[2024] KETAT 163 (KLR)

PVH Kenya Limited v Commissioner of Domestic Taxes (Appeal 845 of 2022) [2024] KETAT 163 (KLR) (Commercial and Tax) (9 February 2024) (Judgment)

Neutral citation: [2024] KETAT 163 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Appeal 845 of 2022

Grace Mukuha, Chair, E Komolo, Jephthah Njagi, T Vikiru & G Ogaga, Members

February 9, 2024

Between

PVH Kenya Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya under the Companies Act, Cap 486, of the laws of Kenya whose principal business is providing sourcing support services to its non-resident parent company, PVH Far East Limited (PVHFEL), situated in Hong Kong.

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. 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 KRA Act for the purposes of assessing, collecting, and accounting for all revenues in accordance with those laws.

3. On 20th August 2020, the Appellant lodged with the Respondent Value Added Tax (VAT) refund claims amounting to Kshs. 4,069,388. 00 for the periods of August 2019 to July 2020.

4. The Respondent stated that it reviewed the refund claim and notified the Appellant in an email sent on 30th June 2022 that it had rejected the entire refund claim for the reason that the Appellant failed to adduce documents to support its claim.

5. The Appellant replied to the Respondent’s email of 30th June 2022 stating that it had submitted to the Respondent in an email sent on 12th June 2022 the information that the Respondent had requested, and that the Appellant never received any notification that the email had a delivery error or issue. The Appellant further stated that it is not clear to it what prevented the delivery of its email of 12th June 2022 on the Respondent’s side.

6. Subsequently, the Appellant objected to the refund decision on 27th July 2022.

7. In a letter dated 29th July 2022, the Respondent issued an objection decision advising the Appellant to escalate its grievance to the Tribunal stating that the Independent Review of Objections lacks the jurisdiction to review the objection.

8. Following the Respondent’s objection decision, the Appellant filed its Notice of Appeal against the refund decision on 1st August 2022.

The Appeal 9. The Appeal is premised on the Memorandum of Appeal dated and filed on 15th August 2022 which raised the following grounds: -a.That the Respondent erred in law and fact in claiming the services offered by rejecting the Appellant’s refund claim on the grounds that the Appellant failed to provide information.b.That the VAT refund claim of Kshs. 4,069,388. 00 was validly claimed and is duly payable.

Appellant’s Case 10. The Appellant’s case is premised on the following documents filed before the Tribunal: -a.Its Statement of Facts dated 12th August 2022 and filed on 15th August 2022 and the documents attached thereto;b.Its Witness Statement of Marlene Blessings Akinyi dated 27th March 2023, filed on 30th March 2023 and adopted in evidence under oath by the Tribunal on 6th September 2023; andc.Its Written Submissions dated and filed on 25th September 2023 and the documents attached thereto.

11. The Appellant stated that pursuant to Section 17 (5) of the Value Added Tax Act (the VAT Act) the Appellant made an application, on 20th August 2020, for a cash refund of Kshs. 4,069,388. 00 from the Respondent. That the refund claim resulted from excess input tax arising from making zero rated supplies for the period between August 2019 and July 2020.

12. The Appellant submitted that PVHFEL, the Appellant's non-resident parent deals in provision of sourcing services for apparel for its affiliated companies including PVH Corp. which has a brand portfolio of iconic brands led by Calvin Klein and Tommy Hilfiger. That PVHFEL's affiliated companies procure the apparel directly from manufacturers established in Export Processing Zones in Kenya.

13. The Appellant submitted that it is responsible for providing sourcing support services to PVHFEL as provided under Exhibit A of the Buying Support Services Agreement concluded between the two parties. That the services provided by the Appellant to PVHFEL, which is situated in Hong Kong enable PVHFEL to make sourcing decisions for the benefit of its customers. That the Appellant bills PVHFEL for its services on a cost-plus markup basis every month.

14. The Appellant further stated that on 31st May 2022 as part of the VAT refund audit process, the Respondent requested, through email, for clarification in relation to the Appellant's invoices and bank statements.

15. That specifically, the Respondent noted a variance between the amounts charged on invoices raised by the Appellant to its non-resident customer, PVHFEL which is based in Hong Kong, and the payments actually received by the Appellant from PVHFEL. That PricewaterhouseCoopers Limited (PwC), acting on behalf of the Appellant, acknowledged the Respondent's email on 3rd June 2022 and committed to providing the information at the earliest opportunity possible vide email attached to the Appellant’s statement of facts.

16. That on 6th June 2022, the Respondent sent an email reminder in respect of its request and gave the Appellant seven (7) days to respond, that is, to provide the clarification sought vide email attached to the Appellant’s statement of factS.

17. That PwC acknowledged receipt of the email on 8th June 2022 stating that the information would be provided within the stipulated timelines vide email attached to the Appellant’s statement of facts.

18. The Appellant asserted that through an email of 12th June 2022, PwC provided the information required by the Respondent vide email attached to the Appellant’s statement of facts. That within the email, PwC clarified the reasons for the variances between the value of invoices raised by the Appellant to PVHFEL and the payments received by the Appellant from PVHFEL.

