[2023] KETAT 958 (KLR)

Solinic East Africa Limited v Commissioner of Domestic Taxes (Tax Appeal 950 of 2022) [2023] KETAT 958 (KLR) (24 November 2023) (Judgment)

Neutral citation: [2023] KETAT 958 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 950 of 2022

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

November 24, 2023

Between

Solinic East Africa Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya. It is engaged in the manufacturer, distribution, and servicing of solar products.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya. Under Section 5 (1) of the Act, the Kenya Revenue Authority 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 Part I & II of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. On 29th June 2021, the Appellant lodged import entry documents with the Respondent’s Customs Department (“KRA Customs”) for importation of solar panels into the Country.

4. The imported goods were entered prior to the arrival of the vessel in the Country and the Appellant made the payment towards custom duties and taxes payable on 30th June 2021; including import VAT of Kshs. 6,535,638. 00.

5. The imported goods were discharged from the shipping vessel at Kilindini Port - Mombasa on 1st July 2021 and transferred by rail to the Nairobi Embakasi Inland Container Depot (“ICD”), where they arrived on 3rd July 2021, the goods were released to the Appellant on 7th July 2021.

6. The Finance Act, 2021 which came into force on 1st July 2021, reintroduced the VAT exemption on the goods. As such the goods were exempt from VAT effective 1st July 2021, following the change in VAT status of the imported goods.

7. The Appellant lodged an application for refund of the VAT paid by it of Kshs. 6,535,638. 00 on the imported solar panels on the basis that the tax was paid in error. The refund application of acknowledgement number KRA202205901205 was lodged on 27th April 2022.

8. On 3rd June 2022, the Appellant received a notification from iTax on the rejection of the refund application. In the notice, the KRA cited the reason for rejection of the refund application as “Photovoltaic Modules become exempt as from 1st July 2021 as per Finance Act 2021, First Schedule, Part 1 Sec A, Paragraph 113 of the VAT Act 2013.

9. The Appellant was aggrieved by the refund rejection and lodged a notice of objection on 29th June 2022, which was duly acknowledged by the Respondent’s Independent Review of Objection (IRO) office on 1st July 2022.

10. Subsequently, on 29th July 2022, the IRO issued an objection decision indicating 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, taxpayers aggrieved by the decision rendered on a refund claim by the respective Commissioner may seek redress at the Tax Appeals Tribunal (“TAT”) within 30 days of being notified of said decision.

11. The Appellant filed the instant Appeal at the Tribunal vide a Notice of Appeal dated 1st September 2022 and filed on 7th September 2022.

The Appeal

12. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 1st September 2022 and filed on 7th September 2022: -a.That the Respondent erred in law and in fact by holding that the time of supply of the imported goods was on 30th June 2021 when the Appellant entered the goods and made the customs payment as opposed to the time of customs clearance as provided by the VAT Act;b.That the imported goods were exempt from the VAT at the time of supply hence the Appellant ought not to have paid VAT on the imported goods; andc.That the Appellant is eligible for the refund of the VAT paid on importation of the solar panels on the basis that the tax was paid in error.

Appellant’s Case

13. The Appellant premised its case on its Statement of Facts dated on 1st September 2022 and filed on 7th September 2022.

14. The Appellant averred that the Respondent erred in law and in fact by holding that the time of supply of the imported goods was on 29/30 June 2021 when the Appellant entered the goods and made the customs payment as opposed to the time of customs clearance as provided for by the VAT Act;

15. The Appellant averred that in its refund decision, the Respondent stated that the imported goods were vatable at the time of importation based on the assertion that the Appellant had entered the goods on 29th June 2021 and paid import VAT on 30th June 2021.

16. The Appellant submitted that Section 19 (1) of the VAT Act provides that VAT is due and payable at the time of supply. That further, Section 12 (4) of the VAT Act, provides that the time of supply of imported goods shall be, for goods entered for removal to an inland station and subsequent clearance for home use, at the time of customs clearance.

17. The Appellant further submitted that Section 12(4) of the VAT Act contemplates multiple locations from which a supply of imported goods may occur. The Appellant submitted that clearance of goods is procedural, and hence, to determine the applicable rate of tax that can be levied on the imported goods, the VAT Act relies on the point that the goods were entered for home consumption, in this case, upon arrival at the Nairobi ICD.

