[2024] KETAT 865 (KLR)

NML Holdings Limited (Formerly Nanyuki Mall Limited) v Commissioner of Investigation and Enforcement (Tax Appeal E129 of 2023) [2024] KETAT 865 (KLR) (28 June 2024) (Judgment)

Neutral citation: [2024] KETAT 865 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E129 of 2023

CA Muga, Chair, BK Terer, D.K Ngala, GA Kashindi & SS Ololchike, Members

June 28, 2024

Between

NML Holdings Limited (Formerly Nanyuki Mall Limited)

Appellant

and

The Commissioner of Investigation and Enforcement

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated and registered in Kenya under the Companies Act.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. It got into an agreement for purchase of a commercial property Title No. Kilifi Township/Block 3/1177 for an all-inclusive purchase price of Kshs. 250,000,000. 00. The transfer of the aforementioned property in favour of the Appellant was registered on 21st December 2021 and the vendor of the suit property was paid the entire purchase price on 20th January 2022. Unfortunately, the vendor did not issue the Appellant with the necessary tax invoice despite several reminders to do so. Upon payment of the purchase price, the Appellant included this transaction in its input VAT schedule in March 2022.

4. However, vide a letter dated 7th February 2023, KRA declined the said input VAT claim on the basis that the Appellant did not provide the tax invoice for the said transaction and thereafter issued an assessment order No. KRA202301127032 dated 7th February 2023. The Appellant objected to the said assessment vide a letter dated 9th February 2023. Subsequently, vide a letter dated 15th March 2023 the Respondent rendered its objection decision disallowing the objection and upholding its earlier assessment to the effect that the Appellant was not entitled to claim input VAT on the property purchase transaction.

5. Being dissatisfied with the Respondent’s objection decision, the Appellant filed a Notice of Appeal dated 5th April 2023 against the said decision.

