[2023] KETAT 140 (KLR)

Rabdiya Construction Company v Commissioner of Domestic Taxes (Appeal 365 of 2022) [2023] KETAT 140 (KLR) (Civ) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 140 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 365 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, AK Kiprotich & Jephthah Njagi, Members

March 17, 2023

Between

Rabdiya Construction Company

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company and a registered taxpayer.

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

3. The Respondent carried out return review for the period 2015 to 2018 covering Corporation Tax and VAT.

4. The Respondent issued an assessment for the years 2015–2018 on June 29, 2021. The Appellant lodged a late objection vide a letter dated June 8, 2021.

5. The Respondent issued its objection decision vide a letter dated February 24, 2022.

6. The Appellant being dissatisfied with the objection decision filed this Appeal on April 7, 2022.

The Appeal 7. The Appeal as stated in the Memorandum of Appeal filed on April 7, 2022 was premised on the grounds that:i.The Respondent erred in law and fact by wrongful deeming variance in VAT sales and income tax sales as undeclared income.ii.The Respondent fell in error by ignoring the documents provided after receipt of a pre-assessment letter.iii.The Respondent erred in law and fact by wrongful ignoring the Tax Procedures Act Section 29(1)(5).iv.The Respondent erred in law and fact by wrongful ignoring the Tax Procedures Act Section 23 1(c) on record keeping.v.The Respondent erred in law by wrongful interpretation of VAT Act 2013 Part (iii) Section 5(1) on the operation charge of Tax which provides that Value Added Tax is charged when taxable supply is made by a registered person in Kenya.vi.That the Respondent erred in fact by failing to acknowledge the reconciliations bank statements and schedules availed by the Appellant which clearly showed how purchases were accounted for by the Appellant.

The Appellant’s Case 8. Appellant’s case is premised on the hereunder filed documents and proceedings before the Tribunal:-i.The Appellant’s Statement of Facts filed on April 7, 2022 together with the documents attached thereto.ii.The Appellant’s written submissions filed on October 15, 2022.

9. The Appellant submitted that it filed its self-assessment returns for both VAT and Income Tax in the year 2015 to 2018. That the Respondent disallowed purchases in the Income Tax as listed below2015 2016 2017

Sales 1,184,419,822. 00 922,728,355. 00 729,030,787. 00

Filed Purchases 997,276,673. 00 866,462,823. 00 640,440,340

Disallowed Purchases 00 27,310,802 436,254. 00

10. The Appellant provides its VAT purchases in the table below;2015 2016 2017 2018

VAT Filed 443,684,614 796,008,059. 99 661,133,762. 6 114,314,345. 25

Disallowed purchases 30,202,759 40,045,029 26,254,413 14,591,065

11. The Appellant stated that it provided copies of invoice, reconciliations, bank statements and purchases ledger and other supporting documents in support of its objection. That it therefore disputes the assessment made by the Respondent for the period of 2016 to 2018.

12. The Appellant contended that the disallowed purchases in VAT must be disallowed for Corporation tax computation. To support its argument, the Appellant cited the provisions of Section 17(1) and 17(3) of the VAT Act. It further cited the provisions of Section 3(1) and Section 3(2) of the Income Tax Act.

13. It averred that the Income Tax and VAT purchases were entirely different. That for VAT purposes a receipt must have a valid ETR unlike in computation in income tax where Section 16 applies (allowable and disallowable expenditure). That this scenario was well explained during the meetings and the documents presented to the Commissioner during the objection stage.

14. That the Respondent raised a VAT assessment in 2015 and failed to raise the same in 2015 for Income tax. That the Respondent indicated that he had disallowed purchases amounting to Kshs 30,202,759. 00 but for the income tax purposes no purchases were disallowed. That the Respondent further asked for a list of suppliers which was to be delivered on 8/1/2021 and were availed to them.

15. To support its case, the Appellant made reference to the case of Republic v KRA (Ex-Parte J Mohamed) Civil Application [5] which it averred that it was held that the taxing authority must be exercised fairly and there ought to be a basis for the exercise of such powers nor is a taxing authority entitled to pluck a figure from the air and impose it on a taxpayer.

16. Regarding record keeping, the Appellant stated that the Respondent issued an assessment notice and instructed the Appellant to provide documents from 2015 to 2018. That the Respondent was in violation of the TPA Section 23(1)(C).

