[2024] KETAT 606 (KLR)

Sagna Holding Ltd v Commissioner of Domestic Taxes (Appeal 266 of 2023) [2024] KETAT 606 (KLR) (5 April 2024) (Judgment)

Neutral citation: [2024] KETAT 606 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 266 of 2023

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

April 5, 2024

Between

Sagna Holding Ltd

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya since 2013. Its principal activity is in printing and advertisement.

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

3. The Appellant was assessed for additional VAT for the period December 2021 to June 2022 and vide a letter dated 29th August 2022 was issued with an assessment for Kshs 1,681,203. 00.

4. The Appellant objected to the assessment vide its notice dated 29th September 2022.

5. The Respondent considered the Appellant’s objection and vide a letter dated 28th October 2022 issued an objection decision confirming the assessment for Kshs 1,681,203. 00.

6. Being aggrieved by the Respondent ‘s decision, the Appellant filed its Notice of Appeal dated 30th March, 2023 after being granted leave by the Tribunal to file an appeal out of time on 14th April, 2023.

The Appeal 7. The Appeal is premised on the following grounds of appeal as stated in the Memorandum of Appeal dated and filed on 30th March, 2023:a.That the Respondent erred in law by failing to allow some of the claimable purchases as stipulated under Section 17 of the VAT Act, No. 35 of 2013 (hereinafter ‘VAT Act’).b.That the Respondent erred in demanding tax on the claimed input tax credits under Section 17 of the VAT Act.

Appellant’s Case 8. In its Statement of Facts dated and filed on 30th March, 2023 the Appellant reiterated its grounds of Appeal stating that its claim of input VAT under Section 17 of the VAT Act that relate to credits for input tax against output tax is legitimate and conform to Section 17(3) of the said VAT Act.

9. The Appellant averred that the Respondent proceeded to disallow some input VAT claims duly incurred by the Appellant despite being provided with the purchase invoices and bank statements as proof of purchase during the objection review process. It argued therefore that the decision made by the Respondent for the Appellant to pay a total incremental liability of Kshs 1,681,203. 00 was improper, unfair and unjust.

Appellant’s Prayers 10. The Appellant therefore prayed for the following orders:a.That the Respondent be compelled to vacate the objection decision and allow for the fresh review of the already availed documents.b.That the Respondent be compelled to revise any penalties and interest payable and;c.That the cost of this Appeal be borne by the Respondent.

Respondent’s Case 11. The Respondent addressed the Appellant’s grounds of Appeal through its Statement of Facts dated 27th April, 2023 and filed on 28th April 2023.

12. It refuted the Appellant’s allegations stating that it exercised its best judgement in making the assessments in full consideration of the documentation and information available pursuant to Section 31 of the Tax Procedures Act No. 29 of 2015 (hereinafter ‘TPA’).

13. The Respondent relied on Section 19(2) of the VAT Act by asserting that it noted inconsistencies between the input VAT claimed by the Appellant from one supplier, Almot Print Limited, who was a non-filer and that no corresponding sales were declared. It therefore invoked Section 17(2)(b) of the VAT Act and disallowed several of Almot Print’s invoices totalling to Kshs 8,892,224. 00 with a VAT value of Kshs 1,422,755. 00.

14. The Respondent averred that it requested for specific documents vide an electronic mail dated 12th October, 2022. However, the Appellant failed to provide the same. Further that the Appellant also failed to respond to the Respondent’s pre-assessment notice issued on 23rd August, 2022 that had requested the Appellant to provide documents to show proof of purchases made. The Respondent argued therefore that it disallowed the input VAT claim since the Appellant failed to provide proof that it incurred the purchase expense.

15. The Respondent asserted that the Appellant bears the burden of proving that the additional assessments were excessive or improper, which the Appellant failed to discharge in view of the documents it adduced in support of its Appeal and which is espoused under Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act No. 40 of 2013 (hereinafter ‘TAT’).

16. It therefore stated in conclusion that the objection decision was valid and duly anchored in law as it is based on Section 17(2) (b) of the VAT Act and Section 31 of the TPA.

Respondent’s Prayers 17. The Respondent prayed that the Tribunal;a.Upholds the Respondent’s decision as proper and in conformity with the provisions of the law.b.Dismisses the Appeal with costs to the Respondent as the same was devoid any merit.

Parties’ Submissions 18. The Appellant failed to file its Written Submissions. The Tribunal will therefore only consider the Respondent’s Written submissions dated 1st November 2023 and filed on 2nd November,2023 wherein it raised two issues for determination.i.Whether the Respondent was justified in issuing the additional assessment and disallowing the VAT input claimed.

19. The Respondent reiterated that it noted inconsistencies between the input VAT claimed from the Appellant from one of its supplier Ms Almot Print Limited who was a non-filer hence no corresponding sales declared. Further that for a taxpayer such as the Appellant herein, to deduct input under Section 17(2) of the VAT Act, it must either hold documentation to prove that it incurred the disallowed purchase expense or that the supplier declared the sales invoice in its return. It argued that in this case the registered supplier Ms Almot Print Limited having not declared the sale in its return, the Appellant was required to provide such documentation, which it failed to do.

20. The Respondent submitted that failure by the Appellant to provide supporting documentation meant that it was not entitled to the disallowed tax input as the same is restricted within the provisions of Section 17 (2) (b) of the VAT Act. It relied on the case of Highlands Mineral Water Limitedvs Commissioner of Domestic Tax Appeal EO26 of 2020 which set out the criteria for claiming input VAT under Section 17 of the VAT Act.

