Background
1. The Respondent issued the Appellant with a Value Added Tax (VAT) credit verification findings letter dated 27/4/2022 after the Respondent noted that the services rendered by the Appellant were not zero rated, hence credits claimed were disallowed.
2. The Appellant objected to the VAT additional assessments through a notice of objection dated 24/8/2022. Consequently, the Respondent issued its objection decision dated 17/10/2022.
3. The Appellant was aggrieved by the objection decision and proceeded to file an appeal against it in the Tax Appeals Tribunal (the Tribunal).
4. Upon considering the appeal, the Tribunal upheld the Respondent’s objection decision and dismissed the appeal vide its judgement delivered on 9/2/2024.
5. Aggrieved by the Tribunal's judgment, the Appellant appealed to this Court vide its memorandum of appeal dated 29/3/2024, raising over 40 grounds of appeal, which are overly repetitive and verbose. I will, therefore, not reproduce them in this judgment; suffice to say that the Appellant is aggrieved by the Tribunal’s decision that transport of coffee to the coffee auction centers is vatable, and therefore not covered under Paragraph 4 of Part A to the 2nd Schedule of the VAT Act, 2013.
6. According to the Appellant, the Tax Appeals Tribunal erred by narrowly interpreting the VAT Act to exclude transportation from zero-rated supply, overlooking the logical and statutory relationship between the coffee export and its transportation to the auction. The Appellant maintained that transportation of coffee to the auction centers forms an inseparable part of the supply chain necessary to deliver coffee to the auction, and thus should be zero-rated. This, according to the Appellant, is further reinforced by the fact that under the Coffee Act, it is mandatory for coffee to be delivered to designated auction centers before it can be sold or exported.
7. In opposition to the appeal, the Respondent filed a statement of facts dated 2/5/2024.
8. The Respondent stated that the Tribunal duly considered the Appellant’s grounds of appeal as outlined in the memorandum of appeal filed on 25/11/2022 and had accurately summarized these grounds in its judgment and conducted a detailed analysis of both the Appellant’s and the Respondent’s cases.
9. The Respondent stated that the central point of contention had been whether the transportation of coffee to auction houses for export qualified as a zero-rated service under the VAT Act, 2013; that the Tribunal had determined that the Appellant’s transport services were not explicitly listed as zero-rated in the Second Schedule of the Act and furthermore, it had examined whether the services constituted exports and concluded that they did not, as the transportation was carried out within Kenya, involved local service providers, and primarily benefited coffee farmers at local auction centers.
10. It was therefore the Respondent’s assertion that the Tribunal rightly found that the Appellant had failed to discharge its burden of proof in challenging the VAT assessment. Consequently, it had correctly ruled that the Respondent’s tax assessment was justified, legal, and not excessive.
11. The Respondent therefore urged this Court to uphold the Tribunal’s judgment, affirm the validity of the VAT assessment, and dismiss the appeal with costs awarded to it.
Submissions
12. The Appeal proceeded by way of written submissions. The Appellant filed its submissions dated 15/10/2024, whilst the Respondent’s submissions are dated 20/9/2024.
Analysis and determination:
13. First, it is important to point out that despite raising over forty grounds of appeal with over 55 paragraphs, the Appellant in its submissions, only outlined three (3) issues for this Court’s determination. Rule 4 of The Income Tax (Appeals to the High Court) Rules provides as follows on the form of a memorandum of appeal: -
“Every memorandum shall contain an address for service, shall be signed by the Appellant or his advocate and shall set forth concisely under distinct heads, numbered consecutively, the grounds of appeal without any argument or narrative.”
14. The Court of Appeal in Kenya Ports Authority v Threeways Shipping Services (K) Limited [2019] eKLR while detesting repetitive grounds of appeal had the following to say regarding Rule 86 of the Court of Appeal Rules, which is analogous to Rule 4 of the Income Tax (Appeals to the High Court) Rules: -
“Our first observation is that the memorandum of appeal in this matter sets out repetitive grounds of appeal. The singular issue in this appeal is whether Section 62 of the Kenya Ports Authority Act ousts the jurisdiction of the High Court. We abhor repetitiveness of grounds of appeal which tend to cloud the key issue in dispute for determination by the Court. In William Koross V. Hezekiah Kiptoo Kimue & 4 others, Civil Appeal No. 223 of 2013, this Court stated:
“The memorandum of appeal contains some thirty-two grounds of appeal, too many by any measure and serving only to repeat and obscure. We have said it before and will repeat that memoranda of appeal need to be more carefully and efficiently crafted by counsel. In this regard, precise, concise and brief is wiser and better.”