19. The Appellant stated that on 30th June 2022, PwC, on behalf of the Appellant, wrote an email to the Respondent upon noticing that the Appellant’s VAT credits for the period between August 2019 and July 2020 had been reinstated to the Appellant’s iTax ledger.

20. The Appellant further stated that in the email, PwC inquired whether the reinstatement indicated a rejection of the refund claim noting that the Appellant had not received any formal communication, including any iTax notifications through the Appellant's iTax registered address. That PwC thus sought for confirmation on the status of the refund claim.

21. The Appellant averred that the Respondent responded to the email on the same day stating that the refund claim was rejected on the basis that the Respondent did not receive any response following PwC's last email of 8th June 2022. That PwC responded to the Respondent through emails dated 30th June 2022 reiterating and demonstrating that the information was sent within the stipulated timeline of 7 days.

22. It was the Appellant’s statement that on 7th July 2022, PWC engaged the Respondent through a physical meeting and showed the relevant officers the email and attachments sent on 12th June 2022 and further requested the Respondent to issue the taxpayer with a formal rejection notice through iTax. The Appellant also stated that the Respondent indicated that iTax was experiencing system challenges and that it therefore was not possible to issue the taxpayer with a formal notice. The Appellant attached to its statement of facts an email recapping the meeting deliberations.

23. The Appellant stated that pursuant to Section 51 of the Tax Procedures Act, 2015, it lodged its notice of objection against the Respondent's refund decision vide a letter dated 26th July 2022 attached to its Statement of Facts.

24. That the Respondent subsequently issued its decision to the Appellant's notice of objection via a letter dated 29th July 2022 (copy attached hereto and marked as PVH- 9). That the Respondent did not make any decision on the merits of the Appellant's notice of objection citing a lack of jurisdiction on the basis of changes to the Tax Procedures Act, 2015 introduced by the Finance Act 2022. That the Respondent advised the Appellant to appeal to the Tribunal.

25. The Appellant stated that upon this notification from the Respondent, it lodged a Notice of Appeal with the Tribunal, attached to the Appellant’s Statement of Facts.

26. The Appellant appealed against the Respondent's decision of 29th July 2022 on the sole ground that the Respondent erred in law and fact in rejecting the Appellant's refund claim on the grounds that the Appellant failed to provide information.

27. The Appellant addressed its grounds of appeal as follows:a.On whether the Respondent was justified in rejecting the Appellant’s refund application on the basis that the documents were not provided.

28. The Appellant submitted that contrary to the Respondent's assertion that it received no further information after PwC's email of 8th June 2022, that indeed an email (attached to the Appellant’s Statement of Facts and marked as PVH 3) containing a clear and concise response on the clarification sought by the Respondent as well as various attachments was submitted within the 7-day timeline given by the Respondent. That the attachments included in the email were samples of debit notes issued by PVHFEL and invoices issued by the Appellant for the months of February 2020, April 2020 and July 2020.

29. The Appellant’s witness stated that on 30th June 2022, she wrote an email to the Respondent on behalf of the Appellant upon noticing that the company's VAT credits for the period between August 2019 and July 2020 had been reinstated to its iTax ledger. That in her email of 30th June 2022, on behalf of the Appellant, she inquired whether the reinstatement indicated a rejection of the refund claim noting that neither the Appellant nor its tax agents had received any formal response on its refund claim. That the Appellant also did not receive any notifications through the Appellant's iTax registered email address, that she therefore sought for confirmation on the status of the refund claim.

30. The Appellant’s witness further stated that the Respondent replied on the same day noting that the refund claim was rejected on the basis that the Respondent did not receive any responses following PwC's last email of 8th June 2022.

31. The Appellant’s witness also stated that she replied to the Respondent on behalf of the Appellant regarding the rejection of the refund claim through emails on 30th June 2022 reiterating and demonstrating that the information was sent within the stipulated timeline of seven (7) days. That she never received any notification that the email of 12th June 2022 had a delivery error or issue, and referred to the email communication of 30th June 2022 attached and marked as PVH-6 in the Appellant’s bundle of documents.

32. The Appellant stated that it is not clear to it what prevented the delivery of its email of 12th June 2022 on the Respondent’s side; that it could have been any number of issues including mail size limitations or a server error. The Appellant further stated that it did not receive any delivery failures as is typical when size limitation is a challenge. That notwithstanding, it submitted that Respondent's rejection of the VAT refund claim is based on inaccurate facts as, according to the Appellant, the information requested by the Respondent was submitted through PwC's email to the Respondent dated 12th June 2022.

33. The Appellant submitted that the Respondent ignored and failed to review the documents it submitted via email thus leading to an incorrect decision. That the Appellant's tax consultant and the witness in this matter testified before the Tribunal on 6th September 2023 stating that she shared the requested documentation with the Respondent.

