- March 22, 2024
- Posted by: admin
- Category: Uncategorized
Input VAT not Related to Business is not Claimable for VAT Purposes
CASE STUDY: LIBKWOP COMPANY LIMITED VS KRA
LCL is in the mining and transport business, which involves mining of black clay and white soil and supplying the same to manufacturers and other buyers.
KRA conducted a routine audit on LCL’s tax affairs and found that the VAT input for the periods January 2020, February 2020, March 2020, April 2020, May 2020, June 2020, August 2020 and September 2020 were not wholly and exclusively related to the business.
KRA via its Accounts Manager wrote a letter of income verification to LCL on 27th November 2019 requesting it to avail records of the VAT and PAYE transactions between itself and KEDA Ceramics Limited for the period 2018 and 2019.
On 10th Nov 2020 LCL’s accountant visited KRA’s offices, and it was agreed that LCL would present purchase invoices from October 2018 to October 2020 by 20th November,2020.
LCL on 7th December, 2020 and 12th February 2021 provided KRA with the documentation requested, including its vehicle ledgers, bank statements, invoices, and land leases.
On 16th February, 2021, KRA also held a meeting with LCL’s accountant and it was agreed that LCL would provide Bills of Quantities of the Weighbridge, missing bank statements and asset registers to assist KRA in considering LCL’s claim. On the following day, 17th February, 2021, KRA, after part analysis, found that some bank statements were missing and asked to have the same supplied.
On 23rd February, 2021, KRA concluded the analysis and shared the findings with LCL via email on 5th March, 2021.This was followed by a meeting on 16th March, 2021, where it was agreed to schedule a visit to LCL’s Sagana site to establish facts. KRA requested LCL’s accountants to bring along to the visit support documents for review for the months they had not provided.
LCL’s tax agents on 16th March, 2021, held a meeting with KRA, and a visit to the Sagana quarry site was scheduled, and LCL was requested to supply KRA with the documentation for the months not provided.
Upon visiting the quