 2025, thereby prompting the present appeal. 9. The Appellant submitted that the Respondent erred in law and fact by treating client disbursements as taxable supplies contrary to Section 13(5) of the Value Added Tax Act, 2013. It argued that as a contractor, it frequently receives funds from clients for the sole purpose of purchasing construction materials on their behalf. According to the Appellant, the funds are paid into its account and immediately remitted to suppliers, with invoices being raised in the names of the clients rather than the Appellant. It contended that it neither retains such funds as income nor claims input VAT on the related purchases and that the transactions therefore constitute mere disbursements made as an agent of its clients. The Appellant submitted that Section 13(5) expressly excludes such disbursements from the taxable value of a supply and that the Respondent failed to consider this statutory provision in reaching its decision. 1. The Appellant further submitted that the evidence on record clearly demonstrated the disbursement nature of the transactions. It stated that its bank statements revealed a pattern where client funds were deposited and withdrawn within a short period, often on the same day, leaving minimal balances in the account. It argued that supplier invoices were raised in the names of clients and not the Appellant, while withholding tax certificates issued by clients reflected the Appellant’s actual service income. The Appellant contended that these documents established that the disputed amounts did not constitute taxable turnover and that the Respondent failed to meaningfully engage with the evidence presented. 2. In support of its position, the Appellant relied on ***Atlas Copco EA Limited v Commissioner of Domestic Taxes (TAT Appeal No. 181 of 2018)***, where the Tribunal held that amounts received by a taxpayer acting as an agent and remitted to third parties did not constitute taxable supplies. It also relied on ***Fintel Limited v Commissioner of Domestic Taxes (TAT Appeal No. 8 of 2014)*** for the proposition that funds merely passing through a taxpayer’s account do not become taxable supplies by reason of their receipt. Further reliance was placed on ***Kenya Revenue Authority v Yaya Towers Limited [2006] eKLR***, where the High Court held that bank deposits alone do not necessarily constitute taxable income and that the nature of each receipt must be examined. 3. The Appellant submitted that the Respondent’s assessment for December 2024 was legally flawed because it assumed that all invoices transmitted through eTIMS automatically constituted taxable supplies. It argued that eTIMS records merely reflect invoiced transactions and do not establish that the entire invoiced amount represents taxable income. The Appellant maintained that many of the invoiced amounts related to materials procured on behalf of clients and therefore constituted disbursements rather than taxable supplies. It further submitted that the Respondent failed to appreciate the distinction between invoicing and the existence of a taxable supply and wrongly equated the two concepts. 1. The Appellant further argued that the Respondent failed to properly consider the time-of-supply provisions under Section 12 of the VAT Act. It submitted that while Section 12 determines when VAT becomes chargeable, it does not determine whether a taxable supply exists in the first place. According to the Appellant, the Respondent wrongly invoked Section 12 without first determining whether the disputed receipts constituted taxable supplies or excluded disbursements under Section 13(5) of the VAT Act. 2. The Appellant also challenged the March 2025 assessment, submitting that it was based on a fundamentally defective methodology. It argued that the Respondent compared bank deposits covering the period of January to May 2025 with VAT returns covering only January to March 2025, thereby comparing figures from different periods. The Appellant submitted that this mismatch rendered the assessment unreliable and incapable of establishing any actual under-declaration of taxable supplies. It further maintained that a substantial portion of the deposits comprised client funds that were immediately withdrawn to purchase materials and therefore did not constitute taxable revenue. 3. In support of this contention, the Appellant relied on ***Commissioner of Income Tax v Simba Corporation [2005] 2 KLR 165***, where the Court of Appeal held that assessments must be based on reasonable and reliable evidence. It also cited ***Kenya Revenue Authority v Kabete Motors Limited [2013] eKLR***, in which the High Court emphasized that assessment methodologies must reasonably reflect a taxpayer’s actual financial position. The Appellant further relied on ***Republic v Kenya Revenue Authority ex parte KCB Insurance Agency Limited [2012] eKLR***, where the Court held that bank deposits alone do not conclusively establish taxable income and that the character of each receipt must be examined. 