How The High Court Slammed The Door On ‘Missing Trader’ Fraud

I have analysed multiple cases decided by the TAT between 2020-2022 .For a period , the Tax Appeals Tribunal (TAT) decisions were heavily influenced by Shreeji Enterprises (K) Limited v Commissioner of Investigations & Enforcement(2018). KRA had to prove not just that a supplier was non-compliant or fraudulent, but that the specific taxpayer knew or should have known about the fraud. This was very difficult for KRA to prove.

The High Court, began overturning these TAT decisions, creating a new, two-stage burden of proof.

Stage 1: Taxpayer’s Initial Burden

The taxpayer has the initial burden to prove a valid transaction for a VAT input claim or expense deduction. An invoice is the starting point, but it is not conclusive.

Stage 2: The Shifted Burden

Once the KRA raises credible, prima facie evidence that a transaction is suspicious or involves a “missing trader,” the burden of proof shifts decisively back to the taxpayer.

The following are some signals that might point to a ”missing trader”

• Supplier has no known physical business address.
• Supplier’s address is a “letterbox” or shared by multiple unrelated entities.
• Supplier has not filed any tax returns or remitted taxes for the period.
• Supplier is unresponsive to KRA communications.
• The supplier has been officially flagged or deregistered for non-compliance.
• Forensic analysis shows the invoiced goods could not logically have been sourced or supplied by that entity.

In Dinesh Case of 2025, the High court ruled that:

47. In Galaxy Tools case, the Court clarified the shifting burden of proof. While the taxpayer initially discharges the burden by producing an invoice, once the Commissioner—through forensic audit—raises credible doubts about the supplier, the burden shifts back to the taxpayer. At this stage, the invoice alone is no longer sufficient. The invoice is the subject of the fraud allegation; it cannot be the proof of its own validity.

48.The taxpayer must then produce competent and relevant evidence of actual supply. As established in the Structural International case, commercial reality dictates that the movement of goods worth hundreds of millions of shillings leaves a footprint beyond a paper invoice. A prudent business dealing in construction materials must have LPOs, Delivery Notes, Weighbridge tickets, stock records and site usage logs. In this case, the Appellant requested these specific documents. The Respondent failed to produce them, arguing that it is not required to keep such elaborate records or police its suppliers. This defence is legally unsustainable under section 23 of the Tax Procedures Act and section 43 of the VAT Act, which mandate the keeping or records to ascertain tax liability.

49.By asserting that it cannot be held liable for its suppliers’ non-compliance, the Respondent misunderstands the scheme of VAT. The right to deduct input tax under Section 17 of the VAT Act is premised on a valid supply. If the supplier is a “missing trader” who never bought or possessed the goods they purportedly sold, then no supply took place in law. The transaction is a fiction. If the Respondent cannot prove—via delivery notes and transport logs—that it actually received goods from these specific suppliers, it cannot deduct the input VAT, regardless of whether it holds a tax invoice.

What the Dinesh Construction and Other Cases Says

1. An invoice questioning fraud can’t prove itself – If an invoice is suspected to be fake, that same invoice can’t be used to prove it’s real.
2. Big purchases leave paper trails – When goods worth millions move, there should be records: purchase orders, delivery notes, transport records, stock records, etc.
3. Businesses must keep proper records – The law requires businesses to keep records that can prove their tax claims. Saying “I’m not my supplier’s policeman” is not a good defense.
4. No real supply = no tax deduction – If the supplier never actually had or delivered the goods, then legally no purchase happened. You can’t claim tax benefits for a fake transaction.

To prove a purchase, the following documents will be presusasive to tilt a case in your favour:

1. Procurement Documentation

• Local Purchase Orders (LPOs)
• Formal contracts or quotations
• Tender documents for large purchases

2. Goods Movement Evidence

• Delivery notes with recipient signatures
• Goods Received Notes (GRNs)
• Weighbridge tickets for bulk materials
• Transporter records and waybills
• Chauffeur or logistics company details

3. Internal Control Records

• Stock movement registers
• Store requisition forms
• Material issue vouchers
• Project-specific consumption records

4. Financial Trail

• Bank statements showing payment to the exact supplier
• M-Pesa transaction records
• Payment vouchers with proper authorization
• Reconciliation statements

5. Supplier Relationship Proof

• Pre-qualification documents
• Due diligence records
• Correspondence regarding orders and deliveries
• Quality inspection reports

Businesses that buy from questionable suppliers without keeping proper records are taking a big risk. The days of winning with just an invoice are over.