[2025] KETAT 67 (KLR)

Polinmy Suppliers Limited v Commissioner Investigations and Enforcement (Tax Appeal E329 of 2024) [2025] KETAT 67 (KLR) (17 January 2025) (Judgment)

Neutral citation: [2025] KETAT 67 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E329 of 2024

RO Oluoch, Chair, Cynthia B. Mayaka, AK Kiprotich & G Ogaga, Members

January 17, 2025

Between

Polinmy Suppliers Limited

Appellant

and

Commissioner Investigations And Enforcement

Respondent

Judgment

1. The Appellant is a resident company whose principal place of business is Nairobi County and whose sole business is that of import and wholesale of building materials and accessories.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and the Authority is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Appellant, on 20th November, 2023, received tax investigation findings alleging that it had a tax liability of Kshs. 519,667,862. 00.

4. Thereafter, the Appellant received assessment notices for the years of income 2017, 2018, 2019, 2020 and 2021 on 5th December, 2023.

5. On 23rd December, 2023, the Appellant objected to the said notices of assessment.

6. On 21st February, 2024, the Respondent rendered its objection decision allowing the objection partially and confirming principal taxes of Kshs.317,041,335. 00.

7. The Appellant being dissatisfied with the Commissioner’s decision filed a Notice of Appeal on 19th March, 2024.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 19th March, 2024:i.The Respondent erred in fact and in law in arriving at a conclusion that no supplies were made to the Appellant by the suppliers despite clear evidence of deliveries and proof of payment for the goods availed.ii.The Respondent's action in rejecting the input VAT claims and demanding payment of the input VAT claimed is unlawful, oppressive and an abuse of the powers donated to the Respondent by the law.iii.The Respondent erred by terming imports by the Appellant as purchases from non-registered taxpayers and thereby rejecting the claims.iv.The Respondent erroneously arrived at the decision that invoices issued by V-Nekey Supplies Limited and Kentonda Company Limited were not genuine without offering any explanations as to the reasons for arriving at that conclusion.v.The Respondent disregarded the provisions of Section 17 of the VAT Act, 2013 with regard to proof of purchases by imposing an onerous obligation on the Appellant to ensure that third parties declare sales made to the Appellant before allowing the Appellant's claim for input VAT.vi.The Respondent erred in demanding the full particulars of the whereabouts of the suppliers from the Appellant despite the Respondent having registered the suppliers in its i-Tax system and the Respondent having at its disposal the state machinery to locate the suppliers if need be.vii.The Respondent, by its actions, abdicated its statutory duty of ensuring compliance with the tax laws by business entities and instead placed the onerous burden of ensuring compliance to third party purchasers.viii.The Respondent abused its discretion by selectively disallowing high imports declared by the Appellant in its returns for 2017, 2019 and 2021 and failing to consider lower import declarations for the years 2018 and 2020.

Appellant’s Case 9. The Appellant’s case is premised on the following documents:i.The Appellant’s Statement of Facts dated and filed on 19th March, 2024 together with the documents attached thereto.ii.The Appellant’s written submissions dated 14th October, 2024 and filed on 15th October, 2024.

10. That in view of the voluminous nature of documents required, the Appellant submitted all the supporting documents via email to the Respondent.

11. That additional documents were submitted by the Appellant's tax agent during the engagements with the Respondent's officers.

12. That on comparison of suppliers’ sales and Polinmy's purchases claimed, the Respondent stated that it conducted a cost verification analysis by analysing the Appellant's purchases from thirty five companies and comparing that with what the companies declared as sales to the Appellant and arrived at an unsupported sales variance of Kshs. 510,954,548. 00.

13. That in regard to disallowed purchases from non-VAT registered taxpayers, the Respondent alleged that the Appellant had claimed purchases from suppliers who are not registered for VAT and therefore disallowed all input VAT claims from suppliers alleged to not have been registered for VAT.

14. That based on the above issues, the Respondent computed Corporation tax at 226,685,961. 00 and VAT at 292,981,9021. 00.

