[2024] KETAT 1588 (KLR)

Primeline Hypermart Limited v Commissioner of Domestic Taxes (Appeal E445 of 2023) [2024] KETAT 1588 (KLR) (11 October 2024) (Judgment)

Neutral citation: [2024] KETAT 1588 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E445 of 2023

E.N Wafula, Chair, G Ogaga, Jephthah Njagi & E Ng'ang'a, Members

October 11, 2024

Between

Primeline Hypermart Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated in Kenya under the Companies Act. Its principal activity is in the business of retail and wholesale supplies in Samburu County, Kenya.

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

3. The Respondent reviewed the declarations by the Appellant and records and documentation provided by the Appellant in support of the same, and on 29th March 2023, it assessed the Appellant Kshs. 716,159. 22 for Value Added Tax (VAT) for the periods May 2022 and June 2022 comprising additional output VAT and disallowed input VAT.

4. The Appellant objected to the VAT assessments on 29th April 2023 in their entirety.

5. Following the Appellant’s objection to the assessment, the Respondent issued an objection decision on 27th June 2023 which partially allowed the objection resulting to the amendment of the assessments from Kshs. 716,159. 22 to Kshs. 646,896. 23.

6. Dissatisfied with the Respondent’s objection decision, the Appellant filed its Notice of Appeal dated 24th July 2023.

The Appeal 7. The Appeal is premised on the Memorandum of Appeal filed on 7th August 2023 which raised the following grounds: -a.The disallowed purchases input were valid invoices meeting the requirements of the VAT Act Cap 476. By virtue of the invoices being admitted on iTax without any rejection of the same from registered suppliers, it would be wrong to invalidate them at any point. The construed additional VAT was not based on the returns filed but the Respondent raised taxes by disqualifying valid invoices contrary to Section 5 of the VAT Act Cap 476. b.The additional income for May 2022 of Kshs. 134,179. 00 and June 2022 of Kshs. 1,128,512. 62. Additional assessment added on general rated 16% during the validation was excessively adjusted without any documentary evidence to support the claim. All sales were captured through the sales ledgers from source documents were not utilized to arrive at the decision.c.The bank amounts taken as sales were not adjusted for loans, transfers and other amounts not related to business. The approach used by the Respondent assumption of all money in the statement were direct sales whereas was not the case. The sales ledger sent on 23rd June was accurate as it tallied with the figures on iTax VAT return. The correct adjustments were assumed by the Respondent without any explanation.d.The disallowed 13 invoices among the 29 disallowed invoices with different claimant names, the Appellant was able to demonstrate the bank statement were actually paid by him, that is the reason why it had claimed them as input. The disqualification of invoices for not being properly supported by proper fiscal receipts/invoices was not a requirement as per VAT Act CAP 476.

Appellant’s Case 8. The Appellant’s case is premised on the following documents filed before the Tribunal: -a.The Appellant’s Statement of Facts dated 24th July 2023 and filed on 7th August 2023 and the documents attached to it; andb.The Appellant’s written submissions dated and filed on 13th February 2024.

9. The Appellant averred that tax invoices from VAT registered taxpayers are admissible automatically on the iTax platform and if the tax invoices do not meet the threshold they are automatically rejected through a process of VAT Automatic Assessment (VAA). That the process used by the Respondent falls short of the stipulated process of invalidating an invoice.

10. The Appellant argued that to ascertain proper VAT, it is normal practice to examine sales records, sales deliveries and sales ledgers provided by the taxpayer. The Appellant added that the requested details from POS Systems, when the Appellant had not installed the systems, was confusing and put the Appellant in jeopardy.

11. The Appellant stated that the Respondent never asked for sales receipts and sales ledgers to reconcile the real sales posted in the returns on iTax.

12. The Appellant submitted that Section 5 of the VAT Act specifies the reliable documents for VAT preparation.

13. The Appellant further averred that the bank statement does not provide adequate explanation for business transactions. It argued that the inflow of money in the bank statement may not be necessarily be business income unless properly interrogated and full disclosure done. That without such explanations, the Respondent’s assumption that all credits in the bank statements were all incomes, led to an erroneous conclusion and an excessive additional assessment. The Appellant referred to the case of Hole v. The Queen 2016 TCC 55 in support of this argument. That it was held: -“There are two primary ways in which a taxpayer can challenge a bank deposit analysis. The first is to prove that his/her records were adequate and thus that his/her income should have been determined using those records.”

14. It was the Appellant’s assertion that some of the invoices that the Respondent disallowed contained different claimant names, and that the Appellant was able to demonstrate by the bank statement that the supplies were actually paid by the Appellant, and that this is reason why the Appellant claimed them as input.

15. The Appellant referred to Section 17(1) and (2) of the VAT Act to submit that it claimed input VAT from valid invoices.

16. The Appellant argued that the Respondent’s disqualification of invoices on the basis of not being properly supported by fiscal receipts and invoices was unlawful as it was not based on any legal requirement to admit invoices only supported by fiscal ETR and ESD receipts/invoices.

17. The Appellant stated that it adduced clear and unchallenged evidence and discharged its burden of proof under the law. The Appellant submitted that the VAT Act stipulates claims for invoices should be from registered VAT persons and that proper fiscal receipts/invoices were not a requirement as per the VAT Act. That by the Respondent applying ETR/ESD Registration 2012 and 2020 and TPA 2015 to disqualify genuine invoices, deprived the Appellant of its rights.

18. In support of its submission, the Appellant cited Section 42(1) of the VAT Act which provides as follows: -“(1)Subject to subsection (2), a registered person who makes a taxable supply shall, at the time of the supply furnish the purchaser with the tax invoice containing the prescribed details for the supply.(2)No invoice showing an amount which purports to be tax shall be issued on any supply—(a)which is not a taxable supply; or(b)by a person who is not registered.”

19. The Appellant also relied on the case of Shreeji Enterprises (K)Limited vs. Commissioner of Investigations & Enforcement TAT No. 58 and 189 of 2019 where the Tribunal quoted the case of Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R 336 where it was held that the taxpayer’s initial onus of proof is met where a prima facie case is made out. That the onus shifts to the Minister to rebut the prima facie case made out by the taxpayer and to prove the assumptions.

Appellant’s prayer 20. The Appellant prayed for the Tribunal to set aside the assessment notice numbers KRA2XXXXX50885 and KRA2XXXXX508923.

Respondent’s Case 21. The Respondent’s case is premised on the following documents:a.The Respondent’s Statement of Facts dated and filed on 13th October 2023 and the documents attached to it; andb.The Respondent’s written submissions dated 27th February 2024 and filed on the same date.

22. The Respondent stated that it reviewed the Appellant’s declared returns, specifically, the Value Added Tax (VAT) returns, and subsequently invited the Appellant to shed light on the declarations, but the Appellant did not present itself.

23. The Respondent narrated that its officers, on 21st February 2023, made an impromptu visit to the Appellant’s business premises and the officers noted the following: -a.The Appellant had 12 employees (he and wife excluded).b.The Appellant had 6 front counters and 2 serving wholesale customers from another room.c.The counters were fixed with TIMS but the Appellant was not sending the sales as per TIMS legislation.d.A scan of the TIMS receipt issued using QR scanner did not give an expected result as the scan prompted an invalid website.e.The Appellant was not able to explain the issue of invalid website on the QR Scanner.f.The Respondent requested for the previous day sales but the Appellant was not able to provide the same.

24. The Respondent averred that its visits to the Appellant’s business premises revealed that the Appellant had no Z reports, and that the declarations done by the Appellant were done by guessing to fit its output and input margin of between Kshs. 1,000 and Kshs. 3,000 as tax payable.

25. The Respondent further stated that it assessed the Appellant Kshs. 716,159. 22 for VAT for the periods May 2022 and June 2022 based on a return review that it conducted, and the Appellant’s failure to avail its sales records and failure to support disallowed input tax claims.

