Tononoka Rolling Mills Ltd v Kenya Revenue Authority (Tax Appeal E1075 of 2025) [2026] KETAT 200 (KLR) (6 July 2026) (Judgment)

 REPUBLIC OF KENYA IN THE TRIBUNAL OF KENYA AT NAIROBI COUNTY COURT NAME: TAX APPEALS TRIBUNAL CASE NUMBER: TATC/E1075/2025 TONONOKA ROLLING MILLS LIMITED VS KENYA REVENUE AUTHORITY JUDGMENT BACKGROUND 1. The Appellant is a private limited company whose principal activity is steel manufacture and supply in Kenya. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5 (1) of the Act, the Kenya Revenue Authority 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), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws. 3. The claim arose from excess Withholding VAT(WHVAT) credits accumulated during the course of the Appellant's regular steel manufacturing and supply operations and on the basis that the Appellant was in a net VAT credit position of Kshs 178,384,141 as of March 2025 as evidenced in its filed VAT return. 4. The Appellant then applied for a refund of WHVAT amounting to Kshs 13,453,254. The said refund application was rejected vide withholding VAT claim rejection order dated 1st August 2025 on the basis that the Appellant did not have excess WHVAT credits for the period as the same had been fully utilized for setoff against output tax payable for the period. 1. The Appellant being dissatisfied, filed a Notice of Appeal dated 10 th September 2025 and filed on the even date. # THE APPEAL 1. The Appellant filed the Memorandum of appeal dated 28th September 2025 and filed on 29th September 2025 raising the following grounds: 1. That the Respondent erred in law and fact by misinterpreting and misapplying Section 17(5) of the Value Added Tax Act Cap, 476 (VATA); particularly, by failing to appreciate that where after an input/output analysis places the taxpayer is in a VAT Payable position, the VAT Credits accrued should be first utilized to offset the tax liability prior to utilization of WHVAT. 2. That the Respondent erred in law and fact by failing to interpret Section 17(5) correctly which provides for input tax to be deducted from output tax. 3. That the Respondent erred in law and fact by knowingly ignoring that input tax carried forward becomes part of VAT Credit of the subsequent month under Section17(5). Accordingly, input tax (i.e., input tax for the month and input tax brought forward) are to be offset against the output in the determination of the tax payable for the month and before offsetting any tax payable with the WHVAT. 4. The Respondent erred in law and fact by first utilizing WHVAT to offset VAT payable instead of utilizing the accrued VAT credits brought forward from previous month as intended by Section 17(5) of the VATA. 5. That the Respondent erred in law and fact by applying this erroneous method to determine VAT refunds payable, and thereafter denied the Appellant accumulated WHVAT amounting to kshs. 13,453,254. 6. That the Respondent's actions are Wednesbury, unreasonable and capricious and constitute a breach of the Appellant's right to fair administrative action. # THE APPELLANT’S CASE 1. In support of its appeal, the Appellant lodged its Statement of facts dated 28th September 2025 and filed on 29 th September 2025 and its written submissions dated 4th May 2026 and filed on 5th May 2026 2. The Appellant stated it is a vertically integrated steel manufacturer and supplier in Kenya, converting waste metal scrap into a wide range of steel building products, such as hollow sections, sheets and plates, open profiles, TMT bars, various bars, wire products and other structural steel items while also providing value-added services like cutting, bending, galvanising, and borehole casings. The Appellant stated that it applied for refund of WHVAT amounting to Kshs 13,453,254 for the tax period covering March 2025. 3. According to the Appellant, the claim arose from excess WHVAT credits accumulated during the course of the Appellant's regular steel manufacturing and supply operations and being in a net VAT credit position of Kshs 178,384,141 as of March 2025, as evidenced by its filed VAT return. 4. The Respondent rejected the refund application on 1st August 2025, citing that the WHVAT had already been fully utilized to offset output tax for the period. The Appellant disputed this finding, arguing that the rejection stems from a misapplication of the VAT credit hierarchy under Section 17(5) of the VATA. 5. The Appellant stated that it was incorporated with the aim of manufacturing and supplying steel and steel-related products for the construction and infrastructure sectors within Kenya. It pointed out that owing to the nature of the business, a majority of the company's customers are duly appointed WHVAT agents by the Respondent. It stated that its customers thus retained WHVAT at the rate of 6% prior to the amendment of Tax Procedures Act Cap 469B(TPA) which subsequently reduced the WHVAT to a rate of 2% of the taxable supply. 