REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT NAIROBI
MILIMANI LAW COURTS
COMMERCIAL AND TAX DIVISION
INCOME TAX APPEAL NO. E093 OF 2024
COMMISSIONER OF DOMESTIC OF TAXES………………………………APPELLANT
VERSUS
TARUA SCRAP METAL DEALERS LIMITED……………………………RESPONDENT
(Being an Appeal from the Judgement of the Tax Appeals Tribunal dated 23rd February 2024)
THE REPUBLIC OF KENYA
TAX APPEALS TRIBUNAL AT NAIROBI
TAX APPEAL NO. E053 OF 2023
TARUA SCRAP METAL DEALERS LIMITED………………………………APPELLANT
VERSUS
COMMISSIONER OF DOMESTIC OF TAXES……………………………RESPONDENT
JUDGEMENT
1. By its decision dated and delivered on 23rd February 2024, the Tribunal allowed an appeal by the respondent in this appeal. That respondent shall henceforth be referred as the tax payer while the appellant shall be referred to as the Authority. In the judgment the Tribunal said:
“Consequently, the Respondent's decision to disallow the Appellant's input VAT claim and to also raise additional assessment against it on the premise that its suppliers, against whom it lacked control, had supplied lumped up documents or failed to submit their tax returns or that no supplier confirmation was availed to verify the accuracy of the transaction was not a requirement under Section 17 of the VAT Act. The objection decision dated 23rd January 2023 which based its additional assessment on these alien requirements was thus invalid and unlawful.
The Tribunal's position that the Appellant was entitled to claim input VAT arising from these transactions upon meeting the prescribed legal requirements was affirmed in Commissioner of Domestic Taxes v Ramco Printing Works Limited (Income Tax Appeal E108 of 2020) [2022] KEHC 16062 (KLR) (Commercial and Tax) (24 November 2022) (Judgment) where it was held as thus:
“In its impugned judgment, the TAT noted that the Respondent duly provided the requisite documents and held that the Respondent had established that it conducted business with one Zulma Trading and was therefore within its right to claim the input VAT in respect of Zulma Trading on account of the documentation provided.
My finding is that the TAT made the correct finding that the Respondent was entitled to claim input VAT upon satisfying itself that the Respondent had established its case to the required standards.”
For the above reasons, the Tribunal finds and holds that the Respondent erred in disallowing the Appellant's input VAT claims and also raising additional VAT assessments against the Appellant.”
2. Feeling aggrieved and dissatisfied with the Judgment the appellant lodged this appeal vide Memorandum of Appeal dated 18th April 2023 challenging the decision in entirety and faulting the Tribunal on the four grounds that: -
a) The Honourable Tribunal erred in finding that the primary basis for input VAT deduction is Section 17 of the VAT Act in total isolation of section 49 of the VAT Act and section 59 of the Tax Procedures Act.
b) The Honourable Tribunal erred in finding that the entitlement to input VAT deduction under section 17(2) was absolute right irrespective of the fact that the Respondent failed to provide evidence of proof of purchase of the said goods.
c) The Honourable Tribunal erred in finding that information obtained from third parties cannot be the primary reason for raising an assessment against the Appellant in total disregard of the provisions of section 31 of the TPA.
d) The Honourable Tribunal erred in law in shifting the burden of proving the accuracy of taxes on the Appellant in contravention of section 56(1) of the TPA.
3. On the said grounds the authority prays that this Honourable Court allows the Appeal and set aside the Judgment of the Tax Appeals Tribunal dated 23rd February 2024 and upholding the objection decision to stand for enforcement.
4. In urging the appeal, the authority relies on its objection decision and its Statement of Facts filed before the Tribunal, the Memorandum of Appeal filed herein together with the submissions.
5. Emphasis was that in its returns for the period in question there were glaring inconsistencies and variances between the declared sales and purchases culmination in tax obligation of Kshs 95,784,632. In addition, it was highlighted that there was a system error which imposed a tax of Kshs 5,226,587 instead of 24,342,860.8 thus necessitating data correction and justifying an additional assessment in the sum of Kshs 315,379 101 vide demand letter dated 6th September 2022. It is that assessment that invited the late objection which was accepted by the authority who then asked for documents to validate the objection but the taxpayer failed to provide the document.
6. The appeal was urged on the four grounds of appeal in the Memorandum of Appeal with specific emphasis that section 51(4) sets out the documents to accompany an objection to make it valid. The law on incidence of burden was then cited with an urge that the tribunal found for the tax payer without proof that the commissioner was wrong in its assessment.