15. That the Appellant objected to the Corporation tax and VAT assessment on the following grounds:-i.That for the year 2018, Income tax was raised on expected net income and unsupported purchases. The expected net income was wrongly calculated. That the purchases disallowed were also erroneous as the purchases have proof of payment and the same was supplied to the Respondent.ii.That for the year 2018, VAT was erroneously raised on expected net income as some entries in the bank statements were non-income items. That the Respondent did not provide particulars of purchases from non-registered suppliers that were disallowed. That the unsupported purchases disallowed are valid as the taxpayer has proof of payment for the same and the same were supplied to the Respondent.iii.That for the year 2019, Income tax was raised on expected net income and unsupported purchases. That the expected net income was wrongly calculated. That the purchases disallowed were also erroneous as the purchases have proof of payment and the same were supplied to the Respondent.iv.For the year 2019, VAT was erroneously raised on expected net income as some entries in the bank statements were non-income items. That the particulars of the non-income items and list of purchases from non-registered suppliers that were disallowed were never disclosed to the Appellant.v.That the unsupported purchases disallowed are valid and proof of payment for the same was submitted to the Respondent. That the Respondent did not provided the basis for arriving at purchases worth Kshs. 219,322,016. 00 as the Appellant could only confirm Kshs. 116,558,267. 00 worth of purchases. That the figures are therefore exaggerated and without any basis. That the purchases from V-Nekey were doubled to Kshs. 44,411,380. 00 without any justification and yet the accurate declaration as per i-Tax is Kshs. 22,205,690. 00. vi.That for the year 2020, Income tax was raised on expected net income and unsupported purchases. That the expected net income was wrongly calculated. That the purchases disallowed were also erroneous as the purchases have proof of payment.vii.That for the year 2020, VAT was erroneously raised on expected net income as some entries in the bank statements were non-income items. That the unsupported purchases disallowed are valid and proof of payment for the same was submitted to the Respondent.viii.That for the year 2021, Income tax was raised on expected net income and unsupported purchases. That the expected net income was wrongly calculated. That the purchases disallowed were also erroneous as the purchases have proof of payment.ix.That for the year 2021, VAT was erroneously raised on expected net income as some entries in the bank statements were non-income items. That the Appellant was never issued with a list of purchases from non-registered suppliers that were disallowed. That the unsupported purchases disallowed are valid as there is proof of payment for the same.

16. The Appellant submitted that it supplied the evidence required under the VAT Act and Income Tax Act to demonstrate proof of purchase and expected the Respondent to provide a list of un-supported purchases.

17. That in its objection decision dated 21st February 2023, the Respondent made adjustments to the assessment and confirmed tax assessments of Kshs. 317,041,335. 00 computed as follows:-Year 2017 2018 2019 2020 2021 Total

CorpTax 19,431,491 64,096,351 37,003,218 4,327,105 67,698,740 192,556,904

VAT 7,126,296 38,077,892 26,819,377 2,423,179 50,037,687 124,484,431

TaxesDue 26,557,786 102,174,243 63,822,595 6,750,284 117,736,427 317,041,335

18. That in regard to erroneous calculation of expected income, the amount earned in 2017 was declared in the return filed for the year 2018 as per attached audited accounts for 2018 which clearly indicate that the accounts are for 14 months.

19. That further, the amounts in a US dollar account in Equity Bank were inter-bank transfers from DTD Bank to take advantage of the dollar rates at Equity Bank and a bank statement availed to the Respondent clearly demonstrated that fact. That a banking analysis was provided to the Respondent during the engagements with the tax agents.

20. That in regard to purchases claimed by third parties from Polinmy, the Respondent included a sum of Kshs. 35,333,092. 00 claimed to be purchases claimed by third parties from Polinmy in the year 2017. That the particulars of the third parties were never disclosed to the Appellant and therefore the Appellant had no opportunity to adequately respond to those allegations.

21. That further, Polinmy was incorporated in November 2017 and therefore the sales for 2017 were included in the 2018 tax returns and properly accounted for in the financial year 2018 tax returns.

22. That therefore, the sum of Kshs. 35,333,092. 00 having been fully accounted for in the year 2018, the same ought to be allowed by this Tribunal.