4. The Appellant submitted that it had discharged its burden of proof by providing extensive documentary evidence including bank statements, VAT returns, Z-reports, withholding tax certificates and a certified bank analysis prepared by certified public accountants. It argued that the evidence demonstrated that its actual service income had been properly declared and that the Respondent’s assessments were founded on flawed assumptions and defective methodologies. The Appellant further submitted that once it produced credible evidence rebutting the assessments, the evidential burden shifted to the Respondent to establish the correctness of the assessments. 1. In this regard, the Appellant relied on ***Commissioner of Domestic Taxes v Fintel Limited (TAT Appeal No. 8 of 2014)*** and ***Pevans East Africa Limited (SportPesa) v Commissioner of Domestic Taxes (TAT Appeal No. 10 of 2018)***, where it was held that once a taxpayer presents credible documentary evidence challenging an assessment, the Commissioner must provide evidence demonstrating the correctness of the assessed tax liability. 2. The Appellant finally submitted that withholding tax certificates issued by its clients constituted independent third-party evidence of its actual service income and corroborated the amounts declared in its VAT returns. It argued that the Respondent failed to consider these certificates despite their relevance in establishing the true value of its taxable supplies. The Appellant therefore urged the Tribunal to find that the assessments were based on an erroneous interpretation of the law, an improper appreciation of the facts, and a flawed methodology, and consequently to set aside the Objection Decision dated 23rd September 2025 together with the additional VAT assessments, penalties and interest arising therefrom. # Appellant’s Prayers 1. The Appellant prayed for the following reliefs: 1. To set a side Objection decision dated 23 September 2025 based on the facts provided. 2. To stop the commissioner from demanding tax payable and allow the appellant to file amended return using audited accounts. 3. To ask the Respondent lift all the agencies placed against the appellant. # THE RESPONDENT’S CASE 1. The Respondent’s case was premised on its Statement of facts dated 12th November 2025 and filed on even date and its written submissions dated 28th April 2026 and filed on 29th April 2026. 2. The Respondent stated that it conducted an analysis of the Appellant’s tax affairs and established that the sales declared in the Appellant’s VAT returns for the period of January 2024 to December 2024 were significantly lower than the sales transmitted through the eTIMS platform. Upon comparing the two records, the Respondent found that the Appellant had transmitted sales amounting to Kshs. 9,800,959 through eTIMS but had declared sales of only Kshs. 1,400,000 in its VAT returns, resulting in an under-declaration of sales amounting to Kshs. 8,400,959. The Respondent consequently subjected the variance to VAT and assessed additional tax of Kshs. 1,344,153. 1. The Respondent further stated that it undertook a banking analysis for the year 2025 and compared the Appellant’s bank deposits against the sales declared in the VAT returns. The Respondent established that the Appellant’s bankings amounted to Kshs. 9,319,500 while the sales declared in the VAT returns amounted to Kshs. 6,975,000, thereby resulting in undeclared sales of Kshs. 2,344,500. The Respondent charged VAT on the variance and assessed additional tax of Kshs. 375,120. 2. The Respondent stated that arising from the inconsistencies identified through the eTIMS review and banking analysis, it raised additional VAT assessments on 23rd July 2025. The first assessment related to the tax period December 2024 and assessed VAT amounting to Kshs. 1,344,153.38, while the second assessment related to the tax period March 2025 and assessed VAT amounting to Kshs. 374,203.83. According to the Respondent, the total additional VAT assessed amounted to Kshs. 1,718,357.21. 3. The Respondent stated that the Appellant, being dissatisfied with the assessments, lodged a Notice of objection on 13th August 2025 disputing the principal tax of Kshs. 1,718,357. The Respondent averred that the objection was not validly supported because the Appellant failed to provide essential documents required for verification of its claims, including VAT ledgers, sales and purchase ledgers together with invoices, proof of payments for purchases and suppliers’ confirmations, and bank statements. The Respondent stated that despite being requested to furnish the relevant documentation, the Appellant failed to do so. 4. The Respondent further stated that through email correspondence dated 5th August 2025, it informed the Appellant that its objection had not been validly lodged in accordance with Section 51(3) of the Tax Procedures Act and requested the Appellant to provide the outstanding documents to facilitate review of the objection. The Respondent subsequently issued a reminder on 13th August 2025 noting that the Appellant had still not submitted the requested documents and granted a further opportunity for compliance. However, according to the Respondent, the Appellant did not provide the requested information. 