[2023] KETAT 871 (KLR)

Steam and Gesto Consortium (SGC) Srl Ltd v Commissioner of Domestic Taxes (Tax Appeal 1319 of 2022) [2023] KETAT 871 (KLR) (24 November 2023) (Judgment)

Neutral citation: [2023] KETAT 871 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1319 of 2022

RM Mutuma, Chair, EN Njeru, M Makau, BK Terer & W Ongeti, Members

November 24, 2023

Between

Steam And Gesto Consortium (Sgc) Srl Ltd

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated under the Companies Act, and whose principal business activity is architectural, engineering activities and related technical consultancy.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act and the Kenya Revenue Authority is an agent of the Government of Kenya for the assessment, collection, receipt, and accounting for all tax revenue. The Authority is also mandated with the responsibility of the administration and enforcement of the tax statutes set out in Parts I & 11 of the First Schedule to the said Act.

3. The Appellant is a foreign branch of an Italian company that ventured into the Kenyan market to undertake projects in the Olkaria Geothermal Power project.

4. The Respondent reviewed the Appellant’s filed VATreturns for the period January 2018 vis a vis its suppliers for the same tax period and indicated a finding of inconsistencies in the invoices used by the Appellant to claim input VAT and the invoices declared by its various suppliers for the tax period under review, and subsequently notified the Appellant of the inconsistencies requesting for amendment of the same.

5. On 15th November 2019 the Respondent raised additional automated VAT assessments for the month of January 2018.

6. The Appellant lodged an objection notice to the additional VAT assessments on 29th November 2019 on iTax.

7. The Respondent reviewed the Appellant’s additional documents and partially allowed the Appellant‘s notice of objection via its Objection decision dated 23rd September 2020 and issued on 7th November 2020.

8. The Appellant being dissatisfied with the Respondent’s Objection decision filed its Notice of Appeal on 7th November 2022.

The Appeal 9. The Appellant filed its Memorandum of Appeal on 7th November 2022 and set out the following grounds of Appeal;i.That the Appellant is a foreign branch of an Italian company that ventured into the Kenyan market to undertake projects in the Olkaria Geothermal Power project and the motor vehicles were purchased solely to be used on site at Olkaria.ii.That all the invoices presented to the Respondent were in line with the provisions outlined in Section 17 (3) of the VATAct.iii.That the motor vehicles purchased under Invoice numbers 91073889 and 91073892 were Toyota Hilux 4*4 Double Cab used for purposes of business and for carrying materials.iv.That the motor vehicles purchased do not qualify under the definition of passenger cars as per Section 17 (4) of the VATAct considering the nature of use of the motor vehicles.v.That VAT is chargeable on motor vehicles during disposal and the same shall be declared to the Revenue Authority at disposal.

The Appellant’s Case 10. The Appellant has set out its case on its Statement of Facts dated 28th October 2022 and filed on 7th November 2022.

11. The Appellant stated that on 15th November 2019, it received a VAT Assessment Order from the Respondent for Kshs 1,616,042. 00 for the month of January 2018.

12. The Appellant further stated that according to the Respondent, the additional assessment was as a result of input VAT erroneously filed by the Appellant.

13. The Appellant stated that it objected to the additional assessment through the letter dated 28th November 2019 and provided all the supporting documentation to the Respondent for all VATable supplies claimed in the month of January 2018.

14. It also stated that the Respondent issued it with the Objection decision dated 23rd September 2020 which stated that the Respondent had partially accepted the notice of objection for the invoices with VAT amount of Kshs. 135,205. 00 since these invoices and the relevant proof of payment were verified and qualify for claim under Section 17 (3) of the VATAct, while the objection for invoices with VAT amount of Kshs. 1,250,145. 00 was rejected since the invoices provided did not qualify for claim under Section 17 (4) of the VATAct.

15. The Appellant further stated that the objection decision issued by the Respondent rejected the invoices that relate to motor vehicle purchases vide Invoice Numbers 91073889, 91073892 and PWA/11571/2018.

16. The Appellant also stated that all the invoices presented to the Respondent were in line with the provisions of Section 17 (3) of theVATAct.

Appellant’s Prayers 17. By reason of the foregoing, the Appellant prayed that the Respondent’s Objection decision dated 23rd September 2020 be set aside, and its Appeal herein be allowed with costs.

The Respondent’s Case 18. The Respondent’s case is premised on the Respondent’s Statement of Facts dated 29th November, 2022 and filed on the same date together with documents attached thereto.