17. That the Respondent requested a list of documents which were availed to them. That the documents were sent via email and the Respondent who are the designate recipients did not confirm receiving them. To support its case, the Appellant referred to Section 76 of the TPA.

18. It averred that the Respondent ignored the Appellant’s documents anD denied it a fair hearing.

19. In its submissions, the Appellant questioned the validity of the assessments and objection decision. That the Respondent on June 2021 issued an additional assessment and confirmed the same. While citing the provisions of Section 29(1) & (5) of the TPA, the Appellant averred that the Respondent raised an assessment and confirmed it without laid out procedures. That the Respondent went ahead and requested for documents dating back 5 years ignoring the provisions of Section 29(1)(5) of the TPA.

20. That the Appellant objected on June 8, 2021 and the Respondent issued an objection decision on February 24, 2022 (8 months later). That the Respondent was required to make a decision in respect thereof within 60 days from the receipt of the Appellant’s objection as provided for under Section 51(11) of the TPA.

21. The Appellant stated that the Respondent raised VAT assessment in 2015 and failed to raise the same in 2015 for Income Tax. It averred that the Respondent indicated that he had disallowed purchases amounting to Kshs 30,202,759. 00 but for the Income Tax purposes no purchases were disallowed.

22. The Appellant averred that it provided ledgers for purchases claimed in VAT and Income Tax which the Respondent disregarded and issued an assessment as it saw fit. That it attached sample purchase invoice and bank extract to show existence of purchases claimed. That the copies were bulky and they could not attach all in its Statement of Facts or in the proceedings.

23. The Appellant further submitted that the Commissioner while demanding revenue, should demonstrate sufficiently that a certain payment forms the basis of tax. To support its arguments, the Appellant relied on the case in Republic v Commissioner of Income Tax Ex-Parte SDV Transami (Kenya) Limited and the case in Republice v Commissioner of Domestic Taxes Large Tax Payer’s Office Ex-Parte Barclays Bank of Kenya Ltd.

24. The Appellant averred that the assessment had a lot of ambiguity, that there was no clear indication or summary of the invoices disallowed for VAT and Income Tax. That the Income Tax and VAT purchases were entirely different, that for VAT purposes a receipt must have a valid ETR unlike computation in income tax where Section 16 applies.

25. Regarding demand for taxes beyond 5 years, the Appellant stated that the Respondent rejected while raising assessment on income tax and did not consider any costs of sales of the business despite the Appellant having filed the same on VAT (Input) for the year under dispute. To support its arguments, the Appellant cited the provisions of IAS on inventories and Section 15(1) of the Income Tax Act.

26. The Appellant averred that had the Respondent reviewed the documents and returns availed, he would have realized that actually the assessing team disallowed the purchases. That the Respondent was in complete violation of Section 51(4) of the TPA.

27. Regarding whether the assessment issued were excessive, the Appellant stated that the Respondent issued tax demand for the period beyond 5 years contrary to the provisions of the TPA.

Appellant’s Prayers 28. The Appellant prays that the Tribunal;a.Allows the Appeal.b.Annuls the Respondent’s confirmed assessment based on the grounds stated, as well as information contained in the Statement of Facts attached.c.Awards costs of the Appeal to the Appellant

The Respondent’s Case 29. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:i.The Respondent’s Statement of Facts dated May 5, 2022 together with the documents attached thereto.ii.The Respondent’s written submissions dated November 9, 2022 and filed on November 15, 2022.

30. The Respondent reiterated its position as captured in the assessment and confirmed in the objection decision. That it issued an assessment notice and instructed the Appellant to provide documents from the tax year 2015 up until the year 2018. The assessment notice resulted from inconsistencies in the taxpayer’s VAT return declarations and Income Tax- corporation obligations. That this was a result of variances between sales declared by suppliers versus purchases claimed by the Appellant.

31. The Respondent averred that the issue in question was the VAT input the Appellant claimed under Section 17 of the VAT Act. It referred the Tribunal to the documentation that it requested which were invoices, proof of payment, audited financial statements, suppliers’ physical location and their contact information, proof of interaction with suppliers and delivery notes for supplies made.

32. The Respondent averred that from inspection of the documentation provided, there was no adequate proof of payment, the Appellant’s suppliers could not be contacted and there were no delivery notes provided to the Respondent.