34. That the witness read before the Tribunal the email of 12th June 2022 where the requested documentation was shared and that the said email was attached to the Appellant's list and bundle of documents reproduced as here below: -“Hi VeronicaI trust you are well.To explain the intercompany settlement, PVH Kenya Limited, this would be PVH Far East Limited offsetting any intercompany recharges whilst settling the debit notes.For example, these would be courier fees paid in Kenya by the PVH Kenya and reimbursed by the PVH Hong Kong entity. Additionally, there are expat payroll costs paid by PVH FE (HK) on behalf of PVH KL, which is being charged to Kenya. These are adjustments that are offset and then a net payment is paid out. There are other insignificant costs like insurance which are offset accordingly.To exemplify this further we have picked samples of the months of February, April and July 2020 and attached supporting documentation justify the intercompany settlement that leads to less monies being remitted to PVH account than is invoiced.”

35. Additionally, that the Appellant's witness confirmed that the bundle of documents annexed as PVH-8 in the Appellant's List and Bundle of Documents as the debit note 2 and invoices that were attached in the Appellant's email of 12th June 2022. That the Appellant's witness also confirmed before the Tribunal that it never received any notification from its email provider of an undelivered email.

36. The Appellant averred that it had provided all the necessary evidence in support of its case before this Tribunal as the burden of proving its case is upon it.

37. The Appellant further submitted that under Sections 107 and 108 of the Evidence Act provide for the following on the burden of proof: -Section 107 of the Evidence Act states as follows: -“(1)Whoever desires any court to give judgement as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.(2)When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.”

38. That Section 108 of the Evidence Act states as follows: -“The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were giver on either side.”

39. That Section 56 of the Tax Procedures Act in peremptory terms places the burden of proof in tax cases on the taxpayer. That the above Section is reinforced by Section 30 of the TAT Act which provides: -“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: or(b)in any other case, that the tax decision should not have been made or should have been made differently.”

40. It was the Appellant’s submission that it had provided primary evidence of the communication between the Appellant and the Respondent before this Tribunal. That the Appellant called upon a witness who testified under oath on the steps she took to share the documentation with the Respondent in this matter. Furthermore, that the Appellant has provided before this court the actual requested documentation that was shared with the Respondent for its review.

41. The Appellant submitted that this is the best type of evidence and cited Section 65 (1) of the Evidence Act which states as follows: -“Primary evidence means the document itself produced for the inspection of the court.”

42. The Appellant further submitted that the Appellant has discharged its burden of proof in this matter and has provided primary evidence in support of its case, in which instance the pendulum shifted to the Respondent and the onus of proof of its allegations against the Appellant fell on it. That during the cross examination of the Appellant's witness, the Respondent’s counsel noted that there was no attachment on the face of the email of 12th June 2022.

43. That in response, the Appellant acknowledged that the email print out of documents illustrates that it was page 1 out of 18 (1/18) on the bottom right of the page as when printed out, that the rest of the pages were excluded due to their bulky nature.

44. The Appellant contended that the Respondent has not provided any form of evidence to the contrary that the documents were not shared to its officers, and that the Appellant’s witness acknowledged that she never received an email bounce back from the Respondent's email.

45. The Appellant submitted that additionally, in Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR the court quoted the Canadian case of Hickman Motors Ltd. v Canada {1997} 2 SCR 33. 6, that the court stated as follows: -“The appellant's initial onus of proof is met where a prima facie case is made out. The onus shifts to the Minister to rebut the prima facie case made out by the taxpayer and to prove the assumptions. The appellant adduced clear, unchallenged and uncontradicted evidence. The respondent adduced no evidence whatsoever. Where the onus has shifted to the Minister and the Minister has adduced no evidence whatsoever, the taxpayer is entitled to succeed.”

46. The Appellant submitted that once the taxpayer has made out a prima facie case to prove the facts, the onus then shifts to the Respondent to rebut the prima facie case. That if the Respondent cannot provide any evidence to prove its position, the taxpayer will succeed. That in Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya (Supra), the court stated that the test is whether the taxpayer has established a prima facie case and having done so, the evidential burden shifted to the Revenue Authority to persuade the TAT on the contrary.

47. The Appellant submitted that it had a legitimate expectation that the Respondent would process the refund as it had done in other related matters and the Respondent would respond to the Appellant's email as it usually had in prior years.

48. The Appellant further submitted that during the Appellant's cross-examination before this Tribunal, the Appellant stated that it did not follow up on the email of 12th June 2022 as it had expected that the Respondent would respond to the Appellant's email.

49. The Appellant averred that it had no obligation to follow up with the Respondent on a response. The Appellant invited the Tribunal to review appendix PVH-2 which runs from pages 3 to 20 of the Appellant's list and bundle of documents and submitted that the subject of the email was "PVH KENYA LIMITED VAT CLAIM AUGUST 2019 TO JULY 2020" and that this was the period in question over the VAT refund claim.

50. That at page 16 of the Appellant's list and bundle of documents being PVH-2, the Respondent's officer on 9th March 2021 acknowledged receipt of the Appellant's documents shared on email on 3rd March 2021 stating that the information was under review.

51. The Appellant maintained that the Respondent had created a legitimate expectation by way of conduct that it would acknowledge receipt of the Appellant's emails and revert to the Appellant. That the Appellant's witness confirmed before the Tribunal that she did not receive any bounce-back message from the email system and the Respondent has not provided any evidence to the contrary that it did not receive the attached documents.