18. In this regard, the Appellant quoted Section 16 of the EACCMA which provides that the imported goods shall be subject to Customs Control from the time of importation until delivery for home consumption.

19. In light of the above, Appellant averred that, despite the fact that it pre-entered the goods for clearance, the procedure of clearance of goods only terminated at the time the goods were released from customs control (as contemplated by the EACCMA and the VAT Act) i.e., the aforementioned release at the Nairobi ICD to the Appellant.

20. The Appellant posited that by default, when interpreting the provisions of tax legislation, one has to observe the words used, and utilise their ordinary meaning. That this position has been reiterated in local tax disputes.

21. The Appellant highlighted the seminal case of Republic vs. Commissioner of Domestic Taxes Large Tax Payer’s Office Ex-Parte Barclays Bank of Kenya LTD [2021] eKLR where Majanja J, opined that: -“The approach to this case is that stated in the oft cited of Cape Brandy Syndicate v Inland Revenue Commissioner [1960] 1 KB as applied in T.M. Bell Act, one has to look at what is clearly said. There is no room for the intended as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used…if a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be...”

22. The Appellant submitted that the rationale of highlighting the terminologies “clearance” and “customs control” is to determine the tax point of the imported goods, both in law and in procedure.

23. The Appellant stated that it relied on the basis of using persuasive authority, on the definition of customs control proffered in the (now repealed) Customs and Excise Act, Cap. 472: Customs control means any measures taken by the Commissioner in relation to [imported goods] to ensure compliance with the provisions of the Customs and Excise Act, Cap 472.

24. The Appellant noted that the Kenyan legislation has not defined the term “custom clearance”. It therefore sought the literal meaning of the term as per the Black’s Law Dictionary. That the Black Law’s Dictionary, Second Edition, offers a definition that suites the general usage of the terms in the context of customs and maritime law: -“A document in the nature of a certificate given by the collector of customs to an outward-bound vessel, to the effect that has complied with the law and its duly authorized to depart.”

25. The Appellant submitted that in practice, customs, taxes and duties are validly levied upon the issuance of customs clearance documentation and the subsequent release of imported goods from customs control. That while the taxpayer has the option to use the expedited processes that are offered by the local custom authorities, and that the expedited option of pre-arrival clearance is by no means a creature of statute. That therefore, in the pendency of dispute or the lack of clarity as to the tax point, by default, the provisions of statute apply.

26. The Appellant stated that based on the foregoing, it is clear that the due process of the clearance of the goods and subsequent release from custom control of the goods from the Nairobi ICD at Embakasi in the month of July, it follows that the time of supply and consequently the tax point of the goods was the very same month of July.

27. The Appellant therefore submitted that the Respondent erred in law and fact by failing to acknowledge that the time of supply of the imported goods was after the change in law which took effect on 1st July 2021.

28. On the issue of whether the imported goods were exempt from VAT at the time of supply, the Appellant averred that, the time of supply of the imported goods was the date on which the goods were released to the Appellant at the ICD at Embakasi, that is, 7th July 2021.

29. The Appellant asserted that on 1st July 2021, the Finance Act 2021, amended the VAT Act by reintroducing the exemption from VAT on “specialized equipment for the development and generation of solar and wind energy, including photovoltaic modules, direct current charge controllers, direct current inverters and deep cycle batteries that use or store solar power…”.

30. The Appellant submitted that per the prevailing provisions of the law at the completion of the customs clearance procedure, the importation of solar panels was exempt from VAT, and therefore, it was not liable to pay VAT on the importation of the solar panels. That this is in accordance with the provisions of Section 5 (1) of the VAT Act which provides that VAT shall be charged on, inter alia, the importation of taxable goods. As the goods were exempt at the time of supply, no VAT was due and payable on the goods.

31. That whilst the Respondent claimed in the refund decision that the entry was lodged on 29th June 2021 and payment was made on 30th June 2021, it was the Appellant’s rebuttal that there is no provision in law that makes the payment of taxes /duty a determinant of the actual tax point provided in the VAT Act or the EACCMA.