7. In opposition to the appeal, the taxpayer filed a statement of facts dated 7/4/2025 whose mainstay was that it did comply with the law under section 17 of the VAT Act and requests by the authority and supplied all the documents that were necessary and required hence the finding by the Tribunal could not be faulted.
8. In summary, the taxpayer contends that the authority failed to act in accordance with the law in section 17 of the of the value Added Tax detailing the documents necessary for claiming VAT input and the conditions to be met. It was stressed that all the documents were availed during the parties in person meetings as shown in the objection notice. It supported the finding by the tribunal that taxation should be based on textual reading of the statute without more. In particular, it was contended that the law under section 17 does not impose an obligation upon the taxpayer to verify if its suppliers actually filed returns or documents as directed by the authority. It was stressed that the authority admitted receipt of documents at paragraph 11 of the statement of facts, evidencing that section59 of Tax Procedures Act was complied with without any evidence that further documents were sought.
9. On whether the section 17 as the primary basis for VAT input claims granted to the taxpayer absolute right in the absence of proof of purchase, the taxpayer asserts that the goods were indeed purchased as evidenced by the tax invoices provided and that failure by the suppliers to provide own returns was not a default upon the respondent. Emphasis was laid on the fact that at no time did the authority demand specific documents during the objection process.
10. On the use of information from third parties to arrive at the assessment, it is contended that the right indeed resides in the authority but the documents so obtained must be subjected to the law, in this case the VAT Act. The tribunal is hailed for its finding that such information is not available for use to the detriment of the taxpayer in defeating its input claims.
11. On the burden of proof and if the same was shifted, the taxpayer assert that the burden upon the taxpayer under section 17 does not extend to the duty to ascertain if its suppliers have filed own returns as demanded by the authority. The tribunal was thus supported for its finding that it was wrong for the authority to burden the taxpayer with the duty to look for its suppliers for purposes of them unbundling their documents as a condition precedent to allowing the appeal, contrary to the law.
12. Lastly the taxpayer contends that to grant the prayers by the authority is to affront the provisions of section 56 of the Tax Procedures Act limiting the appeals to this court to matters of law only. The appeal is viewed as an invitation to interrogate and reevaluate the facts afresh which is beyond the mandate of the court in this appeal.
13. The appeal was directed to be heard by way of written submissions. Both sides have filed respective submissions and the court has had the benefit of reading both and derived valuable benefit therefrom. From the reading of the submissions filed, it is discernible that the appellant views the appeal to rest on the sole issue whether or not the respondent provided the necessary documents to establish the objection decision to have been erroneous. The court views that to be the accurate assessment of the dispute.
14. Even though the objection proceedings before the commissioner may be viewed as administrative action with quasi-judicial character, the law under Tax procedures Act ordains appeal to the Tribunal to the first appeal and that to this court as the second.
15. A first appellate court proceeds by way of a rehearing and is thus bound to reevaluate, reexamine and re assess the entire record before the trier of facts afresh with a view to coming to own conclusions.
16. To the contrary, a second appeal is limited by law, as in this case by section 56, tax procedures Act, to questions of law only. Being so limited, the jurisdiction of the court is circumscribed. The court, simply, cannot venture into the task of delving into the evidence led before the tribunal, unless the tribunal dealt with such evidence in such a casual or perverse manner that no reasonable legal mind can buy. As recently as the 30th may 2025, the Court of Appeal, Toddy Civil Engineering Ltd Vs Adkins Equipment Supplies Ltd, NBi CACA 535 of 2019l, had this to say on the mandate of a second appellate court; -
“This is a second appeal, and therefore we acknowledge that we have to resist the temptation of delving into matters of fact. We shall confine ourselves to matters of law unless it is shown that the two courts below considered matters, they should not have considered or failed to consider matters they should have considered or, looking at the entire decision, it is perverse (see Kenya Breweries Ltd -vs- Godfrey Odoyo [2010] eKLR).”
17. While it is not debatable that before the tribunal, the incidence and burden of proof was squarely rested upon the taxpayer , in this appeal, the roles shift. It is now the duty of the authority to prove that there is a question of law that the tribunal erred in considering and which make the judgment unsupportable .
18. As said before, the question and issue for determination centers on whether or not the taxpayer availed the documents necessary for the commissioner to accept it VAT input claim. The determination of that question was derivable only from the materials availed by both sides. While the authority was steadfast that the taxpayer availed no documents at all, the taxpayer on its part was assertive that it did provide the documents and that the authority did confirm that in writing in its Statement of Fact at paragraph 17.
