Judgment summary
This judgment of the Tax Appeals Tribunal concerns an appeal by Joyland Steel Limited against an Objection Decision of the Kenya Revenue Authority dated 24th February, 2025, which confirmed additional corporation tax, VAT and VAT withholding tax assessments totalling Kshs. 87,005,138.00.
The Tribunal considered whether the Objection Decision was justified. It found that the Appellant had not provided the relevant documents requested by the Respondent to support its objection, and had therefore failed to discharge its burden of proof under Section 56(1) of the Tax Procedures Act (cap 469B) and Section 30 of the Tax Appeals Tribunal Act (cap 469A). The Appeal was dismissed and the Objection Decision was upheld.
Background
The Appellant is a limited liability company incorporated in Kenya and engaged in the business of salvaging and selling scrap metal (paragraph 1). The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act, mandated with collection and administration of tax revenue (paragraph 2).
On 3rd December, 2024, the Respondent issued the Appellant with assessment orders for corporation tax and VAT (paragraph 3). The Appellant lodged its objection on 3rd January, 2025 (paragraph 4). On 24th February, 2025, the Respondent confirmed the additional corporation tax and VAT assessments and issued its Objection Decision (paragraph 5). Aggrieved, the Appellant lodged the appeal by Notice of Appeal dated 25th March, 2025 (paragraph 6).
Core dispute
The Appellant argued that the additional assessments had been raised from bank deposit and credit data without considering whether all entries were business income related, and that the assessing officer ignored the Appellant's own analysis of income and expenses (paragraph 7(a)(i)-(ii)).
The Appellant further contended that the officers used non-company statements to compute total turnovers without regard to separate legal entity status, that purchases established by the Respondent exceeded those declared in the Appellant's own returns, and that a resulting mark-up estimate was above market possibilities (paragraph 7(a)(iii)-(v)).
The Appellant explained that scrap metal dealers often aggregate purchases through one account for cash discount advantages, and that its account was used to purchase on behalf of other businesses, which it said explained discrepancies in VAT claims and withholding VAT (WHVAT) figures (paragraph 7(a)(vi)-(viii)). It stated it had engaged the Compliance Division and begun remitting the WHVAT not in contention (paragraph 7(a)(ix)).
The Respondent's position was that its review of the Appellant's returns identified duplicate invoices, which were brought to charge in both VAT and income tax returns because the Appellant's purchases as per VAT matched those in income tax returns, and the duplicate invoices were sustained as the suppliers had declared the sales (paragraphs 17-19). The Respondent maintained that the assessment was properly founded in fact and law and that the Appellant had not discharged its burden of proof (paragraphs 20-21).
Court findings
The Tribunal identified the single issue for determination as whether the Respondent's Objection Decision dated 24th February, 2025 was justified (paragraph 23).
It was not contested that the Respondent had sought several categories of documents from the Appellant during review of the objection, including Audited Financial Statements, detailed income and purchases ledgers, income tax and VAT computations with supporting documents, reconciliations of bank credits/deposits and declared income, reconciliation of understated purchases, wear and tear computations, evidence for disallowed rent and rates expenses, analysis of purchases with supplier payment details and VAT withheld, and bank statements (paragraph 26).
It was equally not contested that the Appellant had provided only Audited Financial Statements for 2021 to 2023, company bank statements from ABSA Bank, sales schedules and purchases schedules (paragraph 27).
The Tribunal applied Section 59 of the Tax Procedures Act (cap 469B) on the duty to produce documents, Section 56(1) of the Tax Procedures Act on the taxpayer's burden of proof, and Section 30 of the Tax Appeals Tribunal Act (cap 469A) on the appellant's burden of proof (paragraphs 28-30). It referred to its own precedents, Abyssinia Iron and Steel Ltd v Commissioner of Customs and Border Control (TAT No. 435 of 2022) and Mugo v Commissioner of Domestic Taxes (TAT E918 of 2024) KETAT 374 (KLR), on the shifting burden of proof in tax disputes (paragraphs 31-32).
The Tribunal held that the Appellant did not provide the relevant documents requested by the Respondent to support its objection and discharge its burden of proof in the first instance, and that the Respondent was therefore justified in disallowing the Appellant's objection as outlined in the Objection Decision dated 24th February, 2025 (paragraph 33).
Outcome
The Tribunal found that the Appeal lacked merit. It dismissed the Appeal, upheld the Respondent's Objection Decision dated 24th February, 2025, and ordered that each party bear its own costs (paragraph 34).
Major issues / areas of contention
- Whether the Respondent's Objection Decision dated 24th February, 2025 confirming additional corporation tax, VAT and VAT withholding tax assessments of Kshs. 87,005,138.00 was justified.
- Whether the assessments based on bank deposits and credits properly distinguished business income entries from other entries.
- Whether use of non-company bank statements to calculate total turnovers disregarded the separate legal entity status of the Appellant.
- Whether disallowance of duplicate invoices in both VAT and income tax returns was properly founded, given the Respondent's contention that suppliers had declared the sales.
- Whether the Appellant discharged its burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act by providing sufficient documents to support its objection.