The Appeal 6. The Appellant’s appeal is premised on its Memorandum of Appeal dated 5th April 2023 and filed on 6th April 2023 based on the following grounds: -(a)The reasons given for the disallowing the input VAT were stated in the objection decision by the Respondent as follows:“We note that the taxpayer has not provided us with the required documentation (tax invoice) as required in law to affirm its claim for input VAT. The sale agreement provided does not expressly state the VAT was charged among other vital details that should be expressed in a proper tax invoice. The agreement merely states in verbatim that ”the purchase price for the property is an all-inclusive purchase price of Kenya Shillings Two hundred and Fifty million (Kshs.250,000,000. 00).” The sale agreement clause herein is ambiguous and one cannot easily affirm whether this purchase price is inclusive or exclusive of VAT. No evidence has been adduced to affirm whether VAT was charged at the specified rate in this transaction” (hereinafter referred to as “Reason 1”). ““Further, we note that the supplier herein, Piero Canobbio A002635656E, has not declared this particular transaction in his respective VAT returns nor has he provided confirmation that he charged VAT in this transaction” (hereinafter referred to as “Reason 2”).”"Without prejudice to the above, we also note that the taxpayer claimed the invoice in March 2022 with the date as 31St March 2022 while the agreement is dated 7th September, 2021, this is in fact beyond the six-months allowable period that is sanctioned in law" (hereinafter referred to as “Reason 3").”The above reasons given by Respondent in the objection decision are not valid and are not backed by facts, sound law and the letter and spirit of the Constitution of Kenya, 2010 (hereinafter “the Constitution”).(b)With regard to Reason 1:(i)It is admitted that the Appellant did not provide a tax invoice in the nature of a typical Electronic Tax Invoice (hereinafter “ETR”) invoice for reasons that have been detailed in the Statement of Facts being that the Vendor of the property, the subject of the taxable transaction, has not issued the same despite follow-ups. The lack of an ETR is understandable given the unique nature of a land sale transaction which is not a typical over the counter sale of goods or services. The transaction takes place over a period of several months and, as was the case here where the purchase price was fully financed by a third-party Bank, the Appellant had no control of the actual payment of the purchase price and issuance of the tax invoice in exchange thereof.(ii)Having not received an ETR tax invoice from the Vendor and noting the strict time lines for making a tax claim, the Appellant provided the actual transaction documentation to prove the existence of the taxable transaction. This documentation included the Agreement for Sale, the Transfer and the RTGS Payment Remittance Advise Slip with regard to the payment of the entire purchase price (these documents are detailed and attached to the Statement of Facts). These documents are the actual legal and contractual documentation that evidence the existence of a taxable transaction as required by the Value Added Tax Act, CAP 476 of Kenya’s Laws (hereinafter “VAT Act”)(iii)Whilst the Respondent acknowledged the receipt of the aforesaid documentation, the Respondent asserted. in the objection decision, that the Agreement for Sale “does not expressly state that VAT was charged”. This is incorrect as the Agreement provided as follows in Clause 3”“The purchase price of the property is an all-inclusive purchase price of Kenya Shillings Two Hundred and Fifty Million (Kshs.250,000,000. 00)”; The words "all inclusive” have no ambiguity.Special Condition 10 also provided that: “The Purchaser shall not be responsible for any additional payments to the Vendor save for the agreed all-inclusive Purchase Price and in the event that any competent taxing authority requires or shall require any tax to be levied on the Purchase Price, it will be the responsibility of the Vendor to cater for such payments and/or taxes”.(iv)Under the provisions of the VAT Act, a purchase price for a vatable transaction is required to include VAT payable thereon and there is no requirement, and in fact KRA, has issued guidelines discouraging the distinction of what is actual purchase price and what is VAT being indicated in the overall purchase price of a vatable good or service. The said assertion of the Respondent in the objection decision that the Agreement for Sale “does not expressly state that VAT was charged” is therefore neither correct nor is it a requirement supported by law.(c)With regard to Reason 2:(i)For a sale transaction, under the VAT Act, the responsibility to charge VAT, issue the VAT tax invoice and to declare a particular transaction in the VAT returns or to provide other confirmation that one has charged VAT are all the responsibility of the Vendor (seller).(ii)The responsibility to ensure that taxpayers comply with the VAT Act including the issuing of a tax invoice, and to declare a particular transaction in the VAT returns lies squarely on the Commissioner and only the Commissioner has the legal authority to enforce compliance with the VAT Act and collection of VAT due on a transaction.(iii)The Appellant (as the purchaser of the taxable good) has no legal authority to compel the Vendor to issue the VAT tax invoice or to declare the VAT amount in its returns.(iv)The alleged failure by an independent taxpayer to declare this particular transaction in his respective VAT returns or to provide confirmation that he charged VAT in this transaction is not an obligation of the Appellant and to disallow the Appellant’s input VAT on this basis is an abscondment of duty by the Commissioner and an unwarranted shifting of the burden of responsibility of collection of taxes and enforcement of the tax laws to the Appellant which goes against the rules of natural justice and requirements for fair administrative action.(d)With regard to Reason 3:(i)The assertion of the Respondent that the Appellant made its claim past the six (6) months allowed in the VAT Act is a misreading or misunderstanding of land transactions.(ii)The Agreement for Sale was entered into on 7th September, 2021. As was the practice in a land sale transaction there is a period of between 30, 60 or 90 days between signing of the Agreement for sale and the completion date which is to allow parties to the land contract to obtain required consents and approvals and ensure financing is in place. Completion of a land sale transaction takes place, both in law and in practice, upon registration of the Transfer of the land at the Lands Office.(iii)The Transfer in respect to this transaction was dated 6th December, 2021 and was registered on 21st December, 2021. Only upon registration of the transfer at the Lands Office was a land sale transaction considered complete.(iv)Payment of the entire purchase price was only made upon registration of the transfer at the Lands Office. This was the case in this transaction wherein the full purchase price (inclusive of VAT thereon) was paid to the Vendor on 20th January, 2022. The dated, stamped Transfer and the RTGS Payment Remittance Slip evidencing the above are all attached to the Statement of Facts.(v)The claim for the Input Tax was made in March, 2022 which is well within the six (6) months of the date of the registration of the Transfer and payment of the purchase price.(e)Non-Observance of the Requirements of the Constitution(i)In declining the Appellant’s input VAT claim and issuing the assessment order the Respondent relied solely on the fact that the Appellant had not provided a valid tax invoice to support the input VAT Claim.(ii)However, the Appellant tendered all relevant documents evidencing the taxable transaction. None of these documents have been contested by the Respondent and the Respondent has also not challenged the existence or validity of this transaction as a taxable transaction. In fact, without the transaction that generated the input VAT claimed, there would have been no income to generate the output VAT as per VAT 3 Return raised by the Appellant.(iii)The Appellant contends that the provision of a tax invoice is a mere technicality and is not a substantive requirement. This contention is supported by the position taken by Respondent and upheld by the Tribunal in several cases. One such case is that of Osho Drappers Limited Vs. Commissioner of Income Tax (Appeal Case Number 159 of 2018). In this case the respondent therein contended that despite the appellant therein having provided tax invoices, the same were not enough to prove that there was indeed an underlying taxable transaction. The Tribunal agreed with this position of the respondent therein and stated that “for one to claim input VAT, there must be a purchase of a taxable supply”. The purpose of the tax invoice therefore is a mere technicality to support the existence of the taxable transaction and other documents can and may even be required to prove the existence of the transaction.(iv)Article 159(2) of the Constitution provides as follows:“In exercising judicial authority, the courts and tribunal shall be guided by the following principles:—a.….b.….c.….d.justice shall be administered without undue regard to procedural technicalities…."(v)In interpreting the provisions of Section 17(1) of the VAT Act, the Tribunal observed in the aforesaid case that: ”This provision embodies the well-established principle of VAT law, that a taxable person who makes transactions in respect of which VAT is deductible may deduct the VAT in respect of the goods or services acquired by him, provided that such goods or services have a direct and immediate link with the output transactions which VAT is deductible”.Accordingly, the Appellant has a right to claim the VAT paid on the purchase of a property as input VAT in accordance with the VAT Act.(vi)The denial by the Respondent for the Appellant the right to claim the input tax on this transaction and which is a substantial amount (Kshs.34,482,759. 00) merely on the basis of a lack of a tax invoice was to rely on technicality to deny its rights and which goes against the express provisions of the Constitution. The right to claim the input VAT arises from engaging in a taxable transaction and provided that the Appellant can prove (as it has) that such a transaction took place, the Appellant has a right to claim the input VAT and such a right cannot be denied by using a technicality of the lack of a tax invoice as this would go against the letter and spirit of the Constitution.(vii)The Appellant had raised this issue in its objection letter, but the Respondent did not address the issue.(f)Non-observance of the rules of natural justice and fair administrative action and double taxation.(i)The Respondent has and continues to enjoy tax derived from this transaction, that is:a.stamp duty at the commercial rate of 4% amounting to Kshs. 10,000,000. 00 was paid by the Appellant; andb.the additional income from the property has been booked by the Appellant and the Appellant paid and has continued to pay income tax thereon; andc.VAT is charged on the rental income derived from the property the subject of the transaction.(ii)It goes against the rules of natural justice and fair administrative action when the Respondent seeks to deny the Appellant the right to claim the input VAT on the basis of a technicality which the Appellant has no control over whilst at the same time:a.the Respondent is enjoying the benefits of the very same transaction as indicated in 7. 1 above;b.the Respondent has not suffered any loss of tax nor its rights to pursue any claim for the VAT from the Vendor; andc.the Respondent has the power and responsibility to enforce and require the Vendor to comply with the VAT Act as regards the transaction.(iv)If the Appellant cannot claim the input VAT even though it already paid VAT on the same transaction, the effect of this would be that the Appellant will be subjected to double taxation which is against the law.