21. It was the Respondent’s assertion that it is mandated to consider and use the available information in assessing for the correct amount of tax payable. Further that in exercise of the aforementioned mandate, it considered the information available and its best judgement to assess the correct tax by disallowing the unsupported VAT inputs claimed and hence issued the notice of assessment. It argued therefore that it was justified and within the law in disallowing the unsupported VAT inputs claimed justifying in making the additional assessments and praying for a dismissal of the Appeal.

22. To justify its actions, and the mandate it possesses, it relied on the holding in the following cases: -a.Oliver Fowler & Another vs Kenya Revenue Authority (2022)b.Saima Khalid vs Commissioner for her Majesty’ Revenue and customs Appeal No.TC/2017/0229c.Terihos SACCO Society Limited vs Commissioner of Domestic Taxes TAT No.413 of 2019(2022)(ii)Whether the Appellant discharged its burden of proof

23. The Respondent submitted that Section 56(1) of the TPA and Section 30 of the TAT 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. Further that the Appellant has the burden of proving that the assessment made by the Respondent is incorrect and/or that the documents and/or information relied upon by the Respondent in disallowing the input VAT claimed and/or in making the assessment was wrong.

24. The Respondent stated that it wrote to the Appellant on 12th December, 2022 requesting for specific documents to validate the Appellant’s objection. However, the Appellant failed to furnish the same in contravention to Section 51(3) of the TPA.

25. In emphasizing the need for the Appellant’s onus of discharging its burden of proof, the Respondent relied on the following cases:a.Ushindi Limited vs Commissioner of Investigation and Enforcement Kenya Revenue Authority(eKLR).b.Digital Box Limited vs Commissioner of Investigations and Enforcement (2020).c.This is Africa (K) Travel Agency Limited vs Commissioner of Legal Services & Board Co-ordination (TAT 871 of 2022).

26. The Respondent submitted that the Appellant has the responsibility to maintain records and availing them when requested to do so. Further that the documentation provided must be relevant to the period of taxation and the transactions from which the input VAT is claimed. It submitted further that the Appellant herein merely pleaded that the assessment was erroneous and the VAT input should be allowed without providing documents in support. It argued therefore that in absence of any documents to warrant a review of its assessment, it was correct to use the available information and its best judgement to assess and confirm the tax due. In support of its case the Respondent relied on the following cases:a.Republic vs KRA: Proto Energy Limited (2022 eKLR.b.Alfred Kioko Muteti vs Timothy Miheso & Another (2015) eKLR.c.Ngurumani Traders Ltd vs Commissioner of Investigations and Enforcement (2019) eKLR.

Issues For Determination 27. The Tribunal has considered the parties’ pleadings, documentation and the Respondent’s Written submissions and is of the considered view that this Appeal raises a singular issue for determination as follows:Whether the Respondent was justified in disallowing the Appellant refund claim and issuing additional assessment.

Analysis And Findings 28. The dispute arose after the Appellant’s claim for input VAT was disallowed by the Respondent who proceeded to assess the Appellant for additional tax. In particular the Respondent stated that one of the Appellant’s suppliers Ms Almot Print Limited was a non-filer and that there were no corresponding sales declared worth Kshs 8,892,224. 00.

29. Section 17 (2) (a) (b) of the VAT Act is instructive of what may cause a claim for input tax to be disallowed. It provides as follows:“If at the time when a deduction for input tax would otherwise be allowable under subsection (1) –a.The person does not hold the documentation referred to in subsection (3), orb.The registered supplier has not declared the sales invoice in a return,The deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation; Provided that the input tax shall be allowable for a deduction within six months after the end of the period in which the supply or importation occurred…..”

30. The Tribunal notes that for the Appellant to qualify for deduction of input tax, it ought to satisfy the conditions outlined under Section 17(2) of the VAT Act. The above provisions therefore require the Appellant to provide documentation in support of its claim as provided for under Section 17(2) (a) of the VAT Act and in the alternative, in line with Section 17(2) (b) of the VAT Act if a registered supplier has not declared invoices reflecting the Appellant’s alleged purchases then the input VAT claim is bound to be disallowed.

31. The Tribunal has reviewed the Respondent’s electronic mail dated 12th October 2022 requesting for specific documents/records in support of the Appellant’s objection within 7 days. However, the Tribunal has not sighted any response from the Appellant providing the requested documents. The Appellant has equally failed to avail any supporting documentation in support of its Appeal.

32. Section 56(1) of the TPA places the burden of proof on the taxpayer to counter and prove that the Respondent’s assessment is excessive and incorrect. The same provides as follows: -“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

33. The foregoing provision is reiterated under Section 30 of the TAT which provides as follows: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; orb.In any other case that the tax decision should not have been made or should have been made differently….”1. In consideration of these provisions of the law, the Tribunal has not found enough evidence to prove that the Appellant provided the required documents or any other documents to support its case both at the objection stage and the Appeal stage to persuade this Tribunal in any way. It is the Tribunal’s view that the Appellant has failed to demonstrate to the Tribunal’s satisfaction that the Respondent erred in its rejection of the refund claim and the demand for additional tax.2. The Tribunal will rely on its holding in the case of Digital Box Limited vs Commissioner of Investigations and Enforcement in which it was held as follows:“…..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. This 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 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.”

36. In consideration of the foregoing, the Tribunal is of the view that the Respondent in this case cannot be faulted for its decision and therefore finds that the Respondent was justified in disallowing the input VAT refund claim and issuing the additional assessment.

Final Decision 37. The upshot of the above is that the Appeal lacks merit and the Tribunal will proceed to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent‘s objection decision dated 28th October ,2022 be and is hereby upheld.c.Each party to bear its own costs.

38. It so ordered

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF APRIL, 2024CHRISTINE A. MUGACHAIRPERSONBONIFACE K. TERER DELILAH K. NGALAMEMBER MEMBERSPENCER S. OLOLCHIKE GEORGE KASHINDIMEMBER MEMBER