23. The Appellant submitted as follows in relation to purchases from non-VAT Registered taxpayers:i.That the Respondent termed imports by the Appellant as purchases from non-registered taxpayers. That this is clearly erroneous and an onerous obligation as it amounts to requiring traders outside Kenya to register for tax in Kenya. That it attached a schedule of the import entries and sample entries rejected by the Respondent as purchases from un-registered taxpayers.ii.That it is illegal and absurd for the Respondent to reject the imports which were claimed as purchases on the grounds that the exporters are not registered in Kenya.iii.That it is pertinent to point out that the Respondent failed to consider and disallowed high imports declared by the Appellant in its returns for 2017, 2019 and 2021 and failed to consider lower import declarations for the years 2018 and 2020 made by the Appellant.iv.That the Commissioner failed to take into account all explanations and documentation provided in order to appreciate all issues raised before arriving at the objection decision but rushed into issuing the objection without considering the documents submitted by the Appellant during the assessment.v.That the Respondent, in arriving at the objection decision, failed to give the Appellant the opportunity to explain the documents submitted especially considering the voluminous nature of the documents and denied it the opportunity to provide further evidence, if necessary, to support its position.

24. On erroneous calculation of expected income, the Appellant stated as follows:i.That the Respondent in its objection decision raised additional taxes of Kshs. 26,557,786. 00 being Corporation tax of Kshs. 19,431,491. 00 and VAT of Kshs. 7,126,296. 00. ii.That the Appellant was incorporated in November 2017 and only traded for 2 months. That the sales earned during the two months were declared for 2017 and were included in the tax returns filed for the year 2018 as per its attached audited accounts for 2018 which clearly indicate that the accounts are for 14 months.iii.That as regards the Equity Bank Kshs. Account in 2018, the amount included Kshs. 2,307,400. 00 which pertains to bounced cheques which were returned back to the customers.iv.That in regard to its DTB 2021 bank account, the computation by the Respondent included interbank transfers from Equity Bank to DTB Bank of Kshs. 5,000,000. 00. v.That in regard to its Equity Bank Kshs. account in 2021, the Respondent’s computation included the sum of Kshs. 45,044,000. 00 which pertains to interbank transfers from DTB to Equity Bank.vi.That the amounts in its US dollar account at Equity Bank were dollar purchases from Kenya shillings at Equity Bank to take advantage of the dollar rates. That the Appellant attached its bank statements for 2017 to 2021 in its Appeal. That further, a banking analysis was provided to the Respondent during the engagements with the tax agents.

25. That from the analysis above, it is the Appellant's submission that the taxable income amounting to Kshs. 1,900,794,892. 00 is erroneous as the income has been fully accounted for and requisite taxes paid.

26. That it is pertinent to note that the only reason why the Respondent rejected the bank statements is because the Respondent alleged that the Appellant did not provide a banking analysis.

27. The Appellant further submitted that in regard to unsupported purchases, it submitted invoices issued by the suppliers and proof of payments to the suppliers. That however, the Respondent in its response stated that the invoices issued by V-Nekey Supplies Limited and Kentonda Company Limited could not be determined to be genuine invoices. That the Respondent did not offer any explanation as to how it arrived at the conclusion that the invoices were not genuine to enable the Appellant to rebut that assertion especially when the invoices complied with the legal requirements under the VAT Act.

28. That on purchases from non-VAT Registered taxpayers, the Respondent in its objection decision confirmed that all purchases from non-VAT registered taxpayers were imports. That however, the Respondent rejected the claims on the ground that exporters were not registered for VAT in Kenya.

29. The Appellant averred that the Respondent’s action of rejecting imports which were claimed as purchases on the grounds that the exporters are not registered in Kenya and yet there is no such requirement under Section 17(3) of the VAT Act is arbitrary, unlawful, in bad faith and above all, abuse of power.

30. That the Respondent further claimed that the Appellant claimed higher imports for 2017, 2019 and 2021 than imports as per Customs data. The Appellant stated that the variances are attributed to the fact that in some cases the claims for one financial year overlapped to the next financial year because of the delays in obtaining the imports documents.