32. Further, the Appellant asserted that the proper authority to create legislation that impose tax on Kenyan citizens is Parliament. That by that fact, Parliament certainly provided provisions in law exempting the imposition of VAT on the importation of solar panels. This assertion is supported by the local tax precedent as well. In the case of Republic v Kenya Revenue Authority Ex Parte Cooper K- Brands Limited [2016] eKLR, GV Odunga J, indicated, whilst citing British case law with approval in paragraph 66: Similarly, it was held in Vestey vs. Inland Revenue Commission [1979] 3 All ER at 984 that“Taxes are imposed on subjects by parliament. A citizen cannot be taxed unless he is designated in clear terms by a taxing Act as a taxpayer and the amount of his liability is clearly defined.”

33. The Appellant posited that due to the amendment by the Parliament of Kenya of the VAT Act vide the Finance Act, 2021, the exemption applicable on solar equipment was activated. That as such, upon the Appellant clearing the goods at the ICD at Embakasi in the month of July, no VAT was due and payable on said goods. That in such a case, by the Appellant paying VAT on goods that were subsequently deemed non-vatable, meets the threshold of claiming tax paid in error.

34. The Appellant asserted that it is eligible for a refund of the VAT paid on importation of the solar panels on the basis that the tax was paid in error.

35. The Appellant stated that it is its right to reclaim a refund of tax paid erroneously as is provided in statute in Sections 47 and 47A of the TPA. That Section 47A provides that:-“1)Where tax has been paid in error, the Commissioner shall, except as otherwise provided in this Act or the relevant tax law, refund such tax. 2. In the processing a refund under subsection (1), the provisions of section 47(1), (2), (3), (4) and (5) shall apply, with the necessary notifications.

3. For the purposes of this section, “tax paid in error” means any tax paid which the Commissioner is satisfied ought not to have been paid.”

36. The Appellant averred that at the time of making the application, it relied on the now repealed (as amended by the Finance Act, 2022) Section 30 of the VAT Act, which provides that:“Where, in respect of any supply, tax has been in error, the Commissioner shall, except as otherwise provided by the regulations, refund such tax.Provided that no refund shall be made under this section unless a claim in respect therefore is lodged within twelve months from the date the tax became due and payable.”

37. The Appellant submitted that it meets the criteria for a refund of the VAT it paid on the importation of the solar panels. That whereas the import VAT was remitted to the Respondent on 30th June 2021, the Appellant lodged an application for a refund of the VAT paid on 27th April 2022, which is within 12 months from the date the VAT was remitted to the Respondent.

38. It was the Appellant’s request therefore, that the Respondent refund the VAT paid in accordance with the above provisions of the TPA.

39. Further, the Appellant cited as persuasive authority for the Tribunal’s consideration, the English case decided in the House of Lords; in Kleinwort Benson v Lincoln City Council [1998] UKHL 38 the House of Lords determined that, where there is no explicit provision of law preventing the claim of restitution of money paid under the mistake of law, then, the claimant has every right to claim restitution of said funds.

40. The Appellant averred that the right to seek restitution of money/tax paid in error is also enshrined in English common law. Common Law, according to Section 3 of the provisions of the Judicature Act, Cap 8, forms one of the guiding principles for the exercise of the jurisdiction of the various judicial bodies in Kenya and applies insofar as the circumstances of Kenya and its citizens permit. The Appellant asserted on this basis that there is legitimate ground to make a claim for the restitution of tax paid in error, as this context allows.

41. The Appellant proffered that on the basis of Section 30 of the VAT Act (as applicable), Sections 47 and 47A of the TPA and the doctrines of the common law applicable in Kenya, it had made a legitimate claim for refund of the VAT paid in error.

42. The Appellant pointed out that it could not have reasonably anticipated the changes to the VAT Act occasioned by the Finance Act, 2021. In which regard it followed the procedure in seeking a VAT refund, making a timely application for a VAT refund.

43. That on the basis of the foregoing grounds, the Appellant objects to the issuance of the Rejection Order. It is the Appellant’s assertion that the rejection order is a misapprehension of the law and the facts in issue by the Respondent.