26. The Respondent recapped that the Appellant objected to the May 2022 and June 2022 assessments on 9th May 2023, and that the Respondent requested the Appellant in writing to provide documentary evidence in support of its objection not later than 16th May 2023.

27. The Respondent affirmed that the Appellant submitted part of the required information on 15th May 2023, 24th May 2023 and 23rd June 2023.

28. The Respondent stated that it issued an objection decision on 27th June 2023 which partially allowed the objection resulting to the amendment of the assessments from Kshs. 716,159. 22 to Kshs. 646,896. 23.

29. That aggrieved by the objection decision dated 27th June 2023 the Appellant has filed this Appeal.

30. The Respondent identified the following issues for determination in this Appeal: -a.Whether the assessments on VAT raised by the Respondent contravened Section 17 of the VAT Act.b.Whether the Appellant discharged its burden of proof as required by law.

a. On whether the assessments on VAT raised by the Respondent contravened Section 17 of the VAT Act. 31. In response to ground 1 of the Memorandum of Appeal, the Respondent averred that it disallowed the Appellant’s invoices as the same did not meet the requirements of Section 17 of the VAT Act as the invoices could not be verified from the suppliers’ declarations.

32. The Respondent submitted that the VAT Act allows for claiming of input tax for purchases incurred for purposes of making taxable supplies as long as the Appellant has the documentation in support of the claim (in this case, a valid tax invoice) or the supply has been declared by the supplier. The Respondent asserted that the right to claim input tax is not absolute but rather a qualified right as provided for under Section 17(2) and 17(3) of the VAT Act.

33. The Respondent asserted that it arrived at the proper decision in disallowing the Appellant’s input tax claims. That the Respondent was presented with twenty-nine (29) invoices by the Appellant and thirteen (13) were disallowed as they did not meet the requirements of Section 17 of the VAT Act.

34. The Respondent posited that it is a requirement that a taxpayer seeking to claim input tax must prove that they made purchases of a taxable supply and that there existed documentation to prove that the purchases were actually made.

35. The Respondent further averred that from the return review exercise it conducted, it was evident that the input VAT claimed by the Appellant was not supported with the required documentation or proof of taxable supplies as per the provisions of Section 17 of the VAT Act.

36. The Respondent, while placing reliance on the Tribunal’s decision in the case of Tarua Scrap Metal Dealers Limited-Vs-Commissioner for Domestic Taxes E053 of 2023, submitted that the Appellant did not comply with all the requirements as expounded by the Tribunal at Paragraph 60 of its Judgment as follows:-“The plain and unambiguous language of Section 17 (1), (2) and (3) of the VAT Act is clear that the only conditions provided for a taxpayer to qualify for input VAT are:a)That the input tax was incurred on a taxable supply made to or on importation made by a taxpayer at the end of the tax period,b)That the input tax is deducted by a registered person on taxable supplies made by him,c)That the input tax is to be allowable for deduction within six months after the end of the tax period in which the supply or importation occurred, andd)That the taxpayer shall have the relevant documentation.”

37. The Respondent further averred that in its email to the Appellant, dated 9th May 2023, it requested for documentary evidence in support of the objection and the same was not provided by the Appellant.

38. The Respondent stated that transactions which documentary evidence met the requirements under Section 17 of the VAT Act and was provided were allowed, hence why the Respondent partially allowed the Appellant’s objection.

39. It was the Respondent’s assertion that where no documents were provided, the law does not allow a taxpayer claim for VAT, hence the same were lawfully denied.