52. The Appellant contended that the Respondent in its Statement of Facts dated 15th September 2022 did not adduce its own emails printed from its end but reproduced the Appellant's annexures that were attached in the Appellant's Statement of Facts. That the Appellant's prints out were done according to its email system and the Respondent has not given the Appellant visibility of the print outs from its own email system.

53. That given that the Respondent created legitimate expectation through conduct on the basis that it replies to the Appellant's emails, the Appellant expected that the Respondent would acknowledge receipt and proceed to analyse the same as the Appellant had already done its part.

54. The Appellant referred to the case of Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others Nairobi HCMA No. 743 of 2006 [2007] KLR 240 where it was held that: -“Stated simply legitimate expectation arises for example where a member of the public as a result of a promise or other conduct expects that he will be treated in one way and the public body wishes to treat him or her in a different way.”

55. The Appellant argued that the Respondent's failure to depart from the position that it intimated to the Appellant that it would acknowledge receipt of the documents is therefore contrary to the Appellant's legitimate expectation.

56. That according to De Smith, Woolf & Jowell, "Judicial Review of Administrative Action" 6th Edn. Sweet & Maxwell page 609 quoted in Republic v Kenya Revenue Authority Ex-Parte: Cosmos Limited [2016] eKLR the court held that: -“A legitimate expectation arises where a person responsible for taking a decision has induced in someone a reasonable expectation that he will receive or retain a benefit of advantage. It is a basic principle of fairness that legitimate expectations ought not to be thwarted. The protection of legitimate expectations is at the root of the constitutional principle of the rule of law, which requires predictability and certainty in government's dealings with the public.”

57. That in determining the existence of legitimate expectation, the court in Republic v Principal Secretary, Ministry of Mining Ex-parte Airbus Helicopters Southern Africa (PTY) Ltd [2017] eKLR cited R (Bibi) vs. Newham London Borough Council [2001] EWCA Civ 607 [2002] 1 WLR 237 at [19] to hold that existence of legitimate expectation involves the following questions: -“In all legitimate expectation cases, whether substantive or procedural, three practical questions rise, the first question is to what has the public authority. whether by practice or by promise, committed itself to: the second is whether the authority has acted or proposes to act unlawfully in relation to its commitment: the third is what the court should do.”

58. The Appellant contended that the Respondent being a public body by practice as illustrated at page 16 of the Appellant's List and Bundle of Documents would respond to the Appellant's emails even if it is days later. That the Respondent by willfully ignoring the Appellant's emails is a violation of the Appellant's legitimate expectation that it would acknowledge receipt and the documents shared would be analysed accordingly.

59. The Appellant asked the Tribunal to set aside the Respondent's decision dated 30th June 2022 and 29th July 2022 communicating rejection of the Appellant's VAT refund claim amount to Kshs. 4,069,388. 00 for the periods between August 2018 to July 2020. b.On whether the Appellant lodged a valid VAT refund claim from excess input VAT incurred from making zero rated supplies for the period between August 2019 to July 2020 pursuant to Section 17 (5) of the VAT Act, 2013.

60. The Appellant stated that the services it provides are for use and consumption by PVHFEL outside Kenya, as required by Section 2 of the VAT Act, and are therefore subject to VAT at the zero rate (0%) as provided by the VAT Act.

61. That during the period of the refund claim, the VAT Act provided for zero rating of the exportation of taxable services. That whether or not the services were exported is not the subject of contention, and that the Respondent has in the past refunded the Appellant’s refunds under Section 17 of the VAT Act.

62. That accordingly, the Respondent erred in law and fact in rejecting the Appellant's refund claim on a false premise given that the services provided by the Appellant to PVHFEL were used and consumed in Hong Kong and constitute a service exported out of Kenya. That in accordance with the provisions of Section 17 (5) of the VAT Act the Appellant is entitled to cash refunds from the Respondent relating to the excess input tax from making the zero-rated supplies which it correctly claimed. That the Respondent's objection decision should thus be set aside.

63. The Appellant averred that with regard to the Appellant’s refund claim for the months of August 2019 to July 2020, Part A of the Second Schedule to the VAT Act, 2013 provided: -“Where the following supplies...take place the course of a registered person’s business, they shall be zero-rated in accordance with the provisions of Section 7 - 1. The exportation of goods or taxable services”

64. The Appellant submitted that Section 2 of the VAT Act, 2013 defines “service exported out of Kenya” to mean a service provided for use or consumption outside of Kenya. That the implication of the provisions quoted above is that a service is considered as being exported outside Kenya and thus attracting VAT at the rate of zero-rate if the service is provided for use and consumption outside Kenya. That these services are evidenced by the Appellant's debit notes and invoices attached as PVH-8 at pages 33 to 135 of the Appellant's list and bundle of documents and shared with the Respondent on email on 12th June 2022.

65. That the High Court in Commissioner of Domestic Taxes v Total Touch Cargo Holland [2018] eKLR held as follows with regard to export of services: -“A clear reading of this provision is that for a service to be deemed an "exported service", it matters not whether that service was performed in Kenya or outside Kenya. The determining factor is the location where that service is to be finally used or consumed. Therefore, an exported service will be one which is provided for use or consumption outside Kenya.”