6. The Appellant relied on Section 42A of the TPA which provides that, "*the Commissioner may appoint a person to withhold two percent of the taxable value on purchasing taxable supplies at the time of paying for the supplies and remit the same directly to the Commissioner*.’ 7. According to the Appellant, its customers therefore deducted, retained, and remitted WHVAT at the above stated statutory rate. The Appellant stated that for the period October 2024 to March 2025, it accumulated unutilized refundable WHVAT credits, including the Kshs 13,453,254 claimed for the month of March 2025, which it evidenced by use of individual WHVAT certificate. 8. The Appellant asserted that it duly filed its refund application on 7th April 2025, seeking the refund of Kshs 13,453,254 under the category of WHVAT for the period 1st March 2025 to 31st March 2025. It stated that this marked the beginning of an administratively frustrating and prolonged engagement with the Respondent, culminating in the issuance of a Rejection Decision dated 1st August 2025. 9. According to the Appellant, the Respondent rejected the VAT refund claim stating that the credit claimed for the respective period were caused by excess input VAT over output VAT and not WHVAT. The Appellant maintained that the rejection by the Respondent was in contravention of Section 17(1) and (5) of the VATA. 10. The Appellant asserted that Section 17(1) of the VATA provides that input tax incurred on taxable supplies by a registered taxpayer may be deducted from the tax payable by the person on supplies bought by him in that tax period. It however noted that the operation of this provision is subject to exceptions, one such exception being refunds under Section 17(5). It stated that the claim for refund of the WHVAT undoubtedly stemmed from Section 17(5) of the VATA. 11. The Appellant noted that Section 17(5) unequivocally provides that the excess input tax from the previous tax period is added to the input tax incurred in the current period aggregating to a total input tax which is deducted from the current month's tax payable. 12. The Appellant averred that the excess credits resulting from the Output- input analysis is therefore to be carried forward as input tax in the next tax period. It was of the view that the use of the word ‘‘shall" in Section 17(5) highlights the mandatory nature of carrying forward the excess credits and utilizing them to offset the VAT Payable in the current month. 13. It pointed out that the crux of the dispute with the Respondent is the interpretation of the aforementioned provision. It averred that VAT is calculated by subtracting output tax from input tax and the balance places the taxpayer in either a payable or credit position. It maintained that as per Section 17 of the VATA, credit position occurs where the input tax exceeds the output tax and that the excess credit balance is to be carried forward as input tax deductible in the next tax period. 1. It reiterated that Section 17 of the VATA does not contemplate a situation where the excess credit will be refunded unless the excess tax was accrued from zero-rated sales or the excess tax arose from tax withheld by Appointed withholding agents. 2. The Appellant noted that the aforementioned provision recognizes that there can be a refund where the Appellant has accumulated WHVAT, and the same can be claimed for when the registered taxpayer lodges the claim within 24 months from the commencement date. The Appellant maintained that where the taxpayer is in a VAT refundable position, the credit is to be carried forward to the next tax period as input tax deductible in that next period. It argued that the carried forward credit cannot be refunded, and is simply to be utilized first to offset output VAT in the subsequent month. 3. The Appellant maintained that the Respondent adopted a system wherein the refundable WHVAT is first utilized to offset VAT payable, and once they have all been utilized, they then resort to using the accumulated VAT credits carried forward. The Appellant was of the view that this has the net effect of denying the taxpayer a refund of its rightfully accruing and accumulated refunds. Noting that the accumulated VAT credits cannot be refunded to the tax payer, and will instead be simply carried forward to the next tax period, the Appellant asserted that the Respondent chooses to first utilize the WHVAT to offset output VAT or payable VAT Contrary to the letter and spirit of the VATA. 4. The Appellant stated that the dispute in issue is one of interpretation and the issue on interpretation of tax statutes has been canvassed severally