15. Again, in Robinson Kiplagat Tuwei v Felix Kipchoge Limo Langat [2020] eKLR, the Court of Appeal stated as follows regarding repetitive grounds of appeal: -
“We are yet again confronted with an appeal founded on a memorandum of appeal that is drawn in total disregard of rule 86 of the Court of Appeal Rules. That rule demands that a memorandum of appeal must set forth concisely, without argument or narrative, the grounds upon which a judgment is impugned. What we have before us are some 18 grounds of appeal that lack focus and are repetitively tedious……….”
16. This being a first appeal, this Court is under a duty to re-evaluate and assess the evidence and make its own conclusions. It must, however, keep at the back of its mind that a trial court, unlike the appellate court, had the advantage of observing the demeanour of the witnesses and hearing their evidence first hand. See Mbogo and Another vs. Shah [1968] EA 93.
17. Having analysed the grounds of appeal in the memorandum of appeal dated 29/3/2023, I identify, as the parties correctly did, that the only issue for determination in this appeal is the question of ‘whether the Tax Appeals Tribunal erred by holding that the transportation of coffee to the auction centre was not zero-rated under the VAT Act.’
18. From the record, it is not disputed that the Appellant is a private company engaged in the transportation of coffee, and the Respondent was of the view that the transportation of coffee to the auction centers zero rated under the 2nd Schedule (Part A, Paragraph 4). The Respondent holds a different view and asserts that transportation of coffee to the auction centers is vatable at the general rate and therefore not zero-rated under the VAT Act.
19. Section 2 of the VAT Act (the Act), defines a zero-rated supply as ‘'a supply listed in the Second Schedule.’
20. Section 7 of the Act states:
“ (1) Where a registered person supplies goods or services and the supply is zero-rated, no tax shall be charged on the supply, but it shall, in all other respects, be treated as a taxable supply.
(2) A supply or importation of goods or services shall be zero-rated under this section if the goods or services are of the description for the time being specified in the Second Schedule.”
21. Part A of the Second Schedule of the Act lists zero rated supplies and paragraph 4 thereto states:
“The supply of coffee and tea for export to coffee or tea auction centers.”
22. In this case, the Appellant transported coffee to coffee auction centres for export on behalf of farmers, and the core issue for determination is whether this falls under paragraph 4 of the 2nd schedule to the Act.
23. I am guided by the case of Mars Logistics Limited vs Commissioner of Domestic Taxes (2021) eKLR where the court stated:
“ Under the VAT Act, 2013, transportation of goods in transit is not zero rated nor was it exempt from VAT. As the Tribunal correctly held, to qualify for zero rated status, the service should be specifically provided in the 2nd Schedule to the Act…”
24. The transportation of coffee to auction centres is not specifically listed under the second schedule as a zero-rated supply. It cannot, therefore be deemed as such as it is known that in a taxing Act, one has to look at what is stated, there is no presumption as to a tax. This was held in the case of Cape Brandy Syndicate vs. Inland Revenue Commissioner (1921) 1 KB 64 where it was stated:-
“ In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Noting is to be read in, nothing is to be implied. One can only look fairly at the language used…”
25. I therefore concur with the Tribunal when it stated in paragraph 69 of its judgement that if the legislature wanted to zero-rate transportation services to coffee auction centres, then this would have been expressly listed under the second schedule as zero-rated.
26. The Appellant, in its submissions, relied heavily on the High Court decision in Commissioner of Domestic Taxes v. Total Touch Cargo Holland (2018) eKLR. However, the circumstances of that case differ from those in the present appeal.
27. In Total Touch Cargo Holland(supra), a Kenyan service provider was engaged by a Netherlands-based company, Total Touch Cargo Holland, through its Kenyan subsidiary. The High Court ruled in favor of Total Touch Cargo Holland, holding that although the service was performed in Kenya, its benefit accrued outside the country because it was procured and utilized by a foreign entity. Consequently, it was classified as an exported service.
28. Conversely, in the current matter, the Appellant is a domestic entity providing services to local farmers. As the transport service is rendered within Kenya, it falls within the scope of VAT.
29. Additionally, at paragraph 74 of its judgment, the Tribunal observed from the Appellant’s submissions that “the end consumer of the transport services and the person that bears the ultimate cost of the service is the farmer… Ultimately, it was the coffee farmers within Kenya who were the final consumers of the transportation services and not the foreign buyers of the coffee.”
30. On this basis, this Court finds that the Tribunal rightly concluded that the transportation of coffee to auction centers does not qualify for zero-rating under the Second Schedule to the VAT Act. Accordingly, the Respondent was justified in issuing the VAT assessment against the Appellant.
31. Based on the foregoing analysis, I uphold the judgment of the Tribunal and I find no reason to interfere with it. The instant appeal is dismissed with costs awarded to the Respondent.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT
THIS 24TH DAY OF APRIL 2025
ADO MOSES
JUDGE