66. The Appellant asserted that the services provided by the Appellant to PVHFEL, which is situated in Hong Kong, enable PVHFEL to make sourcing decisions for the benefit of its customers. It submitted that the direct contractual relationship between a supplier and its customer as a recipient of the supply, dictates the nature of the supply.

67. That in CSARS v Respublica (Pty) Ltd (1025/2017) [2018] ZASCA 109, the South African Supreme Court of Appeal in determining whether a supply had been made to an end user, held: -“Respublica’s approach is contrary to the general principle (as recognised in other VAT jurisdictions) that the VAT consequences of a supply must be assessed by reference, first and foremost, to the contractual arrangements under which the supply is made ... [14] So viewed, one cannot legitimately attribute to Respublica’s supply, governed as it was by its own contractual terms, the characteristics of an altogether different supply of accommodation to third parties under separate contracts, with whom it had no contractual nexus.”

68. The Appellant asserted that it has a contractual relationship with its non-resident parent, that is, PVHFEL. That the Agreement between these two parties determines the nature of the supply and the VAT consequences of the supply.

69. That facets of the service provided by the Appellant were for the benefit of its non-resident parent, PVHFEL, who is the person who used and consumed this service. That in essence, these are services provided by a Kenyan entity to a non-resident person, and therefore fall within the ambit of the definition of a service exported out of Kenya and are zero-rated for VAT purposes. That in accordance with the provisions of Section 17 (5) of the VAT Act the Appellant is entitled to cash refunds from the Respondent relating to the excess input tax from making the zero-rated supplies which it correctly claimed.

70. The Appellant submitted that the Respondent has previously refunded the Appellant on previous refund applications under Section 17 (5) of the VAT Act and thus created a legitimate expectation that such VAT refund claims are valid. That as explained in Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others Nairobi (supra).

71. That by way of conduct, the Respondent had refunded the Appellant's VAT refund claims on exported zero rated supplies and thus the Appellant had a legitimate expectation that its refund claim for the periods August 2019 to July 2020 would be processed in a similar manner. That to the Appellant's surprise, the Respondent proceeded to reject the refund claim on unjustified and unfair grounds thus violating the Appellant's legitimate expectation.

72. The Appellant asked the Tribunal to set aside the Respondent's decision dated 27th July 2022 and to direct the Respondent and its officers to vacate the VAT credits for the period between August 2019 and July 2020 that had been reinstated to the Appellant's iTax ledger and the Respondent to refund the Appellant Kshs. 4,069,388. 00.

Appellant’s prayers 73. The Appellant prayed that: -a.This Appeal be allowed.b.The Respondent’s decision dated 30th June 2022 communicating rejection of the Appellant’s refund claim amounting to Kshs. 4,069,388. 00 be set aside.c.That the Respondent’s objection decision dated 30th July 2022 be set aside in its entirety.d.The costs of and incidental to this Appeal be awarded to the Appellant.e.Any other orders that the Tribunal may deem fit.

Respondent’s Case 74. The Respondent’s case is premised on the following documents:a.Its Statement of Facts dated and filed on 15th September 2022 and the documents attached thereto; andb.Its Written Submissions dated 20th September 2023.

75. The Respondent stated that the Appellant made an application for a VAT refund of Kshs. 4,069,388. 00 on 20th August 2020. That the Appellant claimed that the refund claim resulted from excess input tax arising from making zero rated supplies for the periods between August 2019 and July 2020.

76. The Respondent argued its case under two issues for determination by the Tribunal:a.Whether the objection decision was justified.b.Whether the rejection notice was justified.a.On whether the objection decision was justified.

77. The Respondent stated that on 30th June, 2022 the Respondent rejected the Appellant’s application for refund noting that the Appellant failed to provide the relevant supporting documents despite being requested severally.

78. The Respondent stated that the Appellant lodged an objection to the rejection notice on 27th July vide a notice of objection. That the Respondent rejected the same stating that it lacked jurisdiction to determine the matter.

79. The Respondent stated that it relied on Section 47 (13) which was recently amended by the Finance Act 2022. That Section 47 (13) provides as follows: -“A person aggrieved by a decision of the Commissioner under this section may appeal to the Tribunal within thirty days after being notified of the decision.”

80. The Respondent stated that the Appellant ought to have appealed directly to the Tribunal as stated in the objection decision where the Respondent advised the Appellant to escalate its grievance with haste.b.On whether the rejection notice was justified.

81. The Respondent submitted that the Appellant made an application for a VAT refund of Kshs. 4,069,388. 00 claiming refunds resulting from excess input tax arising from making zero rated supplies for the periods between August 2019 and July 2020.

82. The Respondent stated that while seeking a refund of overpaid tax, a taxpayer has to adhere to the refund process as set out in Section 47 of the TPA which provides: -“(1)When a taxpayer has overpaid a tax under a tax law the taxpayer may apply to the Commissioner, in the approved form, for a refund of the overpaid tax within five years of the date on which the tax was paid.Provided that for value added tax the period of refund shall be as provided for under the Value Added Tax Act, 2013 (No. 35 of 2013).(2)The Commissioner may, for purposes of ascertaining the validity of the refund claimed, subject the claim to an audit.(3)The Commissioner shall notify in writing an applicant under subsection (1) of the decision in relation to the application within ninety days of receiving the application for a refund.(4)Where, in relation to an application for a refund made under this section or made under any other tax law, the Commissioner is satisfied that a taxpayer has overpaid a tax, the Commissioner shall apply the overpayment in the following order—(a)in payment of any other tax owing by the taxpayer under the tax law;(b)in payment of a tax owing by the taxpayer under any other tax law; and(c)any remainder shall be refunded to the taxpayer.(4A)…(4B)…(4C)…(5)The Commissioner shall repay the overpaid tax within a period of two years from the date of application, failure to which the amount due shall attract an interest of 1% per month or part thereof of such unpaid amount after the period of two years.”