44. The Appellant averred that it had followed the necessary procedure and had acted in good faith throughout seeking its claim.

Appellant’s Prayers

45. In light of the above, the Appellant prays that this Honorable Tribunal considers its grounds of appeal and finds that:-a.This Appeal be allowed;b.The Respondent’s refund rejection notice dated 3rd June 2022 be set aside in its entirety;c.The costs of and incidental to this Appeal be awarded to the Appellant; andd.Any other orders that the Tribunal may deem fit.

Respondent’s Case

46. The Respondent’s case is premised on the hereunder filed documents:-a.The Respondent’s Statement of Facts dated 4th October 2022 and filed on even date.b.The Respondent’s Written Submissions dated 9th March 2023 and filed on even date.

47. The Respondent averred that the dispute arose when the Appellant lodged an application for refund of the VAT it had paid of Kshs. 6,535,638. 00 on imported solar panels on the basis that the tax was paid in error.

48. The Respondent averred that on 29th June 2021 the Appellant lodged import entry documents with its Customs Department (“KRA Customs) for the import of solar panels into the Country. That the imported goods were entered prior to the arrival of the vessel in the Country and the Appellant made the payment towards customs duties and taxes payable on 30th June 2021 including the VAT of Kshs. 6,535,638. 00.

49. The Respondent stated that the imported goods were discharged from the shipping vessel at Kilindini Port Mombasa on 1st July 2021 and transferred by rail to the Nairobi Embakasi Inland Container Depot (“ICD”).

50. The Respondent stated that on 3rd June 2021, the Appellant received a notification from iTax on the rejection of the refund application.

51. The Respondent averred that the Appellant was aggrieved by the Respondent’s refund decision and lodged a notice of objection on 29th June 2022 which was received on 1st July 2022.

52. The Respondent submitted that amendments to Section 47 of the Tax Procedures Act by Section 42 of the Finance Act 2022 prescribed for the adjudication of refund claims to the sole preserve of the Tribunal. That guided by the new amendment the Respondent referred the Appellant to the Tribunal.

53. The Respondent averred that the Appellant claimed that at the time it was importing its goods the VAT Act had been amended by the Finance Act, 2021 which came into force on 1st July 2021 reintroducing VAT exemption on the goods it imported.

54. The Respondent posited that the Appeal evokes the following issues for determination:i.Whether the Respondent erred in law and in fact by holding that the time of supply of the imported goods was on 30th June 2021 when the Appellant entered the goods and made the customs payment as opposed to the time of customs clearance as provided for by the VAT Act.ii.Whether the imported goods were exempt from VAT at the time of supply hence the Appellant ought not to have paid VAT on the imported goods.iii.Whether having paid VAT on importation of the solar panels that were exempt at the time of importation, the Appellant is eligible for a refund of the VAT paid on the basis that the tax was paid in error.

55. The Respondent stated that the Appellant’s main contention is that by the time the imported goods had been cleared at the Nairobi Embakasi Inland Container Deport the VAT Act had been amended and the goods were exempted from VAT.

56. The Respondent averred that the goods arrived at the Port of Discharge before 1st July 2021. The goods were entered and relevant duties paid between 29th June 2021 and 30th June 2021.

57. The Respondent averred that the Finance Act 2021 which reintroduced VAT exemption on specialized equipment for the development and generation of solar and wind energy came into force on 1st July 2021. The Respondent Cited Part I of the Act which states:“PART I - PreliminaryThis Act may be cited as the Finance Act, 2021, and shall come into operation, or be deemed to have come into operation, as follows –a)Sections 9, 10, 13, 19, 21(a), 21(b), 21(e), 40, 50, 58, 60, 73, 75, and 76, on the 1st January, 2022; andb)All other sections, on the 1st July, 2021. ”

58. The Respondent asserted that the amendment in question was effected through Section 27 of the Finance Act 2021 which falls under Part (b) above on the Sections that came into force on 1st July 2021.

59. The Respondent submitted that the Appellant lodged import entry documents on the 29th June 2021 and made payment on 30th June 2021 and that at that time the goods imported by the Appellant were vatable.

