Judgment summary
This is a ruling on a Notice of Motion Application dated 16th May 2026, brought under certificate of urgency, by Easton Petroleum Limited against Kenya Revenue Authority (paragraph 1).
The Applicant sought orders compelling the Respondent to effect set-off of Ksh 12,856,678.00 against an available VAT credit of Ksh 19,709,644.89 pursuant to Section 103 of the Tax Procedures Act, to issue a Tax Compliance Certificate upon effecting the set-off, and to withdraw and lift agency notices issued to KCB bank and ABSA bank (paragraph 1).
The Tribunal found the application merited and allowed it, ordering the Respondent to set off the VAT credit against the admitted liability, issue a TCC within statutory timelines, and unconditionally lift the agency notices pending determination of the substantive appeal, with no order as to costs (paragraphs 13 to 15).
Background
The Applicant is a company incorporated under the Companies Act, engaged in trading petroleum products, a cash intensive business requiring upfront payments to suppliers and funds for daily operational costs such as salaries, transport and depot charges (paragraph 2(d)).
As of 6th May 2026, the Applicant had an outstanding VAT liability of Ksh 12,856,678.00 and an available VAT credit of Ksh 19,709,644.89. On 14th May 2026, the Applicant lodged an application pursuant to Section 103 of the TPA requesting set-off of the liability against the available credit (paragraph 2(e)).
The Applicant asserted that the Respondent failed, neglected or refused to process the set-off, issue a TCC, or withdraw agency notices even after 14 days had lapsed, and that frozen accounts left it unable to pay salaries, settle obligations to fuel suppliers, or meet daily operational expenses, risking business collapse (paragraph 2(f) and (g)).
The Respondent, by letter dated 20th May 2026, advised the Applicant that the VAT credit was not a refundable amount capable of being offset against tax liability, relying on Section 17 of the VAT Act, which it said required refund applications to be made under Section 47 of the TPA, and that Section 17(5) of the VAT Act required excess credit to be carried forward rather than offset (paragraph 3(l)). The Respondent maintained the agency notices were lawfully issued under Section 42(1)(e) of the TPA and that the application was an afterthought made in bad faith to delay tax collection (paragraph 3(n) and (o)).
Core dispute
The dispute concerned whether the Respondent was obliged to set off the Applicant's admitted VAT liability of Ksh 12,856,678.00 against its available VAT credit of Ksh 19,709,644.89 under Section 47 of the TPA, notwithstanding the Respondent's reliance on Section 17(5) of the VAT Act, which requires excess input tax to be carried forward to the next tax period.
A further issue was whether the Respondent was entitled to maintain agency notices issued to KCB bank and ABSA bank and to withhold a Tax Compliance Certificate while the Applicant's set-off application remained unresolved.
Court findings
The Tribunal noted that the Applicant had formally applied for set-off on 14th May 2026 pursuant to Section 47 of the TPA, and that Section 47(1)(a) allows a taxpayer who has overpaid tax to apply to the Commissioner to offset the overpaid tax against outstanding tax debts and future liabilities, including input value added tax (paragraphs 5 and 6).
The Tribunal held that Section 17(5) of the VAT Act, which provides for excess input tax to be carried forward to the next tax period, does not prohibit the Commissioner from considering an application for off-set under Section 47 of the TPA where a taxpayer has formally invoked that statutory process (paragraph 7).
The Tribunal observed that the Respondent did not dispute the Applicant's available VAT credit and did not demonstrate that the Applicant's off-set application was defective, premature or otherwise incapable of consideration, yet proceeded to initiate enforcement measures while the application remained unresolved (paragraph 8).
The Tribunal found that where a taxpayer discloses available tax credit sufficient to extinguish an admitted liability and has formally sought its application through the statutory mechanism under the TPA, the Commissioner is obliged to fairly and reasonably determine the request before resorting to enforcement measures. The Respondent's reliance on Section 17(5) of the VAT Act, without demonstrating why the request could not be considered under Section 47 of the TPA, was found insufficient to justify the refusal (paragraph 9).
The Tribunal concluded that the Applicant had established a prima facie basis for the relief sought, that the Respondent had no reason to resort to enforcement mechanisms while available VAT credit existed, and that the Respondent had not substantiated why denying the Applicant a Tax Compliance Certificate was justified (paragraph 12).
Outcome
The Tribunal allowed the application (paragraph 14(a)).
The Respondent was ordered to set off the Applicant's available VAT credit against the admitted VAT liability (paragraph 14(b)).
Upon giving effect to the set-off, the Respondent was ordered to grant the Applicant a Tax Compliance Certificate within statutory timelines from the date of the ruling (paragraph 14(c)).
The agency notices were unconditionally lifted pending the hearing and determination of the substantive appeal (paragraph 14(d)).
No orders were made as to costs (paragraph 14(e)).
Major issues / areas of contention
- Whether the Commissioner was obliged under Section 47 of the Tax Procedures Act to set off an admitted VAT liability against available VAT credit.
- Whether Section 17(5) of the VAT Act, requiring excess input tax to be carried forward, precluded consideration of an off-set application under Section 47 of the TPA.
- Whether the Respondent's reliance on Section 17(5) of the VAT Act was sufficient justification for refusing the set-off request.
- Whether the agency notices issued to KCB bank and ABSA bank under Section 42(1)(e) of the TPA should be lifted.
- Whether the Respondent was justified in withholding a Tax Compliance Certificate pending resolution of the set-off application.