19. The court without delving much into the factual reanalysis, has read the Statement of Fact filed by the authority before the tribunal and narrowed down on paragraph 17 in which it is ambivalently asserted that the suppliers were lumped up to make impossible to determine if the transactions in question did take place. The court reads that paragraph, as vague as it reads, to confirm that documents were availed but the respondent was unable to unlump same so as to ascertain if the transaction upon which they calculated the additional assessment had taken place.
20. To this court, the burden of proof imposed upon the taxpayer by the tax statutes is the civil standard, on a balance of probabilities. That standard only requires the party obligated to attain 50+%. The assessment of what percentage has been attained by the duty bearer is from the evidence adduced. In this matter, the tribunal delivered itself as follows: -
“61. The Appellant in this case complied with all these 4 requirements when it submitted documents to the Respondent. The Respondent has also not addressed or rebutted the averments by the Appellant that it was supplied with the documents required during their physical meetings.
62. The Tribunal has looked at Section 17 of the VAT Act and its plain reading does not require the Appellant or any other party to present its documents to the Respondent in a specific format or that it must separately provide information that can help the Respondent to verify the transactions.
63. Moreover, even if the Appellant was expected to provide some documents arising from this VAA exercise the Tribunal has noted that in all its communication with the Appellant in the emails attached to its Statement of Facts, the Respondent never advised the Appellant on the specific shortfall or the specific documents that it required from the Appellant to help it validate its objection.”
21. The court thus finds that the duty of finding out what document were filed or not filed was upon the tribunal as the trier of fact. It has not been demonstrated to the required standards that the factual findings were not supported by the evidence of that the same were perverse. The consequence is that the threshold allowed for this appellate court to interfere with the factual determinations by the tribunal has not been met. If not met the decision must be left to stand.
22. In conclusion, the court finds that the appellant has failed to demonstrate an error of law to merit intervention on appeal by setting aside the judgment of the tribunal. The appeal therefore fails and is dismissed with costs.
Dated, signed and delivered Virtually this 14th day of July, 2025.
Patrick J O Otieno
Judge
IN THE HIGH COURT OF KENYA AT NAIROBI
MILIMANI LAW COURTS
COMMERCIAL AND TAX DIVISION
INCOME TAX APPEAL NO. E093 OF 2024
COMMISSIONER OF DOMESTIC OF TAXES………………………………APPELLANT
VERSUS
TARUA SCRAP METAL DEALERS LIMITED……………………………RESPONDENT
(Being an Appeal from the Judgement of the Tax Appeals Tribunal dated 23rd February 2024)
THE REPUBLIC OF KENYA
TAX APPEALS TRIBUNAL AT NAIROBI
TAX APPEAL NO. E053 OF 2023
TARUA SCRAP METAL DEALERS LIMITED………………………………APPELLANT
VERSUS
COMMISSIONER OF DOMESTIC OF TAXES……………………………RESPONDENT
JUDGEMENT
1. By its decision dated and delivered on 23rd February 2024, the Tribunal allowed an appeal by the respondent in this appeal. That respondent shall henceforth be referred as the tax payer while the appellant shall be referred to as the Authority. In the judgment the Tribunal said:
“Consequently, the Respondent's decision to disallow the Appellant's input VAT claim and to also raise additional assessment against it on the premise that its suppliers, against whom it lacked control, had supplied lumped up documents or failed to submit their tax returns or that no supplier confirmation was availed to verify the accuracy of the transaction was not a requirement under Section 17 of the VAT Act. The objection decision dated 23rd January 2023 which based its additional assessment on these alien requirements was thus invalid and unlawful.
The Tribunal's position that the Appellant was entitled to claim input VAT arising from these transactions upon meeting the prescribed legal requirements was affirmed in Commissioner of Domestic Taxes v Ramco Printing Works Limited (Income Tax Appeal E108 of 2020) [2022] KEHC 16062 (KLR) (Commercial and Tax) (24 November 2022) (Judgment) where it was held as thus:
“In its impugned judgment, the TAT noted that the Respondent duly provided the requisite documents and held that the Respondent had established that it conducted business with one Zulma Trading and was therefore within its right to claim the input VAT in respect of Zulma Trading on account of the documentation provided.
My finding is that the TAT made the correct finding that the Respondent was entitled to claim input VAT upon satisfying itself that the Respondent had established its case to the required standards.”