5. The Respondent stated that the Appellant’s objection was premised on the contention that the Commissioner had failed to consider the provisions of Section 12 of the Value Added Tax Act relating to the time of supply, that the income under review had already been declared at the point of invoicing, and that the assessments had been based on estimates rather than the actual position of the company. The Respondent maintained that it carefully reviewed these grounds together with the documents submitted by the Appellant. 1. The Respondent stated that upon reviewing the Appellant’s VAT declarations against invoices generated through the eTIMS platform for the period of January to December 2024, it confirmed that the Appellant had generated invoices worth Kshs. 9,800,958.62 but had only declared sales amounting to Kshs. 1,400,000. The Respondent maintained that the variance of Kshs. 8,400,958 constituted undeclared sales and was therefore liable to VAT. 2. The Respondent further stated that its banking analysis for 2025 established expected sales of Kshs. 9,319,500 compared to declared sales of Kshs. 6,975,000, resulting in a variance of Kshs. 2,344,500 which it treated as undeclared sales and subjected to VAT. The Respondent averred that the additional assessments were lawfully raised pursuant to Section 31(1) of the Tax Procedures Act, 2015. 3. The Respondent contended that the Appellant had not disputed transmitting invoices through the eTIMS platform but had failed to declare all the invoiced sales in its VAT returns. It further stated that the Appellant did not provide any reconciliation to explain the discrepancies between the invoiced amounts and the sales declared for VAT purposes. According to the Respondent, the Appellant also failed to explain or reconcile the variances identified through the banking analysis. 4. The Respondent stated that Section 12(1) of the Value Added Tax Act, 2013 provides that the time of supply occurs at the earlier of delivery of goods or services, issuance of an invoice, certification by a consultant in a supervisory capacity, or receipt of payment. On the basis of this provision, the Respondent maintained that it correctly charged VAT on the invoiced sales and that the Appellant’s assertions that the assessments were based on estimates or that the time-of-supply provisions had been ignored were without merit. 5. The Respondent therefore stated that the assessments were properly raised in accordance with the law and that the Appellant had failed to demonstrate any error in the assessments. Consequently, through the Objection Decision dated 23rd September 2025, the Respondent rejected the Appellant’s objection in full, confirmed the principal VAT liability together with the applicable penalties and accrued interest, and maintained that the taxes assessed remained due and payable. 1. The Respondent concluded by maintaining that the VAT assessments were lawful and properly raised under the relevant provisions of the Value Added Tax Act and the Tax Procedures Act. It further stated that the Appellant had failed to discharge the burden of proof imposed by Section 30 of the Tax Appeals Tribunal Act and Section 56 of the Tax Procedures Act, which require a taxpayer challenging an assessment to produce evidence demonstrating that the assessment is excessive, erroneous, or otherwise incorrect. Consequently 2. The Respondent submitted that an analysis of the Appellant’s tax affairs revealed that sales declared in the VAT returns for the period of January to December 2024 were under-declared by Kshs. 8,400,959 when compared with the sales transmitted through the eTIMS platform. The Respondent further submitted that a banking analysis comparing bank deposits with declared sales disclosed additional under-declared sales amounting to Kshs. 2,344,500 for the year 2025. 3. The Respondent submitted that, arising from the discrepancies identified through the eTIMS review and banking analysis, it raised additional VAT assessments of Kshs. 1,344,153.38 and Kshs. 374,203.83 for the years 2024 and 2025 respectively. It submitted that although the Appellant lodged a Notice of objection on 1 August 2025 challenging the principal tax of Kshs. 1,718,357, the objection was not supported by the relevant documents necessary to validate the Appellant’s claims. Consequently, the Respondent rejected the objection and confirmed the assessments in full, prompting the present Appeal. 4. The Respondent submitted that the sole issue for determination before the Tribunal was whether the VAT demand of Kshs. 1,718,357 was justified. It noted that the Appellant’s challenge was premised on the assertion that the Respondent had failed to consider the tax point under Section 12 of the Value Added Tax Act and had not distinguished between the date of payment and the date of invoicing. 5. The Respondent submitted that the tax point for VAT purposes is expressly governed by Section 12(1) of the Value Added Tax Act, which provides that the time of supply is the earlier of the date of delivery of goods or performance of services, the date a certificate is issued by a consultant acting in a supervisory capacity, the date an invoice is issued, or the date payment is received in whole or in part. It argued that the Appellant had not disputed transmitting invoices through the eTIMS platform and had equally failed to declare all the invoiced sales. The Respondent further submitted that the Appellant had not provided any reconciliation to explain the variances established through the banking analysis. 