The Appellant’s Case 7. The Appeal is anchored on the Appellant’s Statement of Facts dated 5th April 2023 and filed on 6th April 2023 wherein the Appellant averred as follows:

8. That the Appellant contended that it entered into an Agreement for the purchase of a property being Title Number: Kilifi Township/Block 3/1177 on 7th September, 2021 and on which is erected a multi storey building comprising of premises leased or meant for lease as commercial rental premises (the said land and buildings hereinafter referred to as the “property”). The Vendor was one Piero Canobbio also known as Pietro Canobbio, he is a registered taxpayer under PIN Number A002635656E. The sale agreement provided as follows: -“Recital B which described what was being sold and purchased to include the land, developments on the land and certain assets (together referred to therein as the “Property");”“Clause 3 on page 1 which provided that the purchase price for the Property is an all-inclusive Purchase Price of Kenya Shillings Two Hundred and Fifty Million (Kshs.250,000,000. 00);” and“Special Condition 10 on page 7 which provides that the Purchaser shall not be responsible for any additional payments to the Vendor save for the agreed all-inclusive Purchase Price of Kshs.250,000,000. 00 and in the event that any competent taxing authority (KRA) requires or shall require any tax to be levied on the Purchase Price, it will be the responsibility of the Vendor to cater for such payments and/or taxes.”