60. The Respondent relied on Section 2 of the East African Customs Management Act which defines imports as “to bring or cause to be brought into the Partner States from a foreign Country.”

61. The Respondent cited Section 2 (2) (a) of EACCMA which states that:“(2)For the purposes of this Act- goods shall be deemed to be entered when the entry, made and signed by the owner in the prescribed manner, is accepted and signed by the proper officer and any duty due or deposit required under this Act in respect of the goods has been paid, or security has been given for compliance with this Act.”

62. The Respondent posited that the concept of “bringing into “or entry is so vital to definition of import since it even determines the duty due and when it become payable.

63. The Respondent relied on the case of Republic v Commissioner of Domestic Taxes Large Tax Payer’s office ex-party Barclays bank of Kenya ltd [2012] eKLR, where the court stated:-“The approach to this case is that stated in the oft cited case of Cape Brandy Syndicate v Inland Revenue Commissioner [1920] 1 KB 64 as applied in T.M. Bell v Commissioner of Income Tax [1960] EALR 224 where Roland J. stated, “…in a taxing Act, one has to look clearly at what is clearly said. There is no room for intendment as to a tax. Nothing is to be read in, nothing it to be implied. One can only look fairly at the language used…If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.”

64. The Respondent emphasized on strict interpretation of the definition of imports and when goods are deemed to have entered the Country with the requirement of payment of duties payable which in this case are the import duty and VAT.

65. The Respondent submitted that the point at which the Appellant lodged the import entry to enable processing of the VAT payable was the time the goods were deemed by the law to have been entered and when the payments were made on 30th June 2021 was the time when the goods were vatable.

66. The Respondent averred that the goods arrived at the Port of Discharge before 30th June 2021 when the law on exemption had not come into force, they were entered and relevant duties paid between 29th June 2021 and 30th June 2021.

67. The Respondent therefore submitted that the time of supply of the imported goods in question would be as per Section 12(4)(d) of the VAT Act, 2013 since the goods had already been entered on 29th June 2021 and payment made on 30th June 2021.

68. The Respondent reiterated that the exemptions on payment of duty on specialized equipment for the development and generation of solar and wind energy by the Finance Act 2020 came into force on 1st July 2021. The Appellant made duty payments towards these items on 30th June 2021 and the payment included payment of import VAT.

69. To buttress its averments, the Respondent relied on the case of Samuel Kamau Macharia & Ano. Vs. Kenya Commercial Bank Ltd & 2 Others, [2021] Eklr where it was held that:-“As for a non-criminal legislation, the general rule is that all statutes other than those which merely declaratory or which relate only to matters of procedure or evidence are prima facie prospective, and retrospective effect is not to be given to them unless, by express words or necessary implication it appears that this was the intention of the legislature”.

70. The Respondent submitted that the Appellant assumed the risk by entering the goods and paying for them before 1st July 2021 as opposed to waiting for the exemptions to come in force before entering the goods.

71. The Respondent submitted that the Finance Act 2021 was published and was in public knowledge hence the Appellant ought to have known of the exemptions coming into force on 1st July 2021 and safeguarded its own interest by taking appropriate measures.

72. The Respondent averred that Appellant is not eligible for a refund because the goods were entered before 1st July 2021 when the Finance Act 2021 came into force.

73. The Respondent submitted that even if this Honorable Tribunal was to agree with the Appellant’s submissions and find that the imported goods were exempt, all refund applications are to be made within 6 months.

74. The Respondent averred that Section 47A of the TPA provides:-“Refund of tax paid in error 1. Where tax has been paid in error, the Commissioner shall, except as otherwise provided in this Act or the relevant tax law, refund such tax.

2. In processing a refund under subsection (1), the provisions of section 47(1), (2), (3), (4) and (5) shall apply, with the necessary modifications.

3. For the purposes of this section, “tax paid in error” means any tax which the Commissioner is satisfied ought not to have been paid.”

75. The Respondent further averred that Section 47A (2) of the TPA provides that in processing a refund, the provisions of Section 47(1) (2), (3), (4) and (5) shall apply. That Section 47 of the TPA provides:-“(a)Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner, in the prescribed form(b)For a refund of the overpaid tax within five years, or six months in the case of value added tax, after the date on which the tax was overpaid.”

