Can a VAA default assessment deny a tax payer genuine VAT input?

Can a VAA default assessment deny a tax payer genuine VAT input?

Case Study: Tribus TSG Security Limited VS KRA

On 15/09/2019,TTSL received a Value Added Tax Auto assessment(VAA) from KRA for the period of Jan-April 2018,amounting to KES 3.2m. This is related to disallowed input VAT for a number of purchase invoices.

On 03/02/2020, TTSL objected.

Upon review, KRA reduced the assessment to KES 999K.

The invoices that remained disallowed upon objection were as follows:

• Invoice from Xtranet Communications limited was disallowed because it had no ownership proof. The amount disallowed was Ksh.10,560.00.
• Invoice from Securex Agencies limited was disallowed because it was claimed prior to the date indicated as having been issued. The amount disallowed was Ksh.988, 440.00.

TTSL appealed to TAT on the following grounds:

• KRA erred by disallowing genuine input VAT Claimed
• The decision by KRA failed to appreciate the provisions of sections 12 & 17 of the VAT Act 2013

TTSL averred that Securex Agencies Limited issued it with an invoice dated 8th February, 2018 for security services it provided in the month of December, 2017. TTSL accordingly claimed the invoice IN391019 in the month of January 2018. The service provider confirmed to KRA that the services were indeed offered and that the invoice was genuine. Further, the service provider duly accounted for VAT on this specific invoice and accordingly declared the same under its VAT returns, and as such, there was no loss of revenue to KRA.

TTSL averred that Xtranet Communications Limited supplied it with computer equipment in the month of November 2017 and issued a tax invoice 14050 for the same as required under Section 17 of the VAT Act.

TTSL submitted that in disallowing the input VAT claimed, on the invoice the said invoices, KRA did not put into consideration the provisions of Section 17(1) of the VAT Act.

KRA asserted that the law allows it to deny input VAT where the requirements are not met. It quoted Section 17(1) of the VAT Act.

“(l)lf, at the time when a deduction or input tax would otherwise be allowable under subsection (1), the person does not hold the documentation referred to in subsection (3), the deduction for input tax shall not be allowed until the first tax period in which the person hold such documentation

KRA averred that TSSL had the necessary evidence for the other invoices but failed to provide the necessary invoices in support of the Kshs.999,000.00 amount that remained disallowed. VAT was genuine.

KRA further submitted that it is allowed under Regulation 9 of the VAT Regulations, 2017, to call for further information that would satisfy it of the veracity of the input VAT claimed

In its ruling on 06/06/2021 , the Tax Appeal Tribunal observed that:

• Section 12 of the VAT Act provides that:

“(1) subject to subsection (3), the time of supply, including an imported service, shall be the earlier of:

(a) the date to which the goods are delivered or services performed; (b) the date a certificate is issued by an architect, surveyor or any other person acting as a consultant in a supervisory capacity; (c)the date on which the invoice for the supply is issued; or(d)the date on which payment for the supply is received, in whole or in part.”

As Such Section 12 of the VAT Act gives a list of situations that are considered to be time of supply and clearly states “whichever is earlier”, (a) is the date to which the goods are delivered or services performed and (c) is the date on which the invoice for the supply is issued.

TAT opinion was that the time of supply(Securex) in this case was in December 2017 when the security service was provided, which is earlier than when the invoice was issued on 8th February, 2018. TSSL was therefore right to claim input tax because it had already paid the supplier. Further, the supplier provided a copy of supplier confirmation and its VAT returns for the month of February 2018 which further proves that the service was provided and duly paid for.

• Upon examination of the invoice provided, the Tribunal noted that the same contained all the details as required; it had the name of the supplier as Xtranet, the address as 6th floor Citadel, P.O Box 27346 -00100 and the PIN is P051244515P. As such, KRA assertion was not accurate
• There was no VAT fraud or loss resulting from the said transaction

Consequently, SSTL won the case

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