33. The Respondent submitted that the Appellant failed to provide sufficient information that showed the existence of dealing in taxable supplies and therefore the Respondent could not qualitatively allow the Appellant claim input VAT without proper documentation thereof.

34. That the Respondent therefore prayed that the Tribunal dismiss this Appellant’s ground as the Appellant had failed to prove that the Respondent also computed damaged stamps.

35. On the Appellant’s contention that the Respondent ignored the documents provided, it averred that this was an incorrect assertion, as the documents provided did not relate to the items under assessment.

36. The Respondent further mentioned that after requesting documentation from the Appellant, the invoices they were provided with related to entirely different suppliers, the Appellant could not cross reference the invoices provided to the cash withdrawals as per the bank statement.

37. That Section 23 of the Tax Procedures Act requires that:-“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.” 38. The Respondent averred that in order for tax liability of the Appellant to be properly ascertained, they were required to have documentation that was an accurate and true position of the company and parties that deal with it.

39. That the discrepancies seen in the documentation provided by the Appellant presents an inaccurate position of the company and as such, the Respondent could not accept the same. The Respondent contended that the Appellant ground should be dismissed for the reason that it was baseless.

40. The Respondent in response to the Appellant’s contention that the Respondent in its assessment failed to take into consideration Sections 23(1) and 29(1) of the TPA, it averred highlighted the provisions of Section 31(4).

41. The Respondent reiterated its earlier averment of the presence of details to the effect of fraudulent nature of the Appellant’s conduct as against the Respondent. That based on these acts, the Respondent makes mention that by law it is allowed under Section 31 of the TPA to carry out assessments situated outside the statutory period and further can request for documentation that pertains this same period.

42. The Respondent therefore averred that it accurately carried out assessments within the ambit of the law and further to its best judgement

43. On whether it had wrongfully interpreted the VAT Act under Section 5(1) on the operating charge of tax, the Respondent stated that the Appellant had failed to show that they deal in taxable supplies. The Respondent cited to the provisions of Section 5(1) of the VAT Act.

44. The Respondent averred that the Appellant needed to show that a supply was made in the course or furtherance of a business for them to be deemed to deal in taxable supplies.

45. The Respondent made mention of the results of its investigation of the Appellant’s documentation that it clearly highlighted that invoices showed no proof of payment, the suppliers could not be contacted to verify contact with the Appellant and further no delivery notes were provided.

46. The Respondent therefore contended that the Appellant had a burden under Section 56 of the TPA to prove that the Respondent erred in holding that the Appellant did not deal in taxable supplies to which it failed to prove and as such, the Respondent averred that it rightly interpreted the provisions of Section 5 of the VAT Act.

47. Regarding failure to acknowledge the Appellant’s reconciliations, bank statements and schedules, the Respondent stated that it did in fact acknowledge all documentation that was provided to it and therefore held that the Appellant’s ground was an incorrect assertion as the bank statements provided only indicated cash withdrawals to which the Appellant failed to cross-reference the invoices claimed together with the cash withdrawals.

48. While referring to Section 31 of the TPA, the Respondent stated that with the information provided in the documentation given, it made a proper decision to the best of its judgement to assess the Appellant accordingly. The Respondent therefore invited the Tribunal to find that the Appeal lacked merit and the same to be dismissed for the reasons given.

49. The Respondent asserted that it considered all the information provided and it was only in the cases where unsatisfactory information was provided that the assessments were confirmed. That it at no time did it abrogate from its obligation and at all times the obligation was on the Appellant to provide information to the satisfaction of the Commissioner that the invoices claimed related to a valid transaction.

50. The Respondent averred that during the review process it established as follows;i.There were unsupported purchases claimed by the Appellant and had been disallowed. That the amounts remained unexplained to date.ii.The variance between sales declared for income tax verses sales declared for VAT purposes there was not satisfactory explanation provided on the variance between the sales declared and sales declared in the VAT3 return for the same period.iii.It was established that the suppliers had not declared the alleged supplies. It was at this point that the Respondent sought for further information to confirm the validity of the said supplies.

51. The Respondent submitted that under Section 59 of the TPA, it sought for further information and documentation which could have helped in tracing and verifying the accuracy of the declaration.