For the above reasons, the Tribunal finds and holds that the Respondent erred in disallowing the Appellant's input VAT claims and also raising additional VAT assessments against the Appellant.”
2. Feeling aggrieved and dissatisfied with the Judgment the appellant lodged this appeal vide Memorandum of Appeal dated 18th April 2023 challenging the decision in entirety and faulting the Tribunal on the four grounds that: -
a) The Honourable Tribunal erred in finding that the primary basis for input VAT deduction is Section 17 of the VAT Act in total isolation of section 49 of the VAT Act and section 59 of the Tax Procedures Act.
b) The Honourable Tribunal erred in finding that the entitlement to input VAT deduction under section 17(2) was absolute right irrespective of the fact that the Respondent failed to provide evidence of proof of purchase of the said goods.
c) The Honourable Tribunal erred in finding that information obtained from third parties cannot be the primary reason for raising an assessment against the Appellant in total disregard of the provisions of section 31 of the TPA.
d) The Honourable Tribunal erred in law in shifting the burden of proving the accuracy of taxes on the Appellant in contravention of section 56(1) of the TPA.
3. On the said grounds the authority prays that this Honourable Court allows the Appeal and set aside the Judgment of the Tax Appeals Tribunal dated 23rd February 2024 and upholding the objection decision to stand for enforcement.
4. In urging the appeal, the authority relies on its objection decision and its Statement of Facts filed before the Tribunal, the Memorandum of Appeal filed herein together with the submissions.
5. Emphasis was that in its returns for the period in question there were glaring inconsistencies and variances between the declared sales and purchases culmination in tax obligation of Kshs 95,784,632. In addition, it was highlighted that there was a system error which imposed a tax of Kshs 5,226,587 instead of 24,342,860.8 thus necessitating data correction and justifying an additional assessment in the sum of Kshs 315,379 101 vide demand letter dated 6th September 2022. It is that assessment that invited the late objection which was accepted by the authority who then asked for documents to validate the objection but the taxpayer failed to provide the document.
6. The appeal was urged on the four grounds of appeal in the Memorandum of Appeal with specific emphasis that section 51(4) sets out the documents to accompany an objection to make it valid. The law on incidence of burden was then cited with an urge that the tribunal found for the tax payer without proof that the commissioner was wrong in its assessment.
7. In opposition to the appeal, the taxpayer filed a statement of facts dated 7/4/2025 whose mainstay was that it did comply with the law under section 17 of the VAT Act and requests by the authority and supplied all the documents that were necessary and required hence the finding by the Tribunal could not be faulted.
8. In summary, the taxpayer contends that the authority failed to act in accordance with the law in section 17 of the of the value Added Tax detailing the documents necessary for claiming VAT input and the conditions to be met. It was stressed that all the documents were availed during the parties in person meetings as shown in the objection notice. It supported the finding by the tribunal that taxation should be based on textual reading of the statute without more. In particular, it was contended that the law under section 17 does not impose an obligation upon the taxpayer to verify if its suppliers actually filed returns or documents as directed by the authority. It was stressed that the authority admitted receipt of documents at paragraph 11 of the statement of facts, evidencing that section59 of Tax Procedures Act was complied with without any evidence that further documents were sought.
9. On whether the section 17 as the primary basis for VAT input claims granted to the taxpayer absolute right in the absence of proof of purchase, the taxpayer asserts that the goods were indeed purchased as evidenced by the tax invoices provided and that failure by the suppliers to provide own returns was not a default upon the respondent. Emphasis was laid on the fact that at no time did the authority demand specific documents during the objection process.
10. On the use of information from third parties to arrive at the assessment, it is contended that the right indeed resides in the authority but the documents so obtained must be subjected to the law, in this case the VAT Act. The tribunal is hailed for its finding that such information is not available for use to the detriment of the taxpayer in defeating its input claims.
11. On the burden of proof and if the same was shifted, the taxpayer assert that the burden upon the taxpayer under section 17 does not extend to the duty to ascertain if its suppliers have filed own returns as demanded by the authority. The tribunal was thus supported for its finding that it was wrong for the authority to burden the taxpayer with the duty to look for its suppliers for purposes of them unbundling their documents as a condition precedent to allowing the appeal, contrary to the law.
12. Lastly the taxpayer contends that to grant the prayers by the authority is to affront the provisions of section 56 of the Tax Procedures Act limiting the appeals to this court to matters of law only. The appeal is viewed as an invitation to interrogate and reevaluate the facts afresh which is beyond the mandate of the court in this appeal.