19. The Respondent stated that it reviewed the Appellant’s filed VAT returns for the tax period January 2018 vis-à-vis its suppliers for the same tax period with the sole aim of establishing whether the Appellant was tax compliant.

20. The Respondent further stated that through iTax it detected inconstancies in the invoices used by the Appellant to claim input VAT and the invoices declared by its various suppliers for the period under review. The Appellant was notified of the inconsistencies and requested to amend its filed returns but it failed to do so.

21. The Respondent further stated that on the 15th November 2019 it raised additional automated VAT assessments for the period of the month of January 2018, and on the 29th November 2019, the Appellant lodged an objection to the additional assessments on iTax and availed additional documents vide various email correspondence.

22. The Respondent stated that it reviewed the Appellant’s additional documents and the objection was partially allowed and an Objection decision dated 23rd September 2020 was issued on 7th November 2020, in which the Respondent partially accepted the objection for the invoices with VAT amount of Kshs. 135,204. 94 as the relevant invoices and relevant proof of payment were verified and qualified for claim under Section 17 (3) of theVATAct.

23. The Respondent stated that the objection for the invoices with a VAT amount of Kshs. 1,250,144. 99 was rejected as the invoices provided did not qualify for claim under Section 17 (3) of theVATAct. Subsequently the Appellant appealed against the Respondent’s Objection decision.

24. The Respondent submitted that Section 24 of the Tax Procedures Act allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent but the Respondent is not bound by the information provided therein and can assess additional taxes based on any other available information.

25. It stated that the Appellant filed its self-assessment VAT 3 returns for the tax period month of January 2018 as required under Sections 24 and 28 of the TPA .

26. The Respondent further averred that the additional VAT assessments for the month of January 2018 were based on inconsistencies between the Appellant ‘s filed VAT returns and its suppliers.

27. The Respondent further averred that at the objection stage it was noted that the Appellant availed two invoices issued by Toyota Kenya and one issued by Simba Corporation Ltd related to 4 X 4 Double Cab vehicles which were not allowable under Section 17 (4) of theVATAct.

28. The Respondent averred that the Appellant claimed input VAT for the purchase and maintenance of passenger vehicles contrary to Section 17 (4) of the VATAct.

29. The Respondent averred that it allowed the Appellant’s objection partially for the invoices with payments that were verifiable, and disallowed the invoices that were, contrary to Section 17 (4) of the VATAct.

30. The Respondent further submitted that tax statutes are subject to strict interpretation and only what is clearly stated is applied and there is no room for intendment. The Respondent to buttress its submission cited The Commissioner of Income Tax vs. Pan African Paper Mills (EA) Ltd (2018) eKLR, where the court of Appeal stated;“We are guided by the Halsbury ‘s Laws of England4th Edition Volume 23 page 36 which states that, ‘’ In the construction of a taxing Act, the court has a primary regard to the statutory words themselves and to their proper construction …Taxing Acts are strictly construed in the sense that one looks at what is said; there is no room for intendment …”.

31. The Respondent also submitted that the Appellant had the burden of proof to dispute the documents relied upon by the Commissioner in its assessment, and cited the case of TAT 115 of 2017 Digital Box Ltd vs. Commissioner of Domestic Taxes.

32. It further submitted that the burden of proof is upon the Appellant to prove that the VAT input claims are in line with Section 17 of the VATAct, as the Appellant clamed input VAT for purchase and maintenance of passenger vehicles contrary to Section 17 (4) of VATAct.

33. The Respondent submitted that the burden is upon the Appellant to prove that the assessment was excessive or wrong as provided for under Section 30 of TAT Act, and Section 56 (1) of the TPA, and to buttress the submission it cited the case of Norman vs. Golder 26 T.C. 293, where it was stated,“the onus is upon the Appellant to show that the assessment made upon him is excessive or incorrect; and of course, he has completely failed to do so. That is sufficient to dispose off the appeal, which I accordingly dismiss with costs.”

34. It stated that this position was stated by the Tribunal in the case of TAT 55 of 2018 Boleyn International Ltd vs. Commissioner of Investigations and Enforcement, where it was stated;“We find that the Appellant at all times bore the burden of proving that the Respondent’s decisions and investigations were wrong. The Tribunal is guided by the provisions of section 56 (1) of theTAT Act, which states: In any proceedings under this part, the burden shall be on the taxpayer to prove that a decision is incorrect.”