including in the case of **Republic v Commissioner of Domestic Taxes Large** # Tax Payer's Office Ex-Parte Barclays Bank of Kenya LTD [2012] eKLR where it was held that in a taxing Act, one has to look at what is clearly said. There is no room for intendment as to a tax law. 1. The Appellant averred that the Tribunal has pronounced itself on Section 17(5) of the VATA in **Kenya General Industries Limited v Commissioner of** **Domestic Taxes Tax Appeal No E643 of 2023** wherein it averred that: *"91. The provisions of Section 17 of the VAT on how excess credits can be applied to offset tax liability which have been discussed in detail by both parties was thus not available for consideration and application by* *the Respondent. The provision of Section 17 of the VAT Act would only have been available if the Respondent had issued a conditional refund decision prescribing that a portion of the Appellant's credits would be offset against its existing tax liabilities.* *92. The Tribunal thus finds and holds that the Respondent acted in error when it opted to utilise the Appellant's WHVAT credit refunding processing the Appellant's refund as commanded by Section 47(3) of the TPA."* 1. The Appellant submitted that the Respondent erred in law and fact by continuing to rely on erroneous method of determining refundable VAT despite the objection by the client and the same not being supported in law and that the Respondent's actions are unreasonable, capricious and constitute a breach of the Appellant's right to fair administrative action. 2. The Appellant further relied on the following case laws to support its case: # Equity Group Holdings Limited v Commissioner of Domestic Taxes (Civil Appeal E069 & E025 of 2020) [2021] KEHC 25 (KLR); 1. **Kenya General Industries Limited v Commissioner of Domestic Taxes Tax Appeal No E643 of 2023;** 2. **Commissioner of Domestics Taxes v Kenya General Industries Ltd HCCOMMITA No. E177 of 2024;** 3. **Waweru & 3 others (suing as officials of Kitengela Bar Owners Association) & another v National Assembly & 2 others; Institute of Certified Public Accountants of Kenya (ICPAK) & 2 others (Interested parties) (Constitutional Petition E005 & EO01 (Consolidated) of 2021) [2021] KEHC 58 (KLR);** 4. **Republic v Kenya Revenue Authority Ex Parte Universal Corporation Ltd [2016] eKLR;** 5. **Cape Brandy Syndicate v Inland Revenue Commissioner [1921] 1 KB 64;** 6. **Republic v Kenya Revenue Authority Ex Parte Cooper K- Brands Limited [2016] eKLR;** 7. **Commissioner of Income Tax v Westmont Power (K) Ltd** **Nairobi High Court Income Tax Appeal No. 626 of 2002;** 1. **Keroche Industries Ltd v KRA & 5 others (2007| eKLR;** 2. **Stanbic Bank Kenya Ltd v Kenya Revenue Authority |2009| eKLR; and** 3. **Commissioner of Income Tax v Westmont Power (K) Ltd Nairobi High Court Income Tax Appeal No. 626 of 2002.** **Appellant’s Prayers** 1. The Appellant prayed: 2. That this Appeal be allowed; 3. That the Respondent's Rejection Decision dated 1st August 2025 be set aside; 4. That the Respondent be compelled to refund the Appellant's accumulated WHVAT credit of Kshs 13,453,254. # THE RESPONDENT’S CASE 1. In response to the appeal, the Respondent lodged its Statement of facts dated 29th January 2026 and filed on the even date and its written submissions dated 4th May 2026 and filed on the even date 2. On whether the Respondent erred in utilising the Appellant's withholding VAT Credits ahead of credit brought forward as input tax, the Respondent stated that input tax is defined under Section 2 of the VATA and that the definition does not include credit brought forward from previous period. The section provides that: input tax" means- 1. *tax paid or payable on the supply to a registered person of any goods or services to be used by him for the purpose of his business; and* *(6) tax paid by a registered person on the importation of goods or services to be used by him for the purposes of his business*. 1. The Respondent stated that this definition does not include credit brought forward from previous periods. 2. The Respondent averred that it applied Section 17(5) of the VATA correctly. It stated that the section does not dictate or specify the order or priority of utilizing credits when a taxpayer has both Withholding VAT (WHVAT) credits from certificates issued in a month and credit brought forward from previous month. The Respondent noted that the section only clarifies the nature of excess credit that is eligible for refund given that not all credits are refundable. 1. It is the Respondent's case that VAT is a monthly tax and in computing it, transactions of a particular month are considered first including WHVAT credits from certificates issued in that month before any adjustments are made in respect of credit brought forward from previous period. 