9. The sale being that of a commercial property is a vatable transaction as provided in the VAT Act. Accordingly, this being a commercial property, included in the said all-inclusive purchase price was VAT which was calculated as follows:a.All-inclusive Purchase Price - KShs.250,000,000. 00. b.VAT amount included in the Purchase Price - Kshs.34,482,759. 00.

10. The entire purchase price which was financed by the Appellant's bankers, under terms of a bank undertaking issued by the said bankers to the Vendor to make payment of the entire purchase price upon registration of the transfer of the property in favour of the Appellant and a charge in favour of the said bank. The Transfer was registered on 21st December, 2021 and payment of the purchase price was paid on 20th January, 2022.

11. The Vendor was duly paid the entire purchase price in accordance with the aforesaid terms of bank undertaking. However, he did not issue the necessary tax invoice despite many reminders.

12. Recognizing that input VAT is claimable within defined timelines, following payment of the purchase price the Appellant included this genuine transaction in their VAT Input schedule in March, 2022.

13. Through its letter dated 7th February, 2023, the Respondent declined the aforesaid input VAT claim on the basis that the Appellant did not provide the tax invoice. This decline was despite the fact that the Appellant provided alternative supporting documentation including the sale agreement which provided that payment of applicable taxes was the responsibility of the Vendor, evidence of payment of stamp duty at the commercial rate of 4% by the Appellant (being the commercial rate for stamp duty), evidence of payment of the purchase price and other related documents.

14. Following the decline of the aforesaid input VAT claim, the Respondent issued an assessment order KRA202301127032 dated 7th February, 2023. Through the Appellant’s tax agent’s letter dated 9th February 2023 the Appellant objected inter alia, the aforesaid decline by the Respondent.

15. Through its letter dated 15th March, 2023 the Respondent gave its decision on the Appellant's objection letter. The objection decision was to disallow the objection to the aforesaid assessment order and to uphold the Respondent’s earlier assessment to the effect that the Appellant was not entitled to claim input VAT on the property purchase transaction.

16. The Appellant being dissatisfied with reasons given by KRA for declining the input VAT and the objections for the decline, the Appellant opted to file an appeal to the Tribunal and based its case on the grounds stated in the Memorandum of Appeal.

17. The reasons given by the Respondent for its decision were stated as follow:“a.We note that the taxpayer has not provided us with the required documentation (tax invoice) as required in law to affirm its claim for input VAT.b.The sale agreement provided does not expressly state the VAT was charged among other vital details that should be expressed in a proper tax invoice. The agreement merely states in verbatim that “the purchase price for the property is an all-inclusive purchase price of Kenya Shillings Two hundred and Fifty million (Kshs.250,000,000. 00).” The sale agreement clause herein is ambiguous and one cannot easily affirm whether this purchase price is inclusive or exclusive of VAT. No evidence has been adduced to affirm whether VAT was charged at the specified rate in this transaction.c.Further, we note that the supplier herein, Piero Canobbio A002635656E, has not declared this particular transaction in his respective VAT returns nor has he provided confirmation that he charged VAT in this transaction.d.Without prejudice to the above, we also note that the taxpayer claimed the invoice in March 2022 with the date as 31st March 2022 while the agreement is dated 7th September 2021, this is in fact beyond the six-months allowable period that sanctioned in law.”

18. In conclusion, the Appellant made the following prayers to the Tribunal:a.That the Tribunal sets aside the objection decision as regards the tax assessment order in regard to this transaction; andb.That the Tribunal allows the Appellant to claim the input VAT on this transaction.

The Respondent’s Case 20. The Respondent did not file its statement of facts.

Parties’ Written Submissions 19. The instant appeal was canvassed by way of written submissions. The Appellant’s submissions dated 18th July, 2023 were filed on 19th July 2023. The Tribunal notes that the Respondent did not file any written submissions.

Parties’ Submissions 20. The Appellant submitted that even though the entire bundle of the Appeal herein was served upon the Respondent and acknowledged on 6th April 2023, there was no compliance on the part of the Respondent with the provisions of Rule l2 of The Tax Appeals Tribunal (Procedure) Rules, 20l5. This deems the instant Appeal unopposed. To this end, the Appellant referred to the case of Blue Shield Company Ltd v Alice W. Kariuki & another [2012] eKLR to support the proposition that when an allegation of fact is not traversed, it is deemed to be admitted.

21. The rest of the Appellant’s submissions were a regurgitation and replica of the statements and submissions contained in the Appellant’s Memorandum of Appeal and Statement of Facts, the Tribunal has considered them.