31. That the Respondent only considered the CIF value without taking into consideration the VAT paid for the imports for which VAT is claimable. That in actual sense, for the period 2017 to 2021 the total CIF value of imports was Kshs. 1,114,376,678. 00 while imports declared by the Appellant amounted to 1,095,242,920. 00 which means the Appellant claimed less purchases.

32. That all this information was provided to the Respondent severally including in the Appellant’s request for ADR settlement but no adjustments were made nor any feedback received.

33. The Appellant submitted that it has demonstrated and provided all the relevant documents to support its objection and re-affirmed that all taxes were fully accounted as per a summary of working that it attached to its Appeal.

34. That according to Section 17 of the VAT Act read with Regulation 7 of the VAT Regulations, the production of tax invoices and corresponding ETRs is sufficient proof of supplies. That this evidence was furnished to the Respondent but the Respondent overlooked the same in its objection making process.

35. That the Respondent in its objection decision merely stated that the invoices issued to the Appellant by third parties namely; Kentonda Company Ltd and V-Nekey Supplies Ltd., “could not be determined to be genuine” despite the same having complied with the requirements under Section 17 of the VAT Act. That no further explanation was offered by the Respondent to the Appellant to enable it address any concerns by the Respondent.

36. That by the Appellant having provided the information and documentation, it made out a prima facie case and it was on the Respondent to rebut the evidence produced by the Appellant. That in default of this, the Appellant as a taxpayer would then succeed. That it is therefore unjust for the Respondent to expect the Appellant to produce documents from third parties that it would not be privy to.

37. The Appellant further asserted that it was entitled to deduction of costs of purchases incurred as per Section 15(1) of the Income Tax Act (ITA) and that these expenses had been proved to the required standards. That the Respondent disallowed the expenses thus violating Section 15 of the Income Tax Act Cap 470 of the laws of Kenya. That instead, the Respondent added the said expenses to sales thus causing errors in the computation of sales.

38. That Section 17 of the VAT Act provides the statutory basis for claiming and deducting VAT. That further, Section 17(3) of the VAT Act provides for the following documentation that is required for a claim of input tax:i.an original tax invoice issued for the supply of a certified copy.ii.a Customs entry duly certified by the proper officer and a receipt for the payment of tax:iii.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;iv.a credit note in the case of input tax deducted under section 16(2)orv.a debit note in the case of input tax deducted under section 16(5).

39. That the Courts have been very consistent in their decisions that the documents enumerated under Section 17(3) of the VAT Act when provided by taxpayers are sufficient to build a prima facie case in the taxpayers’ favour.

40. That Section 56 of the TPA places the burden of proof in tax cases on the taxpayer and provides that in any proceedings under that Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect. That the aforementioned Section is reinforced by Section 30 of the TAT Act which provides that in any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.

41. That the shifting of the burden of proof in tax disputes flows from the presumption of correctness which attaches to the Commissioner's assessments or determinations of deficiency. That in the instant case, the Appellant furnished the Respondent with invoices, corresponding ETRs, delivery notes, proof of payments and bank statements to support its objection; and therefore, although the burden of proof lies with the Appellant, the Appellant submitted that it was the duty of the Respondent to demonstrate that the evidence adduced by the Appellant was insufficient and to demonstrate why it deemed the documents insufficient.

42. That on producing the said documents, the evidentiary burden of proof shifted to the Respondent and the same was never discharged by the Respondent.

43. The Appellant submitted that based on its workings and the documentation provided, it sufficiently demonstrated that it fully accounted for and paid all the taxes that are the subject of the assessment and objection decision, save for a sum of Kshs. 1,411, 814. 00 which the Appellant is able, ready and willing to pay

44. The Appellant relied on the following cases to buttress its appeal:i.Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR.ii.Shreeji Enterprises (K)Limited vs. Commissioner of Domestic Taxes. TAT No. 189 of 2019.