2. The Respondent stated that the system intelligence and logic allows it to utilize first available credits against liability to ensure the Appellant does not pay tax while having unexhausted credits. 3. It was the Respondent's case that the Commissioner did not decline to utilize credits brought forward as input tax. It contended that it lawfully made adjustment of credit brought forward in arriving at net tax payable or credit carried forward appropriately for each period. 4. The Respondent stated that Section 17(5) states that ‘‘...the amount of the excess shall be carried forward as input tax deductible in the next tax period", but does not accord the excess the definition of input tax. It was of the view that the meaning is that excess credit be deducted the way input tax gets deducted from a period's liability in arriving at net tax position (payable or credit). 5. The Respondent therefore, reiterated that it did not err in law or fact by utilizing WHVAT ahead of credits brought forward. It asserted that WHVAT credits from certificates issued in a particular month form part of transaction for that month, VAT being a monthly tax. It argued that such WHVAT credits therefore have priority over credit brought forward from previous period in computation of tax liability for the respective month. 6. On whether the Respondent erred in rejecting the Appellant's withholding VAT claim for the period March 2025, the Respondent averred that once utilized, the WHVAT credits become unavailable for refund application. It stated that its iTax system is designed to block applications in respect of utilized/unavailable WHVAT Credits to bar Taxpayers from enjoying double benefit from the same credit, being used against liability owing and similarly paid towards refund application. 7. The Respondent contended that the Appellant ought to have lodged an objection or appeal against the rejection or refund decision within the timelines provided in TPA. 1. The Respondent stated that the iTax system is configured correctly in applying correct interpretation of the law in processing data declared in taxpayers' returns. As pointed out earlier, no provision of the VATA or any other legislation dictates or specifies the order of utilizing WHVAT credits and credits brought forward from previous period. It stated that WHVAT credits originate in specific months hence form part of transactions for those months for tax computation before any adjustments can be made in respect of credit brought forward. 2. It stated that the interpretation and application of Section 17(5) of the VATA is based on law and administered to thousands of VAT registered taxpayers. It averred that Credits brought forward from previous periods have always been treated as adjustment after determining the difference between each period's output tax and input tax (not as input tax for that period) since the inception of VAT in Kenya in 1990. 3. The Respondent maintained that rejecting the Appellant's WHVAT claim for Kshs 13,453,254 was proper and in accordance with statutory provisions. 4. The Respondent submitted that it did not err in rejecting the Appellant's withholding VAT claim for the period March 2025. 5. The Respondent submitted that this Honourable Tribunal has no reason to interfere with the Respondent's statutory action of rejecting the Appellant's WHVAT claim as it is within the confines of the law and the Respondent exercised its mandate judiciously and reasonably. It cited the Court of Appeal in # Nyaga v Housing Finance Company Ltd of Kenya Civil Appeal No. 134 of **1987** where it held that: *Where a party has a statutory right of action, the court will not usually prevent that right from being exercised except that the court may interfere if there was no basis on which the right could be exercised or it was being exercised oppressively.* # Respondent’s prayers 1. The Respondent prayed that- 2. Upholds the Respondents WHVAT rejection order dated 1st August 2025 3. Dismiss this Appeal with cost to the Respondent as the same is without merit. # ISSUES FOR DETERMINATION 1. The Tribunal having carefully evaluated the pleadings and submissions of the parties has identified two issues for determination: - # Whether the Appeal is competent; and 1. **Whether Respondent erred in rejecting the Appellant's WHVAT Claim for Kshs 13,453,254.** **ANALYSIS AND FINDINGS** 1. Having identified the issue for determination, the Tribunal proceeds to analyse the same as hereunder: - # Whether the Appeal is competent 1. The Respondent in paragraph 18 of its Statement of facts stated as follows: *‘‘The Respondent avers that the Appellant ought to have lodged an objection or appeal against the rejection or refund decision within the timelines provided in Tax Procedures Act.’’