1. The Respondent contended that it correctly applied Section 12(1) of the Value Added Tax Act by charging VAT on invoiced sales and that the Appellant’s allegations that the assessments were based on estimates or that the tax point had not been considered were without merit. In support of this position, the Respondent relied on ***Jasmin Construction Limited v Commissioner of Domestic Taxes [2019] KETAT 23 (KLR)*** where the Tribunal held that VAT becomes due and payable at the time an invoice is raised and that reliance on invoices in determining VAT liability is supported by Sections 12 and 19 of the VAT Act. 2. The Respondent further submitted that tax liability crystallizes once invoices are transmitted through the eTIMS platform. To support this proposition, it relied on **Jared O. Magolo t/a J.O. Magolo & Company** # Advocates v Commissioner of Domestic Taxes [2024] KETAT 110 (KLR***)*** where the Tribunal held that an Acceptance Fee Note amounted to an invoice for VAT purposes under Section 12(1)(c) of the VAT Act and that VAT liability crystallized upon issuance of that invoice. 1. The Respondent submitted that under Section 56 of the Tax Procedures Act, the burden of proving that a tax assessment is incorrect lies squarely upon the taxpayer. It argued that because Kenya operates a self-assessment tax regime, a taxpayer bears the evidentiary burden of producing all relevant records necessary to verify its tax position and challenge an assessment. 2. The Respondent further submitted that Section 59 of the Tax Procedures Act empowers the Commissioner to require a taxpayer to produce documents, furnish information, and attend before the Commissioner for purposes of establishing the taxpayer’s correct tax liability. It argued that the Appellant was under a statutory obligation to comply with such requests and provide the information necessary to facilitate verification of its tax affairs. 3. The Respondent also submitted that Section 43 of the Value Added Tax Act obligates every registered taxpayer to maintain complete and accurate business records for a period of five years. These records include tax invoices, credit and debit notes, purchase invoices, customs entries, receipts, tax accounts, stock records, and other documentation necessary to determine tax liability. According to the Respondent, the Appellant failed to provide sufficient records and supporting documentation to rebut the assessments raised for the periods of January to December 2024 and January to December 2025, thereby justifying confirmation of the assessments. 1. The Respondent relied on **Joycott General Contractors Limited v Kenya Revenue Authority, TAT No. 48 of 2018** where the Tribunal held that a taxpayer bears the burden of demonstrating that an assessment is wrong and that mere allegations and sweeping assertions without evidential support cannot displace an assessment. The Respondent submitted that this decision was directly applicable because the Appellant had neglected or refused to provide the documents necessary to support its objection. 1. The Respondent submitted that the issue of taxpayers failing to provide relevant and competent evidence has been addressed repeatedly by both the Tribunal and superior courts. It relied on **Commissioner of Domestic Taxes v** **Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR)** where the High Court held that the evidential burden rests on the taxpayer and only competent and relevant evidence can shift that burden to the Commissioner. The Respondent argued that even where evidence is produced, if it lacks competence or relevance, the burden remains with the taxpayer. 1. The Respondent further submitted that, in the absence of sufficient documentation from the Appellant, it was entitled under Section 31(1) of the Tax Procedures Act to exercise its best judgment and raise additional assessments. In support of this position, it relied on **Acrowood Imports &** **Exports Limited v Commissioner of Domestic Taxes, TAT No. E796 of 2023** and urged the Tribunal to adopt the reasoning therein. 1. The Respondent also relied on **Commissioner of Investigations & Enforcement v Dr. Evans Kidero [2022] eKLR** where the Court emphasized that the Kenyan tax collection system is founded on self-assessment and that taxpayers are obligated to keep records and make full disclosures regarding their tax affairs. The Court further held that whether a taxpayer has discharged the burden of proof depends on the sufficiency and quality of the evidence produced in support of its position. 1. The Respondent further cited **Osho Drapers Limited v Commissioner of Domestic Taxes [2022] eKLR** for the proposition that a taxpayer must produce documentary evidence to discharge the burden imposed by Section 56(1) of the Tax Procedures Act. It argued that the Appellant failed to satisfy this requirement and consequently failed to rebut the presumption of correctness attaching to the assessments. 