52. The Respondent averred that upon requesting for specific information, some of the important finding from the information obtained from subsequent engagement with the Appellant were that;i.Some invoices provided but no proof of payment or demonstration of payment of the amounts in the invoices.ii.The Appellant provided inactivated contacts and contacts which were unanswered and the Respondent was unable to reach any of the Appellant’s suppliers.iii.That it is important to note that the suppliers were not one off suppliers and from the returns they had made several supplies to the Appellant and it was ironical that the Appellant could not provide validity information in terms of contacts or physical place of operation to enable verify the accuracy of the declared supplies.iv.The Respondent further requested for delivery notes from the alleged suppliers to the Appellant, no such delivery note was ever availed.v.That in fact the delivery note normally originate from the supplier where goods are to be delivered to the traders’ premises, in the absence of delivery notes, it meant that the Appellant must be aware of the physical location of the suppliers so as to be able to get the goods. In the absence of both, it was evident no supply was ever made.

53. The Respondent emphasized that under Section 56(1) of the TPA the Appellant has the legal burden to support its averments which it failed to discharge. To support this argument, the Respondent cited the Tribunal case in Leah Njeri Njiru v Commissioner of Investigations and Enforcement Kenya Revenue Authority & another [2021] eKLR and the Court case in Tumaini Distributors Company (K) Limited v Commissioner of Domestic Taxes [2020] eKLR.

54. That the Appellant was therefore required to provide documentation to verify the input claims it had made and further to prove that indeed the transactions were valid. That it is interesting to note that the Appellant stated at the current Appeal that it availed the documentation, however even at this Appeal it fails to attach the said documentation and the corresponding proof of payment.

55. That the Appellant does not even attempt to avail the information relating to the suppliers which is critical to validate supply. The Respondent cited the provisions of Section 17(1) of the VAT Act to support its argument.

56. To buttress its case, the Respondent further cited the following cases;a.The Court case in Commissioner of Domestic Taxes v Galaxy Tools Limited [2021] eKLR.b.The Court case in Commissioner of Investigations and Enforcement v Pearl Industries Limited.

57. That it follows that the Respondent rightly disallowed the suspicious input claims. That the Appellant having failed to provide information which could verify the existence of the suppliers and the actual supply having not been demonstrated through delivery notes from the said suppliers, there cannot be said that a taxable supply was made to warrant a claim of input.

58. The Respondent stated that having disallowed the VAT input claims for not being sufficiently supported and authenticated, also proceeded to disallow the expenses relating to the claims in the Income Tax Returns. That this was based on the reason that the VAT claim was not fully supported.

59. That Section 59 of the Tax Procedures Act require the Appellant to submit documents where it is of the opinion that the documents availed is not sufficient to prove the position.

60. That Section 56 of the TPA in preparatory terms places the burden of proof in tax cases on the taxpayer. This provision according to the Respondent is reinforced by Section 30 of the TAT Act. The Respondent further cited the provisions of Section 107(1) and Section 109 of the Evidence Act.

61. The Respondent averred that it was very curious that the Appellant despite the doubts it raised as to the existence of the suppliers had not even made any efforts to even call the suppliers as witnesses in this case.

62. To support these arguments, the Respondent cited the following cases;a.The Court case in Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR.b.The Court case in Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) (Commercial and Tax) (8 July 2022).c.The Court of Appeal Case in CMC Aviation Ltd v Kenya Airways Ltd (Cruisair Ltd) [1978] eKLR.

63. The Respondent submitted that it was important to appreciate that in both VAT and Income Tax, although the Appellant stated that it provided the documents, even at this Appeal it had not availed the documents nor made any efforts to validate that the supplies claimed and expenses deducted were actually expended. That it has not made effort to support the averments.

64. That for an expense to be allowed, it has to be shown that it was indeed accrued wholly and exclusively in the generation of income as provided under Sections 15 and 16 of the Income Tax Act.

65. That the Court in Mars Logistics Limited v Commissioner of Domestic Taxes [2021] eKLR upheld that the test applicable to determine expenses incurred wholly and exclusively for income purposes under Section 15 of theITA is whether the expenditure is supported by actual documentation showing details of the expenses claimed.

66. The Responded added that in this regard, the first test would be to authenticate the existence of the claim even before testing whether they are wholly and exclusively incurred in the generation of the income. That in the current case, where there is doubt as the existence of the suppliers and no sufficient effort has been made to avail the suppliers then, the expenses cannot be allowed as against the income.