* 1. The averments at paragraph 18 of the Respondent’s statement of facts constitute a preliminary objection that the Appellant filed the appeal beyond thirty days contrary the provisions of the TPA. 2. In **Mukisa Biscuits Manufacturing Co. Ltd v West End Distributor Ltd [1969] E.A 696**, Law JA discussed what constitutes a pure point of law in matters of preliminary objections as follows: *“a preliminary objection consists of a point of law which has been pleaded or which arises by clear implication out of pleadings and which if argued as a preliminary point may dispose of the suit. Examples are an objection to the jurisdiction of the court or a plea of limitation or a submission that the parties are bound by the contract giving rise to the suit to refer the dispute to arbitration….a preliminary objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all the facts pleaded by the* *other side are correct. It cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion.” (Emphasis is ours).* 1. The Respondent having raised a preliminary objection in its pleadings, the Tribunal examined its merit before making further steps. The Appellant did not address the preliminary objection. 2. The decision for consideration is dated 1 st August 2025, being a withholding VAT claim rejection order. The decision concerned refund of WHVAT applications and decisions on refunds are governed by Section 47 of the TPA. In particular, section 47(13) of the TPA provides as follows: ***47. Offset or refund of overpaid tax*** *(13) A person aggrieved by a decision of the Commissioner under this section may appeal to the Tribunal* ***within thirty days*** *after being notified of the decision.* 1. Further, Section 52 of the TPA guides taxpayers on how to proceed once the Respondent issues unfavourable decision. In this regard, Section 52(1) of the TPA stipulates that: 2. ***Appeal of appealable decision to the Tribunal*** *(1) A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act (Cap. 469A).* 1. Section 13 of the Tax Appeals Tribunal Act Cap 469A(TATA) provides for procedure to be followed when filing an appeal. To be precise, Section 13(1) thereof provides as follows: ***13. Procedure for appeal*** 1. *A notice of appeal to the Tribunal shall—* 1. *be in writing or through electronic means;* 2. *be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.* 2. The impugned decision was issued vide a letter dated 1 st August 2025. However, the Appellant filed the Notice of appeal on 10th September 2025. The timeframe under Section 47(13) of the TPA and Section 13(1) of the TATA should be read together with Section 77 (2) of the TPA which provides as follows: ***77. Due date for submission and payment*** 1. *In computing the period for the lodgement of an objection to the Commissioner under Section 51, an appeal to Tax Appeals Tribunal under section 52, an appeal to the High Court under Section 53 or an appeal to the Court of Appeal under Section 54, the computation shall not include Saturdays, Sundays or public holidays.* 2. Pursuant to Section 77(2) of TPA, computation of time does not include Saturdays, Sundays or public holidays. Consequently, the Tribunal finds and holds that this Appeal is competent because it was filed within statutory timelines. # Whether the Respondent erred in rejecting the Appellant's WHVAT claim for Kshs 13,453,254 1. The Appellant vide refund application dated 7th April 2025 applied for a refund of Withholding VAT amounting to Kshs. 13,453,254 for the period March 2025. 2. It is not disputed that the Appellant was in a net VAT credit position of Kshs 178,384,141 as of March 2025. 3. It is also not disputed that the period October 2024 to March 2025, the Appellant accumulated unutilized refundable WHVAT credits, including the Kshs 13,453,254 claimed for the month of March 2025. It also not disputed that the Appellant filed an application for refund within the required timelines. 4. The Respondent rejected the said refund application on 1st August 2025 on the basis that the Appellant did not have excess withholding VAT credits for the period as the same had been fully utilized for setoff against output tax payable for the period. 