40. The Respondent placed reliance on Osho Drapers Limited Vs. Commissioner of Domestic Taxes where this Honourable Tribunal held that: -“For one to claim input tax, there must be a purchase of a taxable supply. It is not enough to have documentation listed in Section 17 of the VAT Act. The documentation must be supported by an underlying transaction and the taxpayer must furnish proof that there was an actual purchase.”

b. On whether the Appellant discharged its burden of proof as required by law. 41. In responding to ground 4 of the Memorandum of Appeal, the Respondent stated that of the 13 disallowed invoices, 6 invoices from Gilani’s Supermarket were not in the name of the claimant (hence did not meet the requirements of Section 17 of the VAT Act 2013 read together with the VAT-Electronic Tax Invoice Regulations 2020); that 3 invoices were not availed for verification and the other 4 invoices from Kanini Haraka were not proper tax invoices as the dates of the unique register/invoice identifier (electronic signature code) were inconsistent with the dates of the invoices.

42. The Respondent cited Sections 51 and 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act and submitted that it is trite law that in tax disputes the burden of proof squarely falls on the taxpayer who claims that an assessment is wrong.

43. That in challenging the Respondent’s assessments, it was upon the Appellant to provide relevant documents as required under Section 51(3) of the Tax Procedures Act. The Respondent submitted that by failing to provide the supporting documents even after the Respondent had requested for the same, the Appellant did not discharge its burden of proving that the Respondent’s tax decision was incorrect as required under Section 56(1) of the Tax Procedures Act.

44. The Respondent relied on the case of Metcash Trading Limited vs Commissioner for the South Africa Revenue Services and another Case CCT 3/2000, where Justice Kriegler opined that: -“But the burden of proving that the Commissioner was wrong rests on the vendor. Because VAT is inherently a system of self-assessment based on vendor's own record, it is obvious that the incidence of this onus can have a decisive effect on the outcome of an objection decision.”

45. It was the Respondent’s submission that the rejection of the said invoices meant that the Appellant had not discharged its burden of proof as provided under the tax law. In support of this submission the Respondent also relied on the case of Primarosa Vs Commissioner of Domestic Taxes (2019) eKLR where the Honourable JA Makau while relying on Mulherein Vs. Commissioner of Taxation (2013) FCAFC 115 opined as follows:“The Federal Court of Australia held that in tax disputes, the taxpayer must satisfy the burden of proof to successfully challenge income tax assessment. The onus is on the taxpayer in proving that assessment was excessive by adducing positive evidence which demonstrates the taxable income on what tax ought to have been levied.”

46. The Respondent further submitted that under Section 30 of the Tax Appeals Tribunal the Appellant is further burdened to prove his case. That the Tribunal in such proceedings ought to proceed on the assumption that the Respondent’s assessment is correct until the taxpayer produces competent and relevant evidence.

47. The Respondent asserted that the Honourable Tribunal has not been presented with any evidence in this matter to disturb the assessments and objection decision issued by the Respondent and as such the Appellant has failed to discharge its burden of proof.

48. The Respondent also referred to the case of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR where the Court further held that: -“The uniqueness of tax laws is underscored by the fact that even where the constitutionality of such provisions has been challenged, courts have consistently held that placing the burden upon the tax payer is not unconstitutional nor is it contrary to Parliament's intent. This is because there is a distinction between the legal burden of proof and the evidential burden of prove. These are two different concepts. The Evidence Act places the burden of proving the existence any fact in issue on the party who asserts. The evidential burden exists in the form of a tactical onus to contradict, weaken or explain away the evidence that has been led. It is the latter form of burden which may shift from one party to the other.”

49. From the foregoing, the Respondent submitted that the objection decision issued was proper in law as the Appellant did not provide enough records to support its input claimed for the period under review.

Respondent’s prayers 50. The Respondent prayed that the Tribunal grants the orders that:a.The Respondent’s additional assessments dated 29th April 2023 were done in conformity with the relevant laws.b.The Respondent’s objection decision dated 27th June 2023 was proper and the same be affirmed.c.This Appeal be dismissed with costs to the Respondent.

Issue For Determination 51. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issue for determination as follows:Whether the Respondent was justified in issuing its objection decision dated 27th June 2023.