Appellant’s Prayers 45. The Appellant prayed for orders that:i.This Honourable Tribunal be pleased to allow the Appeal and set aside the additional Corporation and VAT assessments dated 21st February 2024 for Kshs. 317,041,335. 00. ii.Thereafter, this Honourable Tribunal be pleased to declare that purchases were lawfully made and paid for and hence the input tax claimed must be allowed.iii.This Honourable Tribunal be pleased to Order the Respondent to pay the costs of this Appeal, andiv.This Honourable Tribunal be pleased to issue any other Order favourable to the Appellant as it may find just and expedient to issue.

Respondent’s Case 46. The Respondent’s case is premised on the following documents:i.Its Statement of Facts dated and filed on 24th April, 2024 together with the documents attached thereto.ii.Its written submissions dated and filed on 22nd October, 2024.

47. That the Respondent commenced investigations into the tax affairs of the Appellant following receipt of intelligence on inconsistencies between VAT and Income tax declarations and purchases claimed from third parties. That the investigation period covered the period 2017 to 2021.

48. That the Respondent's investigation compared the Appellant's income as per IT2c and VAT3 declarations, income as per banking statements, income derived from Withholding VAT certificates and purchases claimed from the taxpayer by suppliers.

49. That the Respondent’s investigation from the said sources revealed that the following was the correct income comparisons for the period 2017 to 2021:Description Net banking Financial Statements IT2c VAT3 3rd PartyClaims WHVATCertificates

2017 17,795,527 - 22,603,898 35,333,092 788,793

2018 378,566,592 395,129,215 395,129,915 370,796,893 333,045,849 2,707,535

2019 349,667,587 370,507,938 370,507,938 370,507,947 305,222,004 17,580,462

2020 390,169,470 445,030,319 445,030,319 445,030,325 354,165,119 63,704,65

2021 654,794,322 438,366,268 438,366,268 438,366,268 334,851,122 106,129,94

Total 1,790,993,498 1,649,033,740 1,649,034,440 1,647,305,331 1,362,617,186 190,911,38

50. That the Respondent, based on the above findings, proceeded to pick the highest figure in each year as the Appellant's established income for the year as follows:-Year Taxable Income Established

2017 35,333,092

2018 395,129,215

2019 370,507,938

2020 445,030,325

2021 654,794,322

Total 1,900,794,892

51. That the Respondent also conducted a cost verification analysis on the taxpayer and that this involved an analysis of the Appellant's purchases from twenty-one companies and the same was compared with what the twenty companies declared as their sales to the Appellant and the same revealed variances which were treated as over-claimed purchases on the Appellant as shown below:Description 2017 2018 2019 2020 2021 Total

Totals of purchasesdeclared by Polinmy 29,503,543 344,381,417 352,800,477 93,400,152 11,502,331 831,587,920

Totals of sales invoice as declared by Polinmysuppliers - 93,964,755 166,396,120 50,825,201 9,447,296 320,633,372

UnsupportedPurchases 29,503,543 250,416,662 186,404,357 42,574,951 2,055,035 510,954,548

52. That the Respondent’s investigation also revealed that the Appellant claimed purchases made from suppliers who were not registered for VAT and as a result the Respondent disallowed all input VAT claims from suppliers who are not VAT registered and the same was charged accordingly.

53. That on 20th November, 2023 the Respondent proceeded to share the tax investigation findings with the Appellant requiring that the Appellant if willing to engage the Respondent with a view of resolving the issues to do so within 14 days.

54. That the Appellant failed to respond to the Respondent's tax investigation findings within the required 14 days and as such the Respondent proceeded to issue a notice of assessments to the Appellant on 5th December, 2023.

55. The Respondent averred that the Appellant failed to demonstrate the existence of an underlying commercial transaction in line with Section 17 of the VAT Act so as to benefit from the input claims to offset against the output claim.

56. That the rejection of the Appellant’s input claim was done in accordance with Section 17 of the VAT Act and as such the same was lawful and done in tandem with the powers bestowed upon it.

57. That the Respondent correctly took into account the data received from the Customs and Border Control Department and noted that the purchases by the Appellant were higher than the declarations made and as such treated the same as unsupported purchases.

58. The Respondent stated that it correctly arrived at the decision that invoices issued by V-Nekey Supplies and Kentonda Company Ltd. were not genuine and that the Appellant was informed of the variance being the reason as to why the same were brought to charge.