83. The Respondent stated that it undertook a thorough and detailed analysis of all the documentation and explanations provided by the Appellant during the audit process.

84. The Respondent further stated that it noted that the documents required for one to be entitled to claim a refund are provided for under Section 17 (3) of the VAT Act. That however, where it is doubtful, that it is entitled to ask for additional information to satisfy itself as to the self-assessment made by a taxpayer as provided under Section 59 of the Tax Procedures Act and Section 43 of the VAT Act. That in this context, the Appellant’s claim for VAT refund was not supported by valid documentation and as such was fatally defective.

85. The Respondent stated that it sent an email requesting for invoices and bank statements specifically to determine the variances between amounts charged on invoices raised by the Appellant to its non-resident customer, and that the same were not provided.

86. Further, that even if the invoices existed, that on its own would not be enough. That evidence demonstrating that the underlying transaction indeed took place is important. That assurance needs to exist that indeed the transaction for which the supplies relate to took place. Accordingly, that copies of cheques or confirmation from banks that payments were made to the suppliers are material, being the underlying information supporting the supplies made.

87. The Respondent stated that the burden is on the Appellant to demonstrate that it has discharged a tax liability as provided for under Section 56 of the Tax Procedures Act which provides that: -“In any proceedings under this Part, the burden shall be on the Appellant to prove that a tax decision is incorrect”

88. The Respondent submitted that it is not in dispute that the Respondent in several correspondences including the emails of 6th June 2022 and 8th June 2022 annexed as 'KRA-2' in the Respondent's bundle and as 'PVH-3' and 'PVH-4' in the Appellant's bundle, requested the Appellant to furnish documents, in which email the Appellant acknowledged and agreed to avail the same within the stipulated timelines.

89. It was the Respondent's case that the requested documentation was not availed within the agreed timelines and as such, the Respondent was justified in rejecting the Appellant's refund claim.

90. The Respondent also submitted that it placed reliance on Section 51 (3) of the Tax Procedures Act which provides that: -“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute, or has applied for an extension of time to pay the tax not in dispute under section 33(1); and(c)all the relevant documents relating to the objection have been submitted.”

91. The Respondent submitted that it relied on the case of TAT 724 of 2022 Alphaquest Designs Limited v Commissioner of Domestic Taxes, where the Tribunal in dismissing the Appeal on account of an invalidation held that: -“The Tribunal is also cognizant of the provisions of the tax laws that place the burden on the taxpayer to prove that a tax decision is wrong. The Tribunal does not think that this burden has been discharged by the Appellant. No material has been placed before the Tribunal to make it believe the Respondent's decision was wrong. The Appellant laid out no basis as to why the requested documents could not be availed to the Respondent. The Appellant has not disputed the taxable sales in question and it admitted in its objection that it failed to declare the sales within the stipulated time due to the director's sickness, and seeks the Respondent to allow it to amend the return. The upshot of the analysis is that the Tribunal finds no reason to fault the Respondent's decision invalidating the objection in this Appeal.”

92. The Respondent reiterated that the Appellant's witness during cross-examination at the hearing of the Appeal was unable to demonstrate whether the Appellant attached any documents to its email. That the Respondent's counsel allowed the Appellant's witness to review all the documents submitted at the Tribunal in order to ascertain its claim that it had actually furnished the Respondent with documents, but that the same was to no avail. That in absence of the supporting documents, the Respondent had no choice but to reject the refund claim.

93. The Respondent submitted that it is a well settled principle of law that he who alleges must prove. The Respondent relied on the case of TAT 871 of 2022 This is Africa (K) Travel Agency Limited v Commissioner of Legal Services & Board Co-ordination where the Tribunal upheld the Commissioner's invalidation decision on the stating that: -“The Appellant did not in any manner indicate or demonstrate that it supplied the Respondent with the documents in support of the objection at the instance of lodging the notice of objection or subsequent to the requests by the Respondent. The decision to invalidate the notice of objection is to that extent merited.”

94. The Respondent submitted that in exercise of its mandate, it considered the information available and to the best of its judgment made the correct decision by invalidating the objection and rejecting the refund application. That the Appeal should therefore be dismissed on this ground.

95. That Section 56 (1) of the Tax Procedure Act provides that in any proceedings that relate to tax decisions, objections and appeals, the burden shall be on the taxpayer to prove that a tax decision is incorrect.

96. That Section 30 the Tax Appeals Tribunal Act provides that: -“In a proceeding before the Tribunal., the appellant has the burden of provinga.where an appeal relates to an assessment, that the assessment is excessive; orb.in any other case, that the tax decision should not have been made or should have been made differently.”