35. The Respondent therefore submitted that the Objection decision dated 23rd September 2020 was proper in law and prayed that the said decision be affirmed and the Appellant’s Appeal herein be dismissed with costs to the Respondent.

Issues For Determination 36. The Tribunal having carefully considered the pleadings and submissions made by the parties is of the considered view that the Appeal herein distils into a single issue for determination as follows;Whether the Respondent‘s additional assessment against the Appellant was justified.

Analysis And Determination 37. The Tribunals proceeds to analyze and determine the issue as hereunder;

Whether the Respondent‘s additional assessment against the Appellant was justified. 38. The Appellant moved the Tribunal seeking leave to file the Appeal out of time, which leave was granted on the 21st October 2022.

39. The issue in dispute herein is the input VAT claimed by the Appellant in regard to motor vehicles purchased by the Appellant and maintenance thereof, which the Respondent rejected on the basis that the same were passenger vehicles, thus disallowing the input VAT under Section 17 (4) (a) of theVATAct.

40. Section 17 (4) (a) of the VATActprovides as follows;“(4)A registered person shall not deduct input tax under this Act if the tax relates the acquisition, leasing or hiring of –a.Passenger cars or minibuses, and the repair and maintenance thereof including spare parts, unless passenger cars or mini buses are acquired by the registered person exclusively for the purpose of making a taxable supply of that automobile in the ordinary course of a continuous and regular business of selling or dealing in or hiring of passenger cars or minibuses.”

41. The Appellant set out in its grounds and averments that it purchased motor vehicles of model Toyota Double Cabin 4X4 under invoices numbers 91073889, and 91073892 which were for the purpose on use in its business and carrying materials. It also incurred maintenance and service costs vide Invoice number PWA /1157/2018 for the said vehicles.

42. The Appellant also averred that it was a foreign branch of an Italian company and had established a venture in Kenya to undertake projects in the Olkaria Geothermal Power project, and the vehicles in question were procured to exclusively and solely be used as site vehicles at its Olkaria project site.

43. The Appellant averred that considering the nature and use of the said vehicles, the purchase of the motor vehicle and maintenance thereof did not qualify under the definition of passenger cars under Section 17 (4) of theVATAct.

44. The Respondent on the other hand stated that at the objection stage it was noted that the Appellant availed two invoices issued by Toyota Kenya and one issued by Simba Corporation Ltd relating to 4X4 Double Cab motor vehicles, and disallowed the VAT inputs thereof under Section 17 (4) of the VATAct.

45. The Tribunal has considered the averments made by the parties and is satisfied that the Appellant being a foreign branch of an overseas company undertaking a Geothermal project at Olakaria had a justifiable basis for acquiring 4X4 Double Cabin pick-ups for use in its project site in Olkaria. The Tribunal takes judicial notice that this model of motor vehicles is commonly used by engineering consultants and construction contractors for the site visit and work being off road vehicles.

46. It is noteworthy that the Respondent did not proffer any explanation why it classified the Appellant’s vehicles in question as passenger vehicles despite being alive to the nature of the Appellant’s business and inspite of the Appellant’s explanations.

47. The Tribunal is therefore satisfied with the Appellant’s explanation that the vehicles in question were procured for use in its business and carrying materials.

48. In light of the foregoing, the Tribunal finds that the Appellant ‘s 4X4 Double Cabin pickups were acquired by the Appellant for purposes of its business, and therefore did not qualify under the definition of passenger cars as provided for under Section 17 (3) of the VATActand the Respondent erred in rejecting the VAT inputs thereof.

49. The above Section provides that the deduction of input VAT on the purchase of motor vehicle is subject to the requirement that the motor vehicle in question should be for the exclusive use of the taxpayer’s production of income, for the purposes of making a taxable supply in the ordinary course of business.

50. In view of the foregoing, the Tribunal finds and holds that the Respondent was not justified in assessing and confirming the additional assessment against the Appellant.

51. The upshot of the foregoing is that the Appeal is meritorious and hereby succeeds.

Final Decision 52. The Appeal having succeeded the Tribunal issues the following Orders;a.The Appeal be and is hereby allowed.b.The Respondent ‘s Objection decision dated 23rd September 2020 be and is hereby set aside.c.Each party to bear its own costs.

53. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF NOVEMBER, 2023ROBERT M. MUTUMA..............CHAIRPERSONELISHAH N. NJERU..............MEMBERMUTISO MAKAU..................MEMBERBONIFACE K. TERER...........MEMBERDR WALTER J. ONGETI......MEMBER