76. The Respondent averred that the Appellant paid taxes on 30th June 2021 and lodged the refund application on 27th April 2022.

77. The Respondent submitted that since Section 47 (1)(b) of the TPA is couched in mandatory terms, the refund application ought to have been made or before 30th December 2021.

Respondent’s Prayers

78. The Respondent prayed that this Honourable Tribunal: -a.Disallows the refund application for Kshs. 6,535,638. 00 and upholds the VAT claim rejection order dated 3rd June 2022. b.Dismisses the Appeal for lack of merit.

Issues For Determination 79. After perusing the pleadings and documentation produced before it, the Tribunal is of the view that the following are the main issues for determination:-a.Whether the Respondent erred in law and in fact by holding that the time of supply of the imported goods was on 30th June 2021. b.Whether the imported goods were exempt from VAT at the time of supply.c.Whether the Appellant is eligible for a refund of the VAT paid on importation of the solar panels on the basis that the tax was paid in error.

Analysis And Findings 80. Having identified the issues that calls for its determination, Tribunal proceeds to analyse them as hereunder.a). Whether the Respondent erred in law and in fact by holding that the time of supply of the imported goods was on 30th June 2021.

81. That Import VAT is chargeable at the time of supply of the imported goods is not in contention what is in contention in the instant case is the interpretation of time of supply. The parties propounded differing interpretations of the VAT Act and the EACCMA with relation to the subject matter.

82. While the Appellant vouched for time of supply as provided in the VAT Act, the Respondent argued its case in favor of time of import “bringing into” or entry into the partner state as provided for in the EACCMA.

83. It now behooves the Tribunal to apply itself on the various provisions of the law in particular the VAT Act and the EACCMA so as to make an informed determination on the time of supply in the instant case.

84. As much as import VAT is a creature of the VAT Act, its substance and essence become irreversibly a duty of customs as the same is administered through the EACCMA framework as duty alongside other taxes and levies, Section 2 of the EACCMA defines duty as:-“duty” includes any cess, levy, imposition, tax, or surtax, imposed by any Act.This definition effectively places import VAT as duty under customs.

85. The Respondent relied on Section 2 of the EACCMA which defines import as “to bring or cause to be brought into the Partner States from a foreign Country.” The Respondent posited that the concept of “bringing into “or entry is so vital to definition of import since it even determines the duty due and when they become payable.

86. The Respondent cited Section 2 (2) (a) which states that:“(2)For the purposes of this Act- goods shall be deemed to be entered when the entry, made and signed by the owner in the prescribed manner, is accepted and signed by the proper officer and any duty due or deposit required under this Act in respect of the goods has been paid, or security has been given for compliance with this Act.”

87. To counter the Respondent’s submissions on Section 2(2)(a) of EACCMA the Appellant quoted Section 16 of the EACCMA which provides that the imported goods shall be subject to Customs Control from the time of importation until delivery for home consumption.

88. The Appellant submitted that Section 19 (1) of the VAT Act provides that VAT is due and payable at the time of supply.

89. The relevant Section of the VAT Act with regard to time of supply is Section 12(4) which provides that:-“The time of supply of imported goods shall be—(a)in the case of goods cleared for home use directly at the port of importation, or goods entered for removal to an inland station and there cleared for home use, at the time of customs clearance;(b)in the case of goods removed to a licensed warehouse subsequent to importation, at the time of final clearance from the warehouse for home use;(c)in the case of goods removed from an export processing zone or a special economic zone, at the time of removal for home use;(d)in any other case, at the time the goods are brought into Kenya.”

90. While the Appellant interpreted its goods to fall under Section 12(4)(a) of the VAT Act with regard to time of supply, the Respondent relied on Section 12(4)(d) of the VAT Act which speaks to any other case apart from those described in sub-sections (a) to (c) of Section 12(4) of the VAT Act.

91. The Tribunal considers that the various instances described in Section 12 (4) of the VAT Act as determining the time of supply must be evaluated sequentially hence the Respondent misdirected itself to classify the goods in question under Section 12(4)(d) whereas the goods having been imported and transferred to the Nairobi ICD and subsequently cleared on 7th July 2021 falls within the description given in Section 12(4)(a) of the VAT Act.