67. That nothing would have been easier than it availing the information as to the active contacts and location of its suppliers to the Tribunal to demonstrate that it indeed attempted to proof the supplies. That the corresponding expenses claimed having not been authenticated cannot be allowed.

68. Regarding assessment for a period of more than 5 years, the Respondent averred that the Appellant wants it to be faulted for asking for records for the year 2015 on the grounds that it was only required to keep records for a period of 5 years as set out under Section 23 of the TPA

69. The Respondent further cited the provisions Subsection 3 and Section 31(6) & (7) and stated that these should be read with Section 31(4) of the TPA which provide for timeline for amendment of Assessment.

70. That the case herein is one where the expenses were fraudulently claimed in the VAT returns and further expended in the Income Tax returns. That the Appellant had been unable to support that indeed the expenses were incurred hence they were disallowed. The Appellant was therefore required to maintain the records until the proceedings relating to the issue of fraudulently claiming expenses is concluded. To support this argument, the Respondent relied on the court case in Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) (Commercial and Tax).

71. The Respondent stated that reading of Section 31(4) where the case relate to gross neglect or fraud, as is the case herein, where the input claims are considered to have been claimed without being expensed. That the Commissioner can go back as long as the investigation takes and the taxpayer will have the burden of proving that the expenses claimed back were indeed incurred.

72. That further the assessment for the year 2015 was filed in 2016 and the assessment herein issued in 2021. The same was within the five years period in any case. That the Respondent therefore properly considered and requested the documents for 2015.

Respondent’s Prayers 73. Based on the above, the Respondent prayed that the Tribunal finds that:-a.The Respondent’s decision dated 24th February, 2022 and tax demand was therefore properly issued as provided under law.b.This Appeal be dismissed with costs to the Appellant as the same is without merit.

Issues For Determination 74. Having carefully studied the parties’ pleadings and all the documents attached to the Appeal and after considering the submissions, the Tribunal was of the view that the issues for determination were:a.Whether the Appellant’s objection was allowed by operation of the law.b.Whether the Respondent’s assessments were in contravention of the provisions of Section 29(5) of the TPA.c.Whether the Respondent erred in its decision to disallow Input VAT.d.Whether the Respondent erred in assessing additional Corporation Tax.

Analysis And Determination a. Whether the Appellant’s objection was allowed by operation of the law. 75. It was the Appellant’s contention that it objected to the assessments on June 8, 2021 and the Respondent issued an objection decision on February 24, 2022 (8 Months later). That the Respondent was required to make a decision in respect thereof within 60 days from the receipt of the Appellant’s objection as provided for under Section 51(11) of the TPA.

76. Section 51(11) of the Tax Procedures Act provides as follows regarding timelines for issuing objection decision by the Respondent;“The Commissioner shall make the objection decision within sixty days from the date of receipt of—a.the notice of objection; orb.any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.” (Emphasis added)

77. The Tribunal noted that in the Objection decision dated February 24, 2022, the Respondent stated in part as follows;“Reference is made to your objection to the VAT and Income Tax additional assessment for the period 2015-2018 made via iTax on June 8, 2021, June 22, 2021 and 2/11/2021 with last documents provided on February 22, 2022, email exchanges and telephone conversations regarding the above. ”

78. Going by the provisions of Section 51(11)(b) cited above, the Respondent was to issue an objection decision 60 days upon being served with the taxpayers’ objection or in the alternative if there are subsequent correspondences with the taxpayer then 60 days upon receiving any further information it may have requested from the tax payer.

79. In the present case, the Respondent in its objection decision has alluded to receiving documents from the Appellant on February 22, 2022. Although the said documents or correspondence were not attached by the parties, the Appellant does not deny the same. It follows therefore that the Respondent ought to have issued an objection decision on or before 24th April 2022 if there were no additional documents requested. The Tribunal therefore finds that Objection decision as issued by the Respondent on February 24, 2022 was within the provisions of the law.

80. Consequently, the Tribunal finds that the Appellant’s objection was not allowed by operation of any law.

b. Whether the Respondent’s assessments were in contravention of the provisions of Section 29(5) of the TPA. 81. The Appellant questioned the validity of the assessments and objection decision. That the Respondent on June 2021 issued an additional assessment and confirmed the same. While citing the provisions of Section 29(1) & (5) of the TPA, the Appellant averred that the Respondent raised an assessment and confirmed it without laid out procedures. That the Respondent went ahead and requested for documents dating back 5 years ignoring the provisions of Section 29(5) of the TPA.