1. In conclusion, the Respondent submitted that the Appellant had failed to discharge the burden of proof imposed by Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act. It maintained that the VAT assessments were lawfully raised, justified, and supported by the available evidence. The Respondent therefore urged the Tribunal to uphold the Objection Decision dated 23rd September 2025 confirming the VAT liability of Kshs. 1,719,273 inclusive of penalties and interest, dismiss the Appeal in its entirety for lack of merit, and award costs to the Respondent. # Respondent’s Prayers 1. Based on the above grounds, the Respondent prayed that: 1. Tribunal uphold the Objection Decision dated 23rd September 2025, Confirm the VAT assessments for December 2024 and March 2025, 2. Dismiss the Appeal in its entirety, and award costs to the Respondent. # ISSUE FOR DETERMINATION 1. The Tribunal has considered the parties’ pleadings and submissions, and has identified the issue for determination as to; # Whether the Appellant is an Agent pursuant to Section 13(5) of VAT act. * 1. **Whether the Objection decision was Justified. ANALYSIS AND FINDINGS** 1. Having identified the issues for determination, the Tribunal proceeds to analyse the same as hereunder: - 1. Whether the Appellant is an Agent pursuant to Section 13(5) of the Value Added Tax Act 2. The Tribunal has carefully considered whether the Appellant has demonstrated that the disputed funds constituted disbursements received and paid solely as an agent and were therefore excluded from the taxable value of supplies under Section 13(5) of the Value Added Tax Act. 3. The Appellant admitted that invoices amounting to Kshs. 9,800,958.62 were transmitted through the eTIMS platform and equally acknowledged receipt of the disputed bank deposits. However, it maintained that a substantial portion of those receipts represented monies received from clients solely for the procurement of construction materials and were immediately remitted to suppliers on behalf of those clients. 1. The Appellant further contended that supplier invoices were issued directly in the names of the respective clients and that the funds merely passed through its bank account without constituting consideration for supplies made by the Appellant. It therefore argued that the receipts qualified as disbursements excluded from VAT under Section 13(5) of the Value Added Tax Act. 2. In support of that position, the Appellant submitted that it had furnished the Respondent with bank statements, sales receipts, Z-reports, certified bank analyses and **withholding tax certificates**. According to the Appellant, the withholding tax certificates demonstrated that payments related to contracts executed for clients and supported its assertion that it merely facilitated procurement on behalf of those clients. 1. The Tribunal notes, however, that while withholding tax certificates may demonstrate that certain payments were subjected to withholding tax, such certificates alone do not establish the existence of an agency relationship contemplated under Section 13(5) of the Value Added Tax Act. The statutory exclusion applies only where the taxpayer demonstrates that it acted purely as an agent and incurred expenditure in the name and on behalf of the principal. 2. Although the Appellant asserted that supplier invoices were issued in the names of clients, the record does not demonstrate that it produced contemporaneous agency agreements, client instructions, procurement contracts, supplier confirmations or detailed reconciliations linking each disputed receipt to a particular client and corresponding supplier payment. The Appellant similarly failed to demonstrate that every disputed deposit was received strictly in an agency capacity. 3. The burden imposed by Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act required the Appellant to establish through cogent documentary evidence that the disputed receipts qualified as statutory disbursements excluded from VAT. 4. In Van Boeckel v Customs and Excise Commissioners [1981] STC 290, the Court held that a taxpayer asserting that receipts are not taxable bears the burden of proving the true nature of those receipts through documentary evidence. 5. Similarly, Cape Brandy Syndicate v Inland Revenue Commissioners [1921] 1 KB 64 established that where a taxpayer relies upon a statutory exemption or exclusion, the taxpayer must bring itself squarely within the terms of the statute. 1. Further, in Raleigh Investment Co. Ltd v Governor General in Council [1947] AC 50, the Privy Council held that a taxpayer who alleges that an assessment is incorrect assumes the burden of proving both why it is incorrect and what the correct tax position ought to be. 2. The Tribunal is equally persuaded by Intime Stone Age Limited v Commissioner of Domestic Taxes (Appeal 714 of 2022) [2024] KETAT 44 (KLR) where it was held that the statutory burden is discharged only where the taxpayer produces specific, verifiable and relevant documentation supporting the disputed transactions. 