97. That the High Court in the case of Ushindi Limited v Commissioner of Investigation and Enforcement Kenya Revenue Authority [2020] eKLR the court stated that: -“The burden of proof was on the Appellant to raise the specific items and/or aspects of the tax assessment that were manifest errors, wrongfully imposed or not liable to be paid as tax.”

98. The Respondent submitted that the Appellant has the burden of proof that the assessment made by the Respondent is incorrect and/or that the documents and/or information relied upon by the Respondent in making the assessment was wrong.

99. That in the case of Digital Box Limited versus Commissioner of Investigations and Enforcement [2020] the Tribunal held that: -“The question of burden of proof in taxation matters is provided for under the Tax Procedures Act as well as the Tax Appeals Tribunal Act. Section 56(1) of the Tax Procedures Act states that: "In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect." Section 30 of the Tax Appeals Tribunal Act similarly provides that: "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; or (b) in any other case, that the Tax Decision should not have been made or should have been made differently." In this case, the Appellant is the one seized of the desire to prove that the Respondent used extraneous information in arriving at its assessment. Thus, according to the provisions of the Evidence Act, the Tax Procedures Act and the Tax Appeals Tribunal Act, the burden of proof falls upon the Appellant.... The Tribunal is of the view that the Appellant did not discharge its burden of proof in showing that the Respondent used extraneous considerations and documents other than those prescribed by the law. The averments made by the Appellant did not amount to evidence.”

100. The Respondent submitted that the burden is on the Appellant to prove that the Respondent erred in invalidating the objection. That in doing so, the Appellant was required to adduce evidence in form of information and/or documents to support its objection.

101. The Respondent averred that it wrote to the Appellant severally and requested for documents in support of the late objection and gave the Appellant ample time to furnish the same information and/or documentation.

102. That in the case of Republic v KRA: Proto Energy Limited (2022) eKLR the court stated as follows: -“The most significant justification for placing the burden of proof on the tax payer is the practical consideration that the Commissioner cannot sustain the burden because he does not possess the needed evidence. Under the system of self reporting tax liability, the taxpayer possesses the evidence relevant to the determination of tax liability. It is simply fair to place the burden of persuasion on the taxpayer, given that he knows the facts relating to his liability, because the commissioner must rely on circumstantial evidence, most of it coming from the taxpayer and the taxpayer's records. The taxpayer must present a minimum amount of information necessary to support his position. This safety valve seems to place the burden of production on the taxpayer without relieving the Commissioner of the overall burden of proof. The tax payer's evidence must meet this minimum threshold.”

103. The Respondent submitted that the Appellant has the responsibility to maintain records and availing the same when requested to do so. That the Appellant failed to discharge the burden of proof by failing to provide any documents in support of the objection despite several requests by the Respondent.

104. The Respondent further submitted that it was therefore correct, in absence of any documents to warrant a review of the Appellant's refund application, to use the available information to invalidate the objection.

105. lt was the Respondent's submission that the Appellant failed to discharge its burden of proof in failing to provide the relevant supporting documents at the objection stage.

Respondent’s prayers 106. The Respondent prayed that the Tribunal finds:a.That the Commissioner’s decision to reject the objection was proper in law and in conformity with the Value Added Tax Act and the Tax Procedures Act.b.That this Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues for Determination 107. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issues for determination as follows:a.Whether the Respondent’s objection decision dated 29th July 2022 is proper in law.b.Whether the Respondent’s refund decision dated 30th June 2022 rejecting the entire refund claim was justified.

Analysis and Findings 108. Having identified the issues that call for its determination, the Tribunal proceeds to analyse them as hereunder.a.Whether the Respondent’s objection decision dated 29th July 2022 is proper in law.

109. On 20th August 2020, the Appellant lodged with the Respondent Value Added Tax (VAT) refund claims amounting to Kshs. 4,069,388. 00 for the periods of August 2019 to July 2020.

110. The Respondent stated that it reviewed the refund claim and notified the Appellant in an email sent on 30th June 2022 that it had rejected the entire refund claim for the reason that the Appellant failed to adduce documents to support its claim. The Appellant objected to the refund decision on 27th July 2022.

111. In a letter dated 29th July 2022, the Respondent issued an objection decision advising the Appellant to escalate its grievance to the Tribunal stating that the Independent Review of Objections lacks the jurisdiction to review the objection.

112. Following the Respondent’s objection decision, the Appellant filed its Notice of Appeal against the Respondent’s decision on 1st August 2022.

113. The Tribunal observes that on 27th June 2022 the Appellant lodged its notice of objection to the refund decision dated 30th June 2022. Upon the Tribunal’s perusal of this notice of objection, the Tribunal finds that the Appellant’s notice of objection met the threshold of a valid objection according to Section 51 (3) of the TPA. That the notice of objection stated the Appellant’s grounds of objection, the amendments it required to be made to correct the decision, and the reasons for the amendments, and that the Appellant submitted relevant documents relating to the objection. Section 51 (3) of the TPA provides as follows: -“(3)A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; and(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute, or has applied for an extension of time to pay the tax not in dispute under section 33(1).(c)all the relevant documents relating to the objection have been submitted.”