22. In conclusion, the Appellant submitted that the Respondent declined its claim for input VAT solely on a technicality that the Appellant had not provided a tax invoice. This is despite the fact that the Appellant had provided all the documentation to support the existence and conclusion of a taxable transaction and payment to the vendor of the applicable VAT thereon.

23. The Appellant submitted that its appeal was merited and urged the Tribunal to allow it as prayed.

Issues For Determination 24. Upon consideration of the instant appeal, the pleadings and documentation provided by the Appellant herein and the written submissions by the Appellant’s tax agent, the Tribunal is of the view that the single issue that distills itself for the Tribunal’s determination is as follows:Whether the Appellant was entitled to claim input VAT

Analysis And Determination 25. The Tribunal will proceed to analyse the identified issue for determination hereinunder:Whether the Appellant was entitled to claim input VAT

26. The Tribunal notes from the record, that the Appellant entered into a sale agreement to purchase a commercial property Title No. Kilifi Township/Block 3/1177 for an all-inclusive purchase price of Kshs. 250,000,000. 00 on 7th September 2021. The transfer of the aforementioned property was registered in favour of the Appellant on 21st December 2021 and the purchase price paid to the vendor on 20th January 2022. Thereafter, the Appellant made a claim for Input VAT in March, 2022.

27. The Tribunal notes that it is trite that a claim for input VAT should be made within six (6) months after the end of the tax period in which the supply or importation occurred pursuant to the following provisions of Section 17(2) of the VAT Act:“If, at the time when a deduction for input tax would otherwise be allowable under subsection (1)-a.the person does not hold the documentation referred to in subsection (3), andb.the registered supplier has not declared the sales invoice in a return, the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation:Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.”

28. The Tribunal notes that in the instant Appeal, the land purchase transaction was completed upon transfer of the suit property and payment of the purchase price to the Vendor which was made on 21st December 2021 and 20th January 2022 respectively.

29. The Tribunal also notes that the Appellant made a claim for Input VAT on 31st March 2022 which is approximately three months after the registration of the transfer of the suit property in favour of the Appellant and two months after payment of the purchase price of the suit property. Even if the Tribunal was to consider that the time is to run from 6th December 2021 which is the date the Transfer instrument was signed, the claim for input VAT could still have been made on time. The finding of the Tribunal on this issue is that the Appellant’s claim for Input VAT was not time barred having been made within the six-month period provided for in law.

30. The Tribunal also notes that the Appellant’s contention that it purchased the commercial property Title No. Kilifi Township/Block 3/1177 for an all-inclusive purchase price of Kshs. 250,000,000. 00. The Tribunal further notes the Appellant’s assertions that the said purchase price was inclusive of VAT and that it made a claim for input VAT on the basis of the aforesaid transaction. In support its claim, the Tribunal notes that the Appellant provided the Respondent with a copy of the sale agreement, the Transfer, and the RTGS Payment Remittance Advise slip showing payment of the entire purchase price.

31. The Tribunal notes that the Respondent disallowed the claim and issued the Appellant with an additional assessment of VAT amounting to Kshs. 34,809,771. 89 which the Appellant objected. The Tribunal notes that in its objection decision, the Respondent found that the Appellant had not provided the requisite documentation to affirm its claim for input VAT. Furthermore, The Tribunal notes that the sale agreement provided did not expressly state that VAT was charged. The Respondent noted that the Vendor of the suit property had not declared this particular transaction in his respective VAT returns neither has he provided confirmation that he charged VAT in this transaction.

32. It is now settled law that the burden of proving that an assessment is wrong lies with the taxpayer pursuant to the provisions of section 56(1) of the Tax Procedures Act CAP 469B (hereinafter “TPA”) as well as Section 30 of the Tax Appeals Tribunal Act, CAP 469A of Kenya’s Laws (hereinafter “TATA”). The Tribunal is of the view that the bone of contention herein is whether the Appellant tendered sufficient proof of a taxable supply for which it could base its claim for input tax. As stated hereinabove, the Appellant in support of its claim for input tax claim provided a copy of the sale agreement, the Transfer, and the RTGS Payment Remittance Advise slip showing payment of the entire purchase price. Section 17(2) and (3) of the VAT Act which provides for input tax states that:“1. Subject to the provisions of this section and the regulations, input tax on a taxable supply to, or importation made by, a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person, subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies.