82. Section 29(5) of the TPA provides as follows regarding time limits for default assessments;“Subject to subsection (6), an assessment under subsection (1) shall not be made after five years immediately following the last date of the reporting period to which the assessment relates.”

83. There was no dispute that the Respondent issued the assessment on June 29, 2021 for the period dating back to 2015.

84. The Respondent on its part stated that reading of Section 31(4) of the TPA where the case relate to gross neglect or fraud, as is the case herein, where the input claims are considered to have been claimed without being expensed. That the Commissioner can go back as long as the investigation takes and the taxpayer will have the burden of proving that the expenses claimed back were indeed incurred.

85. Section 31(4) of the TPA provides as follows regarding cases where the Respondent may issue assessments beyond 5 years:“The Commissioner may amend an assessment—a.in the case of gross or willful neglect, evasion, or fraud by, or on behalf of, the taxpayer, at any time; orb.in any other case, within five years of—i.for a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates; orii.for any other assessment, the date the Commissioner notified the taxpayer of the assessment”(Emphasis added)

86. The Tribunal noted that although the Respondent sought to use Section 31(4)(a) of the TPA by alleging fraud in this case, nothing was placed before the Tribunal to demonstrate that any steps had been taken to prosecute anyone in regards to any fraud committed. The Tribunal therefore held the view that since fraud is an illegal activity whereby an entity or an individual knowingly obtains a tax benefit illegally, it ought to be specifically pleaded. As pointed out in National Social Security Fund Board of Trustees v Commissioner of Domestic Taxes, Kenya Revenue Authority [2016] eKLR;there is a world of difference between an assertion and proof. That which a party states to be his case is an assertion. The party needs to adduce evidence to support his said assertion, with a view to proving his case. The Tribunal therefore found that the Respondent could not use this as a ground for assessing taxes beyond the prescribed period of five years.

87. Similarly, on the issue of willful neglect, the Tribunal noted that the tax statutes do not expressly define the term “willful neglect”. However, in the generally accepted legal sense, negligence is the failure to do something that a reasonable person, guided by those considerations that ordinarily regulate the conduct of human affairs, would do, or doing something that a prudent and reasonable person would not do. In United States v Boyle, 469 U.S. 241 (1985), the Supreme Court described"wilful neglect""as meaning a conscious, intentional failure or reckless indifference." Thus, the term "wilful neglect" implies a voluntary, conscious, and intentional failure to exercise the care that a reasonable person would observe under the circumstances to see that the standards were observed, despite knowledge of the standards or rules in question.

88. The Tribunal further noted that the Respondent had averred that the assessments for the year 2015 were filed in 2016 and the current assessment issued in 2021. That the same was within the five years period in any case. That the Respondent therefore properly considered and requested the documents for 2015.

89. The Tribunal however was of the view that the above argument can only apply to Income tax assessments which are filed annually. The case of VAT is different because VAT is filed monthly. For VAT therefore, given that the assessments were issued in June 2021, the assessments can only apply up to returns filed in July 2016.

90. The Tribunal therefore finds that the Respondent erred in assessing any VAT beyond the month of June 2016.

c. Whether the Respondent erred in its decision to disallow the Appellant’s Input VAT. 91. Having entered the above finding regarding taxes assessed beyond five-year period, the Tribunal will proceed to consider the disallowed input VAT for the period beginning July, 2016.

92. The Respondent submitted that the Appellant failed to provide sufficient information that showed the existence of dealing in taxable supplies and therefore the Respondent could not qualitatively allow the Appellant claim input VAT without proper documentation thereof.

93. The Appellant on its part submitted that it provided copies of invoice, reconciliations, bank statements and purchases ledger and other supporting documents in support of its objection. That it therefore disputes the assessment made by the Respondent for the period of 2016 to 2018.

94. The Appellant contended that the disallowed purchases in VAT must be disallowed for Corporation tax computation.

95. In determining whether the Respondent’s decision to disallow the input VAT by the Appellant was proper as per the provisions of the VAT Act the Tribunal looked at whether the Appellant had furnished sufficient proof of purchase in form of documentation.