59. The Respondent further averred that the duty to ensure that tax declarations are accurate and truthful is placed on the Appellant and as such the Respondent imposed no such obligations.

60. That the Appellant is bound by Section 43 of the VAT Act to keep full and true records and so specifically concerning supplies.

61. That further, the burden of proof rests on the Appellant to demonstrate that the transaction occurred by providing evidence of underlying commercial transactions high and above invoices, delivery notes and evidence of payment. That further, the burden of proof rests with the Appellant to prove that it indeed traded with registered suppliers.

62. The Respondent stated that it properly and correctly disallowed high imports by the Appellant as it was revealed that the purchases by the Appellant were higher than those declared at the Customs and Border Control entries.

63. The Respondent submitted that the Appellant only contended the issue of VAT and has not challenged the other tax head, Income tax, as to whether the same was correctly arrived at and as such the same is due and payable.

64. That the Respondent placed reliance on Section 31 of the Tax Procedures Act which provides that:“Amendment of assessments1. Subject to this section, the Commissioner may amend an assessment (referred to in this section as the “original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure that-a.in the case of a deficit carried forward under the Income Tax Act (Cap.470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward for the reporting period;b.in the case of an excess amount of input tax under the Value Added Tax Act, 2013 (No. 35 of 2013), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; orc.in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

65. The Respondent submitted that from the information available to it by the Appellant it was revealed that there was a variance between the VAT and Income tax returns by the Appellant.

66. The Respondent submitted that the assessments issued to the Appellant were done in strict compliance to Section 31 of the Tax Procedures Act as the available information concerning the Appellant indicated that there existed variances on the Appellant's original returns and thus the Respondent used the available information to assess the Appellant.

67. It was the Respondent's submission that the assessments on the Appellant were properly raised for the period 2018 to 2021 as the same falls within the stipulated timelines in which the Respondent ought to assess the Appellant.

68. The Respondent placed reliance on Section 31(4) of the Tax Procedures Act which provides that;“(4) The Commissioner may amend an assessment-a.in the case of gross or wilful neglect, evasion, or fraud by, or on behalf of, the taxpayer, at any time; orb.in any other case, within five years of-i.for a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates; orii.for any other assessment, the date the Commissioner notified the taxpayer of the assessment.”

69. The Respondent placed reliance on Section 56 of the Tax Procedures Act which places the onus of proof on the Appellant in tax objections to avail evidence that would support a contrary assessment.

70. The Respondent argued that the Appellant was given adequate opportunity to challenge the findings by the Respondent at all stages; both the tax investigation stage and at the objection stage.

71. That Section 17 of The Value Added Tax Act provides as follows in relation to input tax:1. Subject to the provisions of this Act 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 in a return for the period, 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.”

72. That from the proper reading of the law, the Respondent submitted that indeed the Appellant has a right to claim inputs as provided for by the law and therefore entitled to said inputs.

73. That however, this entitlement to inputs by the Appellant is not an absolute entitlement but rather a qualified one as provided for under Section 17(2) and 17(3) of the Value Added Tax Act.

74. That Section 17(2) of the Value Added Tax Act provides as follows on allowability of input tax:“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),orb.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.”

75. That further, Section 17(3) on the other hand provides as follows regarding documentation for purposes of claiming input tax: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; andda 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.”

76. It was the Respondent's submission that a taxpayer seeking to claim input tax must prove that it made purchases of a taxable supply and that there existed documentation to prove that indeed the purchases were actually made.

77. That it was evident that the claimed inputs on VAT by the Appellant were not supported with the required documentation or proof of taxable supplies as per the provisions of Section 17 of the Act.

78. The Respondent relied on the following cases to support its averments:i.Metcash Trading Limited vs. Commissioner for the South African Revenue Service and Another Case CCT 3/2000. ii.Kenya Revenue Authority vs. Maluki Kitili Mwendwa [2021] KEHC 4148 (KLR).iii.Primarosa vs. Commissioner of Domestic Taxes (2019) eKLR.