114. The Respondent stated that it issued an objection decision on 29th July 2022 not on the merits of the case, rather that it noted that it lacked jurisdiction to determine the matter. The Tribunal refers to the objection decision where the Respondent stated that: -“I write to inform you that following the recent amendments introduced by the Finance Act 2022, particularly Section 47 (13) of the Act that took effect on 1st July 2022, that taxpayers aggrieved by decisions rendered on a refund claim by the respective Commissioner may seek redress at the Tax Appeals Tribunal within 30 days of being notified of said decision.It is therefore advised that you escalate your grievance with haste to the Tax Appeals Tribunal as the Independent Review of Objections lacks the jurisdiction to review your objection application.”

115. Section 47 (13) of the TPA which the Respondent referred to in its objection decision came into operation on 1st July 2022 following the operationalization of Section 42 of the Finance Act 2022 which amended the TPA by repealing Section 47 and replacing it with the new section 47 which included sub-section 47 (13) which provides that: -“A person aggrieved by a decision of the Commissioner under this section may appeal to the Tribunal within thirty days after being notified of the decision.”

116. The Tribunal is cognizant that the definition of ‘tax decision’ in Section 3 of the TPA as it read on 30th June 2022 included the term ‘refund decision’ as provided below:“‘tax decision means—(a)an assessment;(b)a determination under section 17(2) of the amount of tax payable or that will become payable by a taxpayer;(c)a determination of the amount that a tax representative, appointed person, director or controlling member is liable for under sections 15, 17, and 18;(d)a decision on an application by a self-assessment taxpayer under section 31(2);(e)a refund decision;(f)a decision under section 48 requiring repayment of a refund; or(g)a demand for a penalty;”

117. Section 49 of the Finance Act 2023 which came into operation from 1st July 2023. amended the definition of “tax decision” in Section 3 of the Tax Procedures Act, 2015 by deleting item (e) – refund decision. This means that on 30th June 2022, a refund decision was a tax decision.

118. The Appellant and the Respondent both acknowledged that the Respondent notified the Appellant of the refund decision rejecting the refund claim on 30th June 2022.

119. The Tribunal further notes that this refund decision was made under the repealed Section 47 of the TPA. The Tribunal notes that the Respondent in its objection decision purported to apply Section 47 (13) of the TPA retrospectively to a refund decision that was made prior to the amendment of the law.

120. It is the Tribunal’s considered view that the dispute that arose from the refund decision, notified to the Appellant on 30th June 2022, which fell under the definition of a tax decision as at 30th June 2022, ought to have initially been remedied with the Respondent as required under Section 51 of the TPA and in accordance with the doctrine of exhaustion.

121. The Tribunal refers to Section 51 (1) and (2) of the TPA which provides that: -“(1)A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law.(2)A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

122. The Tribunal further highlights that Section 51 (8) and (10) of the TPA outline the Respondent’s obligations as provided below: -“(8)Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and Commissioner's decision shall be referred to as an "objection decision".(9)The Commissioner shall notify in writing the taxpayer of the objection decision and shall take all necessary steps to give effect to the decision, including, in the case of an objection to an assessment, making an amended assessment.(10) An objection decision shall include a statement of findings on the material facts and the reasons for the decision.”

123. The Tribunal reiterates that the procedures for redress of disputed tax decisions are clearly set in the law, and that the Commissioner is required to comply with the same. In the same vein the Tribunal takes into consideration the holding in the case of W.E.C. Lines Ltd v The Commissioner of Domestic Taxes [TAT Case No. 247 of 2020] where it was held at paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

124. The Tribunal is of the considered view that the Appellant lodged a valid notice of objection to the refund decision, a tax decision, within time and holds that the Respondent’s failure to review the Appellant’s objection to the refund decision dated 30th June 2022 on its merits was in contravention with the dispute resolution process provided in peremptory terms under Section 51 of the TPA.

125. Consequently, the Tribunal finds that the Respondent erred in issuing the objection decision dated 29th July 2022 where it claimed that it lacked the jurisdiction to determine the matter.

126. Having entered the above finding the Tribunal did not delve into the other matter that fell for its determination namely, ‘Whether the Respondent’s refund decision dated 30th June 2022 rejecting the entire refund claim was justified’, as it had been rendered moot.

FINAL DECISION 127. Based on the foregoing analysis, the Tribunal finds that the Appeal is merited, and accordingly makes the following Orders:-a.The Appeal be and is hereby allowed.b.The Respondent’s objection decision dated 29th July 2022 be and is hereby varied to the extent that the notice of objection to the Respondent’s rejection of refund claim of Kshs. 4,069,388. 00 for the periods of August 2019 to July 2020 is hereby returned to the Respondent to review the objection on its merits and make a decision on it within Sixty (60) days of the date of delivery of this Judgment.c.Each party to bear its own costs.

128. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9THDAY OF FEBRUARY, 2024. GRACE MUKUHA - CHAIRPERSONDR. ERICK KOMOLO - MEMBERJEPHTHAH NJAGI - MEMBERTIMOTHY VIKIRU - MEMBERGLORIA A. OGAGA - MEMBER