96. Section 17(1) & (2) of the VAT Act provides as follows regarding claiming of input VAT by any taxpayer;“(1)Subject to the provisions of this section and the regulations, input tax on a taxable supply to, or importation made by, a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person, subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies.(2)If, at the time when a deduction for input tax would otherwise be allowable under subsection (1), the person does not hold the documentation referred to in subsection (3), the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation.” (Emphasis added)

97. From the above-mentioned provision of the law it follows that the input VAT shall not be allowed if the taxpayer does not have the documentation specified under Section 17(3) of the VAT Act. Section 17(3) of the VAT Act provides as follows regarding documents the taxpayer ought to hold in order to be allowed to claim input VAT for its purchases;“(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;d.a credit note in the case of input tax deducted under section 16(2); ore.a debit note in the case of input tax deducted under section 16(5).”

98. The Respondent had averred that the bank statements provided by the Appellant only indicated cash withdrawals to which the Appellant failed to cross-reference the invoices claimed together with the cash withdrawals.

99. The Tribunal perused the documents attached to the Appellant’s Memorandum of Appeal and noted that the Appellant had attached its bank statements as proof of payments to suppliers. However, the Tribunal noted that the bank statements only shows mainly cash withdrawals and no corresponding document as evidence of what it was paying for.

100. The Tribunal further noted that the Appellant attempted to attach new documents to its submissions filed on 15th November, 2022 without leave from the Tribunal which was not procedural. The Tribunal therefore relies on the documentation as provided by the Appellant and attached to its Memorandum of Appeal.

101. It was the Tribunal’s position that having dealt in vatable goods, the Appellant ought to have kept and produced the documents it is required to keep under Section 17(3) of the VAT Act in support of its transactions to the Respondent during objection stage and further in this case it ought to have attached to its Memorandum of Appeal.

102. Section 30 of the Tax Appeals Tribunal Act places the burden of proof on the taxpayer to submit all the necessary documentation to support its case. The same position was held by the court in Metcash Trading Limited v Commissioner for the South African Revenue Service and AnotherCase CCT 3/2000, where it was held that:“But the burden of proving the Commissioner wrong then rests on the vendor under section 37. Because VAT is inherently a system of self- assessment based on a vendor’s own records, it is obvious that the incidence of this onus can have a decisive effect on the outcome of an objection or appeal. Unlike income tax, where assessments can elicit genuine differences of opinion about accounting practice, legal interpretations or the like, in the case of a VAT assessment there must invariably have been an adverse credibility finding by the Commissioner; and by like token such a finding would usually have entailed a rejection of the truth of the vendor’s records, returns and averments relating thereto. Consequently, the discharge of the onus is a most formidable hurdle facing a VAT vendor who is aggrieved by an assessment: unless the Commissioner’s precipitating credibility finding can be shown to be wrong, the consequential assessment must stand.”

103. Further, Section 107 of the Evidence Act provides that:“Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.”Thus, it was upon the Appellant to prove that it indeed purchased the supplies.

104. In view of the foregoing analysis, it was the view of the Tribunal that the Appellant did not discharge this burden and thus did not prove that it indeed dealt with the vatable supplies in dispute. Accordingly, the Tribunal finds that the Appellant did not furnish sufficient proof of purchase.

105. Given the above finding, the Tribunal found that the Respondent did not err in its decision to disallow the input VAT for the period beginning July 2016.

d. Whether the Respondent erred in assessing the resultant Corporation Tax. 106. Having found that the claim for input VAT was not allowable for the period beginning July 2016, the Tribunal found that the Respondent did not err in assessing the resultant Corporation Tax.

Final Decision 107. Based on the foregoing analysis the Tribunal determined that the Appeal is partially successful and the Orders that accordingly recommend themselves are as follows: -a.The Appeal is partially allowed in terms of VAT assessments earlier than July 2016. b.The objection decision dated February 24, 2022 is varied in terms of Order (i) above.c.The matter is referred back to the Commissioner to re-compute the taxes due excluding any VAT filed earlier than July 2016. d.Each party to bear its own costs.

108. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MARCH, 2023. ………………………….ERIC N. WAFULACHAIRMAN........................CYNTHIA B. MAYAKAMEMBER...........GRACE MUKUHAMEMBER...........ABRAHAM KIPROTICHMEMBER...........JEPHTHAH NJAGIMEMBER