Judgment summary
Halsa Solutions Limited appealed against an objection decision of the Commissioner of Legal Services & Board Coordination, which had partially allowed its objection to additional Income Tax and VAT assessments but confirmed the disallowance of input VAT for the period of March 2025.
The Tribunal considered whether the Respondent was justified in disallowing the Appellant's input VAT claims and confirming the additional VAT assessments. It found that the Appellant had not discharged its burden of proof under section 56(1) of the Tax Procedures Act and section 30 of the Tax Appeals Tribunal Act, and dismissed the appeal, upholding the objection decision dated 21st August 2025.
Background
The Appellant is a private limited liability company registered on 18th August 2010 (para 1). The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 (para 2).
On 8th May 2025 and 11th June 2025, the Respondent raised additional assessments in respect of Income Tax and Value Added Tax (para 3). The Appellant, aggrieved, lodged objections on 11th June 2025 and 24th June 2025 (para 4). On 21st August 2025, the Respondent issued an Objection decision partially allowing the objection (para 5).
Dissatisfied, the Appellant filed a Notice of Motion seeking enlargement of time to appeal out of time, which was allowed on 18th November 2025. The Appeal itself is dated 9th November 2025 (para 6).
Core dispute
The Appellant contended that the Respondent contravened section 17 of the VAT Act 2013 by disallowing input VAT originally claimed from several suppliers in its VAT returns for March 2025, arguing that the purchases were genuinely incurred in generating taxable supplies and were supported by valid ETIMS/TIMS invoices (para 7(a)).
The Appellant also argued that section 23A of the Tax Procedures Act 2015 had been complied with, that it was not obliged to ensure its suppliers filed correct VAT returns, and that VAT is accrual-based so that absence of payment evidence should not defeat the claim (para 7(b)-(c)). It further alleged that the Respondent failed to consider records and explanations it provided at objection stage (para 7(d)).
The Respondent maintained that the disallowance was justified because, of 26 disputed invoices, the Appellant provided only 19, none of which had been declared as sales by the respective suppliers in their VAT returns, and no payment records, delivery notes or supplier statements were furnished (paras 29-32). The Respondent argued the Appellant had not met the requirements of section 17 of the VAT Act (para 32), while conceding the Income Tax objection in part after reviewing supporting documentation on repairs, maintenance and motor running expenses (paras 27-28, 33).
Court findings
The Tribunal noted that the burden of proof lies on the taxpayer under section 56(1) of the Tax Procedures Act and section 30 of the Tax Appeals Tribunal Act, CAP 469A (para 46), and referred to Kenya Revenue Authority v Maluki Kitili Mwendwa on the nature of that burden (para 47).
It held that the right to deduct input tax under Section 17(1) of the VAT Act is not absolute, being conditional on possession of documentation under Section 17(2) and (3), including a tax invoice or duly certified customs entry (para 48), read together with record-keeping obligations under Section 23 of the TPA (para 49).
The Tribunal accepted that input VAT is not denied merely for lack of payment evidence, as VAT accounting is transaction-based and a purchaser is not ordinarily required to compel suppliers to file returns (para 53). However, it found that possession of ETIMS/TIMS invoices alone was not conclusive where the Commissioner had identified concrete deficiencies (para 54).
The Tribunal found the Respondent's evidence specific: 19 of 26 disputed invoices were presented, none appeared in the relevant suppliers' VAT returns, and no payment records, delivery notes or supplier statements were supplied (para 55). The Appellant did not rebut this with a reconciliation of the disputed invoices or supporting documentation (para 56), and general assertions about incurring costs to generate taxable supplies could not substitute for proof of the actual acquisitions underlying the claim (para 57).
The Tribunal found no demonstrated breach of procedural fairness, noting the Appellant did not identify a specific document that was provided but ignored (para 58). Relying on Kenya Revenue Authority v Man Diesel & Turbo SE, Kenya [2021] eKLR and Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR, the Tribunal held that the evidential burden had not shifted back to the Respondent (paras 59-60). Applying the standard from Digital Box Limited v Commissioner of Domestic Taxes on best judgment assessments, the Tribunal held the disallowance was a rational response to documentation gaps and not shown to be arbitrary, excessive, or based on an error of law (para 61).
Outcome
The Tribunal found that the Appellant did not discharge its burden under section 56(1) of the Tax Procedures Act and section 30 of the Tax Appeals Tribunal Act, and that the Respondent was justified in disallowing the input VAT claims and confirming the additional VAT assessments (paras 62-63).
The Appeal was dismissed, the Respondent's objection decision dated 21st August 2025 was upheld, and each party was ordered to bear its own costs (para 64).
Major issues / areas of contention
- Whether the Respondent was justified in disallowing the Appellant's input VAT claims for March 2025.
- Whether possession of ETIMS/TIMS-compliant tax invoices alone is sufficient to sustain an input VAT deduction under section 17 of the VAT Act.
- Whether a taxpayer is responsible for ensuring its suppliers declare corresponding sales in their VAT returns.
- Whether the Respondent properly considered the documents and explanations submitted by the Appellant at the objection stage.
- Which party bore the burden of proof under section 56(1) of the Tax Procedures Act and section 30 of the Tax Appeals Tribunal Act.