Analysis And Findings 52. The Tribunal analysed the issue that calls for its determination as hereunder, having reviewed all the pleadings and submissions by the Parties concerning the impugned objection decision.

53. On 29th March 2023, the Respondent assessed the Appellant for Kshs. 716,159. 22 for VAT for the periods May 2022 and June 2022. The Respondent stated that the assessments were based on a return review that it conducted, and the Appellant’s failure to avail its sales records and failure to support disallowed input tax claims.

54. Following the Appellant’s objection to the assessment on 29th April 2023, the Respondent issued an objection decision on 27th June 2023 which partially allowed the objection resulting to the amendment of the assessments from Kshs. 716,159. 22 to Kshs. 646,896. 23 on the basis that the objection was not entirely supported.

55. The Appellant argued that the Respondent never asked for sales receipts and sales ledgers to reconcile the real sales posted in the returns on iTax.

56. The Appellant asserted that some of the purchase invoices that the Respondent disallowed contained different claimant names, and that the Appellant was able to demonstrate by the bank statement that the supplies were actually paid by the Appellant.

57. The Appellant referred to Section 17(1) and 17(2) of the VAT Act to submit that it claimed input VAT from valid invoices and affirmed that it adduced clear and unchallenged evidence and discharged its burden of proof under the law.

58. The Tribunal relies on the Value Added Tax (VAT) Act and its subsidiary legislation, being the substantive law upon which the assessment was based, along with the relevant provisions of the Tax Procedures Act.

59. The Tribunal has established that the impugned objection decision is based on the Respondent’s additional output VAT and disallowed input VAT assessments.

Output VAT Additional Assessment 60. In respect of the Appellant’s dispute against the Respondent’s output VAT assessment of a principal tax of Kshs. 202,030. 66 plus interest and penalties charged for the periods of May 2022 and June 2022, the Tribunal observes that the Appellant only argued that the Respondent never asked for sales receipts and sales ledgers to reconcile the real sales posted in the returns on iTax.

61. The Tribunal notes that the Appellant failed to explain the sales variances established by the Respondent in its analysis of the Appellant’s records and VAT return declarations, and failed to present any documents to support its contention against the assessments that resulted in the additional output VAT assessment.

62. Further, the Tribunal is cognizant that Section 43 of the VAT Act envisages that a person carrying on a business must keep certain records and documents and avail the same to the Commissioner for inspection. This Section provides that: -“(1)A person shall, for the purposes of this Act, keep in the course of his business, a full and true written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes and the record shall be kept in Kenya for a period of five years from the date of the last entry made therein.(2)The records to be kept under subsection (1) shall include—(a)copies of all tax invoices and simplified tax invoices issued in serial copies number order;(b)of all credit and debit notes issued, in chronological order;(c)purchase invoices, copies of customs entries, receipts for the payment of customs duty or tax, and credit and debit notes received, to be filed chronologically either by date of receipt or under each supplier's name;(d)details of the amounts of tax charged on each supply made or received and in relation to all services to which section 10 applies, sufficient written evidence to identify the supplier and the recipient, and to show the nature and quantity of services supplied, the time of supply, the place of supply, the consideration for the supply, and the extent to which the supply has been used by the recipient for a particular purpose;(e)tax account showing the totals of the output tax and the input tax in each period and a net total of the tax payable or the excess tax carried forward, as the case may be, at the end of each period;(f)copies of stock records kept periodically as the Commissioner may determine;(g)details of each supply of goods and services from the business premises, unless such details are available at the time of supply on invoices issued at, or before, that time; and(h)such other accounts or records as may be specified, in writing, by the Commissioner.(3)Every person required under subsection (1) to keep records shall, at all reasonable times, avail the records to an authorised officer for inspection and shall give the officer every facility necessary to inspect the records.”

63. The Tribunal observes that the Appellant did not adduce in its Appeal the records that it was required to keep under Section 43 of the VAT Act 2013 in support of its case against the additional output VAT assessment.