92. Sections 16 (1)(a) of EACCMA further shows that customs clearance is at the point at which the goods are delivered for home use, this of Section EACCMA read together with VAT Act Section 12(4)(a) which describes time of supply as being the time of customs clearance, leaves no doubt that indeed the time of customs clearance in this instance was 7th July 2021.

93. The Tribunal therefore finds that the Respondent misdirected itself as to the time of supply and erred in holding that the time of supply was 30th June 2021. b)Whether the imported goods were exempt from VAT at the time of supply.

94. The Tribunal having determined that the time of supply is the time of customs clearance which in this case was on 7th of July 2021, the Tribunal now turns its focus to the import of the amendments made by the Finance Act 2021.

95. The Section 27 of the Finance Act 2021 which reintroduced VAT exemption on specialized equipment for the development and generation of solar and wind energy came into force on 1st July 2021 as read from Part I of the Act which states that: -“PART I - PreliminaryThis Act may be cited as the Finance Act, 2021, and shall come into operation, or be deemed to have come into operation, as follows –a)Sections 9, 10, 13, 19, 21(a), 21(b), 21(e), 40, 50, 58, 60, 73, 75, and 76, on the 1st January, 2022; andb)All other sections, on the 1st July, 2021. ”

96. The amendment in question was effected through Section 27 of the Finance Act 2021 which falls under Part (b) above on the Sections that came into force on 1st July 2021.

97. Section 27 (xxv) of the Finance Act 2021 reads as follows: -“The First Schedule to the Value Added Tax Act, 2013 is amended—(a)in Part I —(xxv)inserting the following new paragraphs immediately after paragraph 111 — 113. Specialized equipment for the development and generation of solar and wind energy, including photovoltaic modules, direct current charge controllers, direct current inverters and deep cycle batteries that use or store solar power, upon recommendation to the Commissioner by the Cabinet Secretary responsible for matters relating to energy” [Emphasis ours]

98. It follows then that at the time of supply of the goods, being 7th July 2021, the goods in question were eligible for VAT exemption, however the Section 27 (xxv) of the Finance Act 2021 cited above provides clearly that exemption was pegged upon recommendation to the Commissioner by the Cabinet Secretary responsible for matters relating to energy.

99. The Appellant has not provided evidence to show that it had received the requisite recommendation for the VAT exemption to take effect.

100. With regard to exemptions pegged on recommendation by the relevant Government authority, the Tribunal is guided by the holding in Republic v Kenya Revenue Authority Ex Parte Universal Corporation Ltd [2016] eKLR at Para 118 where the High Court held that: -“Therefore even the said Ministers appreciated that the exemption was not absolute but was subject to recommendations. This was the position adopted by Lenaola, J in Pharmaceutical Manufacturing and 3 Others vs. KRA and Two Others in which he stated that:“The obvious effect therefore is that there may well be exemption subject to proper approvals being obtained…”

101. The Tribunal therefore holds that the goods imported by the Appellant qualified for exemption at the time of import however there is no evidence that the requisite recommendation from the Cabinet Secretary to the Commissioner to unlock the exemption was obtained, therefore the goods were not exempted from VAT at the time of supply.c)Whether the Appellant is eligible for a refund of the VAT paid on importation of the solar panels on the basis that the tax was paid in error.

102. Having determined that the imported goods were not exempted from import VAT for want of recommendation, this issue for determination has been rendered moot.

Final Decision 103. The upshot of the foregoing is that the Appeal lacks merit and the Tribunal consequently makes the following orders: -a.The Appeal be and is hereby dismissed.b.The rejection of the Appellant’s refund application for Kshs. 6,535,638. 00 for import VAT is hereby upheld.c.Each party to bear its own costs.

104. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF NOVEMBER, 2023GRACE MUKUHA - CHAIRPERSONGLORIA A. OGAGA - MEMBERDR. ERICK KOMOLO - MEMBERJEPHTHAH NJAGI - MEMBERTIMOTHY VIKIRU - MEMBER