5. Section 17(5) of the VATA provides as follows: *(5) Where the amount of input tax that may be deducted by a registered person under subsection (1) in respect of a tax period exceeds the amount of output tax due for the period, the amount of the excess shall be carried forward as input tax deductible in the next tax period:* *Provided that any such excess shall be paid to the registered person by* *the Commissioner where—* 1. *such excess arises from making zero rated supplies; or* 2. *such excess arises from tax withheld by appointed tax withholding agents; and* 3. *such excess arising out of tax withheld by appointed tax withholding agents may be applied against any tax payable under this Act or any other written law, or is due for refund pursuant to section 47(4) of the Tax Procedures Act (Cap. 469B); and* 4. *the registered person lodges the claim for refund of the excess tax within twelve months from the date the tax becomes due and payable; and* 5. *deleted by Act No. 9 of 2025, s. 34(b);* *(ea) such excess credit in respect of a taxable supply that became zero rated on 1st July, 2023:* *Provided that a registered person who incurred excess credit shall apply to the Commissioner for a refund within six months from the date of commencement of this provision.* 1. Clearly, under Section 17 (5) where the amount of input tax exceeds the amount of output tax due for the period, the amount of the excess should be carried forward as input tax deductible in the next tax period. There are Instances where excess tax may be refundable. Those circumstances are as provided for under section 17(5) as read with section 47 of the TPA. 2. Section 47(1) of the TPA provides thus: ***47. Offset or refund of overpaid tax*** 1. *Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner in the prescribed form—* 1. *to offset the overpaid tax against the taxpayer’s outstanding tax debts and future tax liabilities including instalment taxes and value added tax payable on imports; or* 2. *for a refund of the overpaid tax—* 2. *in the case of income tax, within five years from the date on which the tax was overpaid; or* 3. *in the case of any other tax, within twelve months from the date on which the tax was overpaid.* 4. Upon receipt of the refund application under Section 47(1) of the TPA, section 47(5) of the TPA provides options that the Respondent has in dispensing with refund application as follows: 5. *Where the application is for a refund of tax under subsection (1)(b), the Commissioner shall apply the overpayment in the following order—* 1. *in payment of any other tax owing by the taxpayer under the specific tax law;* 2. *in payment of a tax owing by the taxpayer under any other tax law; and* 3. *any remainder shall be refunded to the taxpayer.* 6. The Respondent contended that Section 17(5) of the VAT Act does not prescribe the sequence in which a taxpayers carried-forward input tax credits and withholding VAT credits should be utilized and that its iTax system correctly prioritizes withholding VAT credits generated during the current tax period. The Tribunal is unable to agree with that interpretation. 7. Section 17(5) expressly provides that where deductible input tax exceeds output tax, the excess **“shall be carried forward as input tax deductible in the next tax period.”** The use of the word **“shall”** denotes a mandatory statutory obligation. Consequently, once excess input tax is carried forward, it assumes the legal character of input tax deductible in the succeeding tax period and must be taken into account in computing the taxpayer’s VAT position before any consideration is given to the utilization of withholding VAT credits. 1. The Respondent’s interpretation effectively deprives the statutory phrase “carried forward as input tax deductible in the next tax period” of any practical effect. It is the Tribunal’s view that such an interpretation offends the settled principle of statutory construction that every word enacted by Parliament must be given meaning and that no provision should be interpreted in a manner that renders it redundant or superfluous. 2. The Respondent averred that it applied Section 17(5) of the VATA correctly, noting that the provision does not dictate or specify the order or priority of utilizing credits where a taxpayer has both Withholding VAT (WHVAT) credits from certificates issued in a given month and credit carried forward from a previous month. The Respondent also asserted that the section merely clarifies the nature of excess credit eligible for refund, given that not all credits are refundable. In the present case, we however, note that it is not disputed that the Appellant was in a net VAT credit position of Kshs. 178,384,141 as of March 2025, which amount, or part thereof, ought to have been carried forward as input tax deductible in the subsequent tax period. Accordingly, there was no justification for the Respondent’s interest in WHVAT amounts. 