64. The Tribunal notes that the Appellant merely made averments that it was not requested by the Respondent to provide sales receipts and sales ledgers, but failed to furnish the Tribunal with these and other records it is required to keep, in support of its case the Respondent’s additional output VAT assessments were incorrect, contrary to the requirement of Section 62 of the VAT Act, Section 56(1) of the Tax Procedures Act 2015 and Section 30 of the Tax Appeals Tribunal Act cited below.

65. Section 62 of the VAT Act provides that: -“In any civil proceedings under this Act, the burden of proving that any tax has been paid or that any goods or services are exempt from payment of tax shall lie on the person liable to pay the tax or claiming that the tax has been paid or that the goods or services are exempt from payment of tax.”

66. Section 56(1) of the TPA further provides as follows: -“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

67. Section 30(a) of the Tax Appeals Tribunal Act provides that: -“30. In a proceeding before the Tribunal, the appellant has the burden of proving—(a)where an appeal relates to an assessment, that the assessment is excessive;”

68. The Tribunal cites the case of TAT No. 70 of 2017 Afya X-RAY Centre Limited v Commissioner of Domestic Taxes to emphasise the importance of a taxpayer to discharge its burden of proof. In the said case, the Tribunal held that: -“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing these documents in order that a comprehensive audit of its affairs be done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents. Moreover, the Appellant had an opportunity to consider the Respondent’s finding after the confirmation of the assessment. Both are instances, where the Appellant could have produced its books of accounts to counter the Respondent’s assessment, after all, the Appellant by law bears the burden of proof…”

69. The Tribunal further relies on the holding of Madan J in his judgment where the Judge held in CMC Aviation Ltd V Cruisair Ltd (1) [1978] KLR 103 that: -“Pleadings contain the averments of the parties concerned. Until they are proved or disproved, or there is an admission of them or any of them, by the parties, they are not evidence and no decision could be founded upon them. Proof is the foundation of evidence. Evidence denotes the means by which an alleged matter of fact, the truth of which is submitted for investigation. Until their truth has been established or otherwise, they remain un-proven. Averments in no way satisfy, for example, the definition of “evidence” as anything that makes clear or obvious; ground for knowledge, indication or testimony; that which makes truth evident, or renders evident to the mind that it is truth.”

70. Based on the aforementioned provisions of the law and case law, the Tribunal finds that the Appellant has not discharged its burden of proof to show that the Respondent erred in confirming the additional output VAT assessments for the periods of May 2022 and June 2022.

Disallowed input VAT 71. The Respondent stated that of the 13 disallowed invoices, 6 invoices from Gilani’s Supermarket were not in the name of the Appellant (hence did not meet the requirements of Section 17 of the VAT Act 2013 read together with the VAT-Electronic Tax Invoice Regulations 2020); that 3 invoices were not availed for verification and the other 4 invoices from Kanini Haraka were not proper tax invoices as the dates of the unique register/invoice identifier (electronic signature code) were inconsistent with the dates of the invoices.

72. The Respondent disallowed principal input VAT of Kshs. 355,453. 42 deducted by the Appellant in the VAT return for the period of June 2022, and assessed VAT of the same amount plus interest and penalties.

73. In support of its argument against the disallowed invoices, the Appellant attached as evidence:a.Purchase invoices from Gilani’s Supermarket showing recipients’ names different from the Appellant; andb.Purchase invoices from Kanini Haraka.

74. Section 17 of the VAT Act, as was applicable for the period of assessment provided as below: -“17. (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, 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), or(b)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; and(d)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); or”

75. Section 23(1) of the Tax Procedures Act also provides that a taxpayer is required to keep records as follows: -“A person shall—(a)maintain any document required under a tax law, in either of the official languages;(b)maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; and(c)subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.”

76. Further, Section 43 of the VAT Act 2013 requires a person in the course of his business to keep a full and true written record of every transaction he makes, and details the records to be kept. The person shall avail the records to the Commissioner for inspection.