2. If, at the time when a deduction for input tax would otherwise be allowable under subsection (1)—a.the person does not hold the documentation referred to in subsection (3), andb.the registered supplier has not declared the sales invoice in a return, the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation:Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.

3. The documentation for the purposes of subsection (2) shall be—a.an original tax invoice issued for the supply or a certified copy;b.a customs entry duly certified by the proper officer and a receipt for the payment of tax;c.a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction; andd.a credit note in the case of input tax deducted under section 16(2);e.a debit note in the case of input tax deducted under section 16(5); orf.in the case of a participant in the Open Tender System for the importation of petroleum products that have been cleared through a non-bonded facility, the custom entry showing the name and PIN of the winner of the tender and the name of the other oil marketing company participating in the tender…”

33. The Tribunal further notes that the Appellant in this case does not have a tax invoice. Section 17(2) of the VAT Act as outlined hereinabove provides a guideline on what should happen where the tax invoice relating to the supply is not available. The section provides that the deduction for input tax shall not be allowed until the first tax period in which the person holds a tax invoice. We think this provision is quite clear. The Appellant herein cannot claim the input tax until such a time that it holds the tax invoice. But there is a proviso to this provision, which is claiming of such input tax is must occur within six months after the date in which the supply occurred.

34. The Tribunal notes that in its objection decision, the Respondent held that the vendor of the suit property had not declared this particular transaction in his respective VAT returns neither has he provided confirmation that he charged VAT in this transaction. Accordingly, in the absence of the said declaration, the Appellant’s input tax claim cannot be allowed pursuant to the provisions of Section 17(2) of the VAT Act. Again, the Tribunal finds and holds that the Respondent was correct on this point.

35. The Tribunal is of the view that Section 17(3) of the VAT Act is couched in mandatory terms and provides that an original or certified copy of a tax invoice is one of the documents that must be produced by a taxpayer as proof of a taxable supply while making a claim for input tax refund. It is not disputed that the Appellant herein did not provide a tax invoice in support of its claim for input tax refund. The Appellant submitted that disallowing its claim of input tax on grounds that it did not provide a tax invoice amounts to disallowing its claim on a technicality contrary to the provisions of Article 159(2) (d) of the Constitution which states as follows:“justice shall be administered without undue regard to procedural technicalities.”

36. The Tribunal is of the further view that it is trite law that for a claim for input VAT to be successful, there has to be supply to a person registered to pay VAT of any goods or services to be used by him for the purpose of his business. This right is founded on the assumption that the taxpayer paid VAT when purchasing his supplies. In this case, the Appellant has not tendered any proof whatsoever to the effect that at the time of purchasing the property, it paid VAT to warrant a claim for input VAT. In the case of Commissioner of Domestic Taxes v Metoxide Limited (Income Tax Appeal E100 of 2020) [2021] KEHC 3 (KLR) where the Court held as follows:“In order for a trader to be entitled to a refund on input VAT, he must prove ‘a taxable supply or importation’. The basis of the refund is not just evidence of payment of the claimed VAT, but prove that there was ‘a taxable supply or importation’ for which the tax was paid and therefore input tax is claimable.”

37. This Tribunal is of the firm view that in as much as the Appellant produced documents to prove existence of the transaction and payment, failure to produce a tax invoice in support of its claim for input tax refund was fatal. Unfortunately, the agreement for sale does not suffice for this purpose even if the Tribunal was to consider that the purchase price was indicated to be all inclusive. The said failure is cannot be overlooked and wished away on grounds that it is a procedural technicality since it is one of the requirements set down by law and couched in mandatory terms. This means that the Appellant had a mandatory obligation to comply with the provisions of Section 17(3) of the VAT Act.

38. Accordingly, The Tribunal finds that since the Appellant did not comply with the provisions of Section 17 (3) of the VAT Act, the Appellant was not entitled to claim input VAT.

Final Decision 39. The upshot of the above is that the appeal is without merit and fails. Consequently, the Tribunal makes the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 15th March 2023 be and is hereby upheld.c.Each party to bear its own costs.

40. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 28TH DAY OF JUNE, 2024. …………..……………….CHRISTINE A. MUGA - CHAIRPERSON………………………BONIFACE K. TERER - MEMBER………………………DELILAH K. NGALA - MEMBER………………………GEORGE KASHINDI - MEMBER………………………S. OLOLCHIKE SPENCER- MEMBER