1. The Tribunal therefore finds that the statutory scheme established under Section 17 of the VAT Act contemplates a sequential computation of VAT liability. The registered person’s deductible input tax—including any excess lawfully carried forward from previous tax periods—is first deducted from the output tax for the current period in determining whether any VAT remains payable. It is only after that computation has been undertaken that withholding VAT credits become available either for offset against any remaining tax payable or, where the statutory requirements have been satisfied, for refund under Section 17(5) of the VAT Act read together with Section 47 of the Tax Procedures Act. 2. To permit withholding VAT credits to be exhausted before applying carried-forward input tax would reverse the statutory scheme and substantially diminish the refund entitlement expressly preserved under Section 17(5). Such an approach would allow administrative practice or system configuration to override Parliament’s prescribed mechanism for accounting for VAT. 3. This interpretation is consistent with the Tribunal’s decision in **Kenya General Industries Limited v Commissioner of Domestic Taxes [2024] KETAT 717 (KLR)**, which was subsequently upheld by the High Court. In the matter the Tribunal held that the Respondent could not unilaterally appropriate WHVAT in satisfaction of VAT liabilities while disregarding the statutory treatment of carried-forward input tax. It held as follows: *''The provisions of Section 17 of the VAT on how excess credits can be applied to offset tax liability which have been discussed in detail by both parties was thus not available for consideration and application by the Respondent. The provision of Section 17 of the VAT Act would only have been available if the Respondent had issued a conditional refund decision prescribing that a portion of the Appellant’s credits would be offset against its existing tax liabilities.''* 1. The Tribunal further observed that the Respondent’s proper recourse, where tax liabilities existed, was to invoke the statutory offset mechanism provided under Section 47 of the Tax Procedures Act rather than extinguish refundable withholding VAT credits through an administrative sequencing methodology unsupported by the VAT Act. The Tribunal therefore finds no reason to depart from that reasoning, which correctly reflects both the wording and purpose of Section 17(5) of the VAT Act. 1. The Respondent's actions have the effect of preventing taxpayers from accessing refunds which is against the spirit of Section 17(5) of the VATA and Section 47 of the TPA. It is the Tribunal considered view that the Respondent’s interpretation would substantially undermine the refund mechanism expressly created by Parliament for withholding VAT. If withholding VAT credits are invariably applied before deductible input tax carried forward, taxpayers who consistently remain in a VAT credit position would effectively be denied access to refunds notwithstanding that Section 17(5) expressly recognizes withholding VAT as refundable subject to the statutory conditions. 2. The Tribunal cannot adopt an interpretation that defeats the legislative purpose of the refund provisions or one that permits an administrative system to curtail a statutory entitlement. Tax statutes must be interpreted according to the language enacted by Parliament, and neither administrative convenience nor system configuration can justify an interpretation inconsistent with the clear wording of the legislation. 3. The Tribunal observes that Section 47(5) of the Tax Procedures Act already provides the Respondent with an adequate statutory mechanism for protecting the revenue where outstanding tax liabilities exist. Upon receipt of a valid refund application, the Respondent is required to apply any overpaid tax first against outstanding liabilities before refunding the balance, if any, to the taxpayer. Parliament therefore expressly contemplated circumstances where a taxpayer may simultaneously be entitled to a refund and have outstanding tax obligations. There was consequently no legal necessity for the Respondent to develop an alternative sequencing methodology that effectively extinguishes refundable withholding VAT credits before the statutory refund process is engaged. 4. Based on the foregoing, the Tribunal finds and holds that the Respondent erred in rejecting the Appellant's WHVAT claim for Kshs 13,453,254. # FINAL DECISION 1. The upshot of the foregoing is that the Tribunal finds that the Appeal is meritorious and makes the following Orders * 1. The Appeal be and is hereby allowed; 2. Withholding VAT Claim rejection order dated 1 st August 2025 be and is hereby set aside; 3. The Respondent is hereby directed to process and pay the Appellant’s WHVAT refunds within 90 days from the date of delivery of this Judgment; and 4. Each party to bear its own cost. 1. It is so ordered. # DATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF JULY, 2026 SIGNED BY/FOR: **★ TH E JUDICIAR Y O F KENY A ★** **HON. EUNICE NJERI NGANGA HON. SANKALE SPENCER OLOLCHIKE** **HON. BERNADETTE MUTHIRA GITARI** **HON. BILLY GRAHAM OKUMU MIJUNGU** Tax Appeals Tribunal Tribunal Date: 2026-07-06 18:05:09