77. The Tribunal notes that, in this case, Section 17 of the VAT Act provides that input tax on a taxable supply to a registered person may be deducted by the registered person from its tax payable on supplies made by the registered person: -a.To the extent that the supply was acquired to make taxable supplies;b.Within six (6) months after the end of the tax period in which the supply occurred;c.From the first tax period in which the person holds the documentation referred to in Section 17(3) of the VAT Act.

78. The documentation that the Appellant was to hold before deducting input tax in the VAT return for the period June 2022 was, according to Section 17(3)(a) of the VAT Act, an original tax invoice issued for the supply or a certified copy.

79. The Respondent disallowed 6 invoices from Gilani’s Supermarket which were not in the name of the Appellant, who had claimed input tax on the same. The Appellant confirmed that indeed these invoices contained different claimant names, and averred that it was able to demonstrate by the bank statement that the supplies were actually paid by the Appellant.

80. It was the onus of the Appellant to convince the Tribunal that it had adhered to the criteria outlined in Section 17 of the VAT Act to deduct input tax on the 6 invoices from Gilani’s Supermarket which were not in its name. The Tribunal, after examining the pleadings and evidence presented by the Appellant in support of its case, determines that the Appellant has failed to demonstrate that the taxable supplies in the aforementioned invoices were supplies to the Appellant, that the Appellant acquired those supplies to make its taxable supplies or that the supplier had declared the sales invoices in a return.

81. The Tribunal also finds that the Appellant’s assertion that it provided the Respondent with its bank statements indicating that it paid for the supplies listed in the aforementioned invoices, was not persuasive, as not only did the Appellant fail to provide evidence of this assertion, but also, it did not put the Appellant closer to achieving the clear parameters of deducting input tax in accordance with Section 17 of the VAT Act.

82. Consequently, the Tribunal finds that the Appellant did not discharge its burden of proof as it is required under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act and as a result finds that the Respondent was justified in disallowing input tax in respect of the six (6) invoices from Gilani’s Supermarket.

83. The Respondent also stated that the Appellant failed to furnish it with 3 invoices for verification and for this reason, it disallowed the Appellant’s input tax claim. The Appellant did not contest this statement, neither did the Appellant provide the missing invoices for the Tribunal’s examination.

84. Therefore, the Tribunal finds that the Appellant did not discharge its burden of proof as it is required under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act and as a result finds that the Respondent was justified in disallowing input tax relating to purchase invoices not presented by the Appellant.

85. The Respondent, in addition, disallowed input tax on invoices from Kanini Haraka on the premise that they were not proper tax invoices as the dates of the unique register/invoice identifier (electronic signature code) were inconsistent with the dates of the invoices.

86. In contention of this finding by the Respondent, the Appellant argued that the Respondent’s disqualification of invoices on the basis of not being properly supported by fiscal receipts and invoices was unlawful as it was not based on any legal requirement to admit invoices only supported by fiscal ETR and ESD receipts/invoices.

87. The Tribunal perused the VAT Act and its subsidiary legislation and finds that the meaning of the term ‘tax invoice’ was provided under Regulation 9(1) of the now revoked Value Added Tax (Electronic Tax Invoices) Regulations, 2020 (the Regulations) which were gazetted on 25th September 2020 vide Legal Notice No. 189 of 2020.

88. The Kenya Revenue Authority, in a Public Notice dated 9th July 2021, informed the public that the roll out of the ‘electronic tax invoice’ pursuant to the provisions of the Regulations commenced on 1st August 2021 and that all VAT registered taxpayers shall thereafter be required to comply with the requirements of the Regulations on implementation of the electronic tax invoice within a period of twelve (12) months from the date of the roll out, subsequently extended by the Respondent to 30th November 2022. The Tribunal, thus, finds that the Appellant’s assertion that the Regulations were not applicable in the period of assessment, that is, June 2022, is incorrect.