Respondent’s Prayers 79. The Respondent prayed for orders that:i.The Respondent's objection decision dated 21st February, 2024 was proper in law and the same be affirmed.ii.This Appeal be dismissed with costs to the Respondent.

Issues For Determination 80. The Tribunal considered the pleadings and documentation filed by both parties and is of the view that the issue falling for its determination is:

Whether the Respondent’s assessments were justified.

Analysis And Findings 81. The Tribunal having established the issue for its determination, proceeds to analyse it as hereunder.

82. The Tribunal reviewed the parties’ documents and established that the dispute arose from the Respondent’s assessment of VAT and Income tax on the Appellant.

83. The Appellant averred that the Respondent did not consider documentation it provided in response to the Respondent’s assessments and that the assessments were erroneous as a result.

84. The Respondent on its part submitted that its objection decision was well within the law and was justified.

85. The Tribunal proceeds to analyse the two tax heads as follows:

Value Added Tax 86. The Tribunal notes that while the Appellant stated, in its pleadings, that it supplied the Respondent with invoices, corresponding ETRs, delivery notes, proof of payments and bank statements to support its objection, the Respondent did not address this averments but stated that the Appellant did not exhaust its burden of proof as per Sections 30 of the Tax Appeals Tribunal Act and Section 56 of the Tax Procedures Act.

87. The Tribunal specifically notes that the Appellant stated that it provided the following:i.Emails to prove that it submitted documents to the Respondent.ii.Bank statement for the years 2017 to 2021. iii.A schedule of import entries and sample entries rejected by the Respondent.iv.A summary of purchases invoices from Kentonda Company Ltd. and V-Nekey.

88. The Tribunal confirms that it has sighted the following:i.A schedule of sales to Polinmy for the years 2017 to 2021 as declared by its suppliers.ii.A list of purchases for the years 2018 to 2021. iii.Email correspondences between the Appellant and the Respondent.iv.Bounced cheque details for the year 2018. v.The Appellant’s Equity bank account statements for July, August and September 2020. vi.Movement of funds from the Appellant’s Equity Bank Kshs. account to USD. account for purchases of dollars in the year 2021. vii.Details of monies moving from the Appellant’s Equity Bank to DTB Bank accounts for August 2021, September 2021 and October 2021.

89. Section 17(3) of the VAT Act, 2013 provides as follows regarding documentation for purposes of claiming input tax:“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.”

90. The Tribunal notes that the Appellant neither provided the above listed documents for the Tribunal’s reference nor evidence to show that it indeed submitted the same to the Respondent in the course of its correspondences with the Respondent.

91. Section 30 of the Tax Appeals Tribunal Act (TATA) and Section 56 of the Tax Procedures Act (TPA) both place the burden of proof in tax cases on the Appellant.

92. Section 30 of the TATA states as follows regarding the burden of proof in tax cases:“In any proceeding before the Tribunal the Appellant has the burden of proving-where an appeal relates 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.”

93. Further, Section 56 of the TPA states as follows:“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

94. The issue of burden of proof under Section 30 of the TAT Act was clarified by the High Court in Primarosa Flowers Ltd -vs Commissioner of Domestic Taxes (2019) eKLR, where it was held that:-“In tax disputes, the taxpayer must satisfy the burden of proof to successfully challenge the income tax assessment. The onus is on the taxpayer in proving that the assessment excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied.”

95. The Tribunal further relies on the holding of Majanja J. in the case of Commissioner of Domestic Taxes vs. Trical and Hard Limited [2022] where he rendered himself thus in reference to burden of proof in tax cases:“While the general rule or requirement under the sections 107 and 108 of the Evidence Act is he who asserts must prove, it must also be remembered that a person has the burden of proving facts that are peculiarly within its knowledge as provided by section 112 of the Evidence Act which states that, “In civil proceedings, when any fact is especially within the knowledge of any party to those proceedings, the burden of proving or disproving that fact is upon him.” In matters of tax law, this provision is underpinned by the duty of the taxpayer, as shown in the provisions I have outlined elsewhere, to keep specific documents and supply them to the Commissioner upon request.”

96. In the instant case, the Appellant did not demonstrate that it provided documents to support its case against the Commissioner’s assessment of VAT. To this end, the Tribunal finds that the Appellant did not discharge its burden of proof as far as the VAT assessment is concerned.

97. As a result of the foregoing, the Tribunal finds that the Respondent was justified in assessing VAT on the Appellant for the years under dispute.

Corporation TAX 98. The Tribunal notes that the Appellant provided the following documents to support its Corporation tax arguments:i.A schedule of sales to Polinmy for the years 2017 to 2021 as declared by its suppliers.ii.A list of purchases for the years 2018 to 2021. iii.Email correspondences between the Appellant and the Respondent.iv.Bounced cheque details for the year 2018. v.Movement of funds from the Appellant’s Equity Bank KSH. account to USD. account for purchases of dollars in the year 2021. vi.Details of monies moving from the Appellants Equity Bank to DTB bank accounts for August 2021, September 2021, October 2021. vii.The Appellant’s Equity bank account statements for July, August and September 2020.

99. The Tribunal additionally notes that the Appellant argued that the following amounts were erroneously included in the computation of Corporation tax:i.That as regards the Equity Bank Kshs. Account in 2018, the amount included Kshs. 2,307,400. 00 which pertains to bounced cheques which were returned back to the customers.ii.That in regard to its DTB 2021 bank account, the computation by the Respondent included interbank transfers from Equity Bank to DTB Bank of Kshs. 5,000,000. 00. iii.That in regard to its Equity Bank Kshs. account in 2021, the Respondent’s computation included the sum of Kshs. 45,044,000. 00 which pertains to interbank transfers from DTB to Equity Bank.iv.That the amounts in its US dollar account at Equity Bank were dollar purchases from Kenya shillings at Equity Bank to take advantage of the dollar rates. That the Appellant attached its bank statements for 2017 to 2021 in its Appeal. That further, a banking analysis was provided to the Respondent during the engagements with the tax agents.

100. The Tribunal confirms the Appellant’s averments in regard to the foregoing transactions based on the documentation it provided with its pleadings as earlier listed. However, the Appellant did not provide import entries to prove that it indeed imported items that should not have been attributable to unregistered taxpayers. Further, the Appellant did not provide any documentation to support its averments that the Respondent’s computation of Corporation tax on the basis of net income and unsupported purchases was erroneous.

101. As a result of the foregoing, the Tribunal is of the considered view that the Appellant’s Appeal in relation to Corporation tax was partially merited.

Final Decision 102. The upshot of the foregoing analysis is that the Tribunal finds that the Appeal is partially merited and makes the following Orders: -a.The Appeal be and is hereby partially upheld.b.The assessment in relation to VAT be and is hereby upheld.c.The Respondent’s Objection decision dated 21st February, 2024 in relation to Corporation tax be and is hereby varied in the following terms:i.The assessment in relation to the Appellant’s Equity Bank Kshs. Account in 2018 in relation to bounced cheques amounting to Kshs. 2,307,400. 00 be and is hereby set aside.ii.The assessment in relation to the Appellant’s DTB 2021 bank account in relation to interbank transfers from Equity Bank to DTB Bank of Kshs. 5,000,000. 00 be and is hereby set aside.iii.The assessment in relation to the Appellant’s Equity Bank Kshs. account in 2021 in relation to the sum of Kshs. 45,044,000. 00 which pertains to interbank transfers from DTB to Equity Bank be and is hereby set aside.iv.The assessment in relation to the Appellant’s US dollar account at Equity Bank relating to dollar purchases from Kenya shillings at Equity Bank be and is hereby set aside.d.The Respondent is hereby directed to recompute the tax assessment based on the Tribunal’s findings under c) (i) to (iv) above within Thirty (30) days of the date of delivery of this Judgment.e.Each Party to bear its own costs.

103. It is so ordered.

DATED and DELIVERED at NAIROBI this 17th day of January, 2025DR. RODNEY O. OLUOCHCHAIRPERSONCYNTHIA B. MAYAKA ABRAHAM K. KIPROTICHMEMBER MEMBERGLORIA A. OGAGAMEMBER