3. The Tribunal finds that although the Appellant advanced a plausible explanation that it merely acted as an agent and relied upon withholding tax certificates in support of its position, it failed to produce sufficient documentary evidence demonstrating the existence of agency relationships contemplated under Section 13(5) of the Value Added Tax Act. The Appellant therefore failed to prove that the disputed receipts constituted excluded disbursements, and therefore failed to proof that it was an agent pursuant to Section 13(5) of the VAT act. b. Whether the Objection Decision was justified 1. The dispute arose following the Respondent's review of the Appellant's VAT affairs for the period January 2024 to May 2025. The Respondent established that the Appellant had transmitted eTIMS invoices amounting to Kshs. 9,800,958.62 while declaring sales of only Kshs. 1,400,000 for December 2024, resulting in an alleged understatement of Kshs. 8,400,958.62. 2. The Respondent further conducted a **banking analysis** comparing bank deposits amounting to Kshs. 9,319,500 with declared sales of Kshs. 6,975,000 and identified unexplained variances of Kshs. 2,344,500 which it treated as undeclared taxable sales. 3. Consequently, the Respondent issued additional VAT assessments on 23rd July 2025 amounting to Kshs. 1,718,357.21, prompting the Appellant to lodge an objection on 28th July 2025. 4. By emails dated 5th August 2025 and 13th August 2025, the Respondent informed the Appellant that the objection lacked essential supporting documentation and requested VAT ledgers, sales and purchase ledgers, invoices, supplier confirmations, proof of payments and bank statements before eventually issuing the Objection Decision dated 23rd September 2025. 5. The Appellant challenged the Respondent's banking analysis, arguing that deposits for January to May 2025 were compared against VAT returns covering only January to March 2025, thereby rendering the methodology unreliable. 6. The Tribunal notes that the Appellant raised a legitimate concern regarding the methodology adopted in the banking analysis. Nevertheless, pointing out weaknesses in the Respondent's methodology did not relieve the Appellant of its statutory burden to demonstrate the correct taxable position through proper reconciliations and supporting documentation. 7. Despite questioning the banking analysis, the Appellant failed to reconcile the significant variance between the eTIMS invoices and its VAT declarations. Likewise, it did not reconcile the disputed bank deposits with individual client transactions, supplier payments, contractual documentation or agency arrangements. Consequently, the Tribunal is not persuaded that the Respondent's findings were displaced by credible evidence. 8. Section 43 of the Value Added Tax Act obligates taxpayers to maintain adequate records to enable the Commissioner to ascertain the correct tax liability. 9. In Republic v Kenya Revenue Authority Ex Parte Total Kenya Limited [2013] eKLR, the Court emphasized that taxpayers are required to maintain sufficient records capable of verifying their tax positions. 10. Similarly, Al Meghji Bros Limited v Commissioner of Income Tax [1954] 21 EACA 17 the court held that where accounting records are inadequate, the Commissioner is entitled to raise assessments based on the information available. 11. The High Court in Tarmal Industries Limited v Commissioner of Customs and Border Control [2023] KEHC reaffirmed that tax assessments enjoy a presumption of correctness and that the taxpayer bears the burden of disproving them through credible documentary evidence. 12. Likewise, Republic v Kenya Revenue Authority Ex Parte Bata Shoe Company (Kenya) Limited [2014] eKLR held that judicial intervention cannot be founded merely upon disagreement with the Commissioner's conclusions where the taxpayer has failed to produce sufficient evidence demonstrating error. 13. The Tribunal is also persuaded by Osho Drapers Limited v Commissioner of Domestic Taxes [2022] eKLR, where the Court upheld assessments after finding that the taxpayer had failed to substantiate its position despite repeated requests for supporting documentation. 14. The Tribunal finds that although the Appellant identified certain shortcomings in the Respondent's banking analysis, it failed to discharge the statutory burden imposed by Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act by producing sufficient documentary evidence to reconcile the eTIMS variances, the banking variances and the disputed deposits. The Appellant therefore failed to demonstrate that the assessments and the Objection Decision dated 23rd September 2025 were erroneous or excessive. 15. Consequently, the Tribunal finds and holds that the Objection Decision was justified. # FINAL DECISION 1. The upshot of the foregoing is that the Appeal lacks merit and the Tribunal proceeds to make the following Orders: 2. The Appeal be and is hereby dismissed. 3. The Objection Decision dated 23rd September 2025 be and is hereby upheld. 4. Each party shall bear its own costs. 5. It is so ordered. # DATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF JULY, 2026 SIGNED BY/FOR: **★ TH E JUDICIAR Y O F KENY A ★** **HON. EUNICE NJERI NGANGA HON. SANKALE SPENCER OLOLCHIKE** **HON. BERNADETTE MUTHIRA GITARI** **HON. BILLY GRAHAM OKUMU MIJUNGU** Tax Appeals Tribunal Tribunal Date: 2026-07-06 17:48:51