89. Regulation 9(1) of the now revoked Value Added Tax (Electronic Tax Invoices) Regulations, 2020 provided the meaning of the term ‘tax invoice’ as below: -“A tax invoice generated from a register shall contain(a)the PIN of the registered user of a register;(b)the time and date of issuance;(c)the serial number of the invoice;(d)the buyer's PIN;(e)the total gross amount;(f)the total tax amount;(g)the item code of supplies (for exempt, zero-rated and other rate supplies) as provided by the Commissioner in accordance with the Act;(h)a brief description of goods and services;(i)the quantity of supply;(j)the unit of measure;(k)the tax rate charged;(l)the unique register identifier;(m)the unique invoice identifier;(n)a quick response (QR) code; and(o)any other requirement as may be specified by the Commissioner.”

90. Insofar as the Regulations made under the VAT Act were not inconsistent with the provisions of the VAT Act, then the provisions in the subsidiary legislation were applicable. The Tribunal finds that the provisions of the Regulations were not inconsistent with the VAT Act with regard to issuance of tax invoices.

91. Section 42 of the VAT Act provides as follows with regard to the issuance of tax invoices: -“(1)Subject to subsection (2), a registered person who makes a taxable supply shall, at the time of the supply furnish the purchaser with the tax invoice containing the prescribed details for the supply.”

92. Time of supply is defined in Section 12(1) of the VAT Act, which provides as follows:“Subject to subsection (3), the time of supply, including a supply of imported services, shall be the earlier of—(a)the date on which the goods are delivered or services performed;(b)the date a certificate is issued by an architect, surveyor or any other person acting as a consultant in a supervisory capacity;(c)the date on which the invoice for the supply is issued; or(d)the date on which payment for the supply is received, in whole or in part.”

93. The Tribunal observes that the Appellant failed to address the Respondent’s finding that the date on the electronic signature on the invoice was different from the date of the invoices from Kanini Haraka, beside the Appellant’s averment that the Regulations were not applicable in the period of assessment.

94. Section 42 of the VAT Act required Kanini Haraka, the registered person in this case, to furnish the Appellant, the purchaser in this case, with a tax invoice at the time of supply. It was the onus of the Appellant to prove the validity of the tax invoices furnished to it by Kanini Haraka by providing a plausible explanation why the date the tax invoice was issued varied from the invoice date, if indeed the tax invoice was issued at a time of supply different from the invoice date.

95. Due to the Appellant’s failure to provide an explanation and evidence in support of its assertion that the invoices from Kanini Haraka were valid, the Tribunal was not persuaded that the tax invoices presented by the Appellant were valid tax invoices.

96. Accordingly, the Tribunal finds that the Appellant did not discharge its burden of proof to demonstrate that the Respondent’s additional assessment of VAT on the invoices from Kanini Haraka was incorrect or excessive as required under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act.

97. The Tribunal refers to the case of Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) where the Court held at paragraph 26 that: -“From the above, it is clear that the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner. I have emphasized and underlined ‘competence’ and ‘relevance’ because it is only evidence that meets these two tests that demolishes presumption of correctness and swings the burden to the Commissioner. This means that even if one avails evidence but then it is found that the same is incompetent or irrelevant, then the burden continues to remain with the tax payer.”

98. In the absence of relevant documentation to facilitate in the assessment of a tax liability, the Respondent is empowered under Sections 31(1) of the Tax Procedures Act (TPA) to use its best judgement in making its tax assessment.

99. Consequently, the Tribunal finds that the Respondent was justified in issuing the objection decision dated 27th June 2023.

Final Decision 100. The upshot of the foregoing analysis is that the Tribunal finds that the Appeal fails and accordingly proceeds to make the following Orders:-a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 27th June 2023 be and is hereby upheld.c.Each party to bear its own costs.

101. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 11TH DAY OF OCTOBER, 2024. ERIC NYONGESA WAFULACHAIRMANGLORIA A. OGAGAMEMBERJEPHTHAH NJAGIMEMBEREUNICE N. NG’ANG’AMEMBER