13. The appeal was directed to be heard by way of written submissions. Both sides have filed respective submissions and the court has had the benefit of reading both and derived valuable benefit therefrom. From the reading of the submissions filed, it is discernible that the appellant views the appeal to rest on the sole issue whether or not the respondent provided the necessary documents to establish the objection decision to have been erroneous. The court views that to be the accurate assessment of the dispute.
14. Even though the objection proceedings before the commissioner may be viewed as administrative action with quasi-judicial character, the law under Tax procedures Act ordains appeal to the Tribunal to the first appeal and that to this court as the second.
15. A first appellate court proceeds by way of a rehearing and is thus bound to reevaluate, reexamine and re assess the entire record before the trier of facts afresh with a view to coming to own conclusions.
16. To the contrary, a second appeal is limited by law, as in this case by section 56, tax procedures Act, to questions of law only. Being so limited, the jurisdiction of the court is circumscribed. The court, simply, cannot venture into the task of delving into the evidence led before the tribunal, unless the tribunal dealt with such evidence in such a casual or perverse manner that no reasonable legal mind can buy. As recently as the 30th may 2025, the Court of Appeal, Toddy Civil Engineering Ltd Vs Adkins Equipment Supplies Ltd, NBi CACA 535 of 2019l, had this to say on the mandate of a second appellate court; -
“This is a second appeal, and therefore we acknowledge that we have to resist the temptation of delving into matters of fact. We shall confine ourselves to matters of law unless it is shown that the two courts below considered matters, they should not have considered or failed to consider matters they should have considered or, looking at the entire decision, it is perverse (see Kenya Breweries Ltd -vs- Godfrey Odoyo [2010] eKLR).”
17. While it is not debatable that before the tribunal, the incidence and burden of proof was squarely rested upon the taxpayer , in this appeal, the roles shift. It is now the duty of the authority to prove that there is a question of law that the tribunal erred in considering and which make the judgment unsupportable .
18. As said before, the question and issue for determination centers on whether or not the taxpayer availed the documents necessary for the commissioner to accept it VAT input claim. The determination of that question was derivable only from the materials availed by both sides. While the authority was steadfast that the taxpayer availed no documents at all, the taxpayer on its part was assertive that it did provide the documents and that the authority did confirm that in writing in its Statement of Fact at paragraph 17.
19. The court without delving much into the factual reanalysis, has read the Statement of Fact filed by the authority before the tribunal and narrowed down on paragraph 17 in which it is ambivalently asserted that the suppliers were lumped up to make impossible to determine if the transactions in question did take place. The court reads that paragraph, as vague as it reads, to confirm that documents were availed but the respondent was unable to unlump same so as to ascertain if the transaction upon which they calculated the additional assessment had taken place.
20. To this court, the burden of proof imposed upon the taxpayer by the tax statutes is the civil standard, on a balance of probabilities. That standard only requires the party obligated to attain 50+%. The assessment of what percentage has been attained by the duty bearer is from the evidence adduced. In this matter, the tribunal delivered itself as follows: -
“61. The Appellant in this case complied with all these 4 requirements when it submitted documents to the Respondent. The Respondent has also not addressed or rebutted the averments by the Appellant that it was supplied with the documents required during their physical meetings.
62. The Tribunal has looked at Section 17 of the VAT Act and its plain reading does not require the Appellant or any other party to present its documents to the Respondent in a specific format or that it must separately provide information that can help the Respondent to verify the transactions.
63. Moreover, even if the Appellant was expected to provide some documents arising from this VAA exercise the Tribunal has noted that in all its communication with the Appellant in the emails attached to its Statement of Facts, the Respondent never advised the Appellant on the specific shortfall or the specific documents that it required from the Appellant to help it validate its objection.”
21. The court thus finds that the duty of finding out what document were filed or not filed was upon the tribunal as the trier of fact. It has not been demonstrated to the required standards that the factual findings were not supported by the evidence of that the same were perverse. The consequence is that the threshold allowed for this appellate court to interfere with the factual determinations by the tribunal has not been met. If not met the decision must be left to stand.
22. In conclusion, the court finds that the appellant has failed to demonstrate an error of law to merit intervention on appeal by setting aside the judgment of the tribunal. The appeal therefore fails and is dismissed with costs.
Dated, signed and delivered Virtually this 14th day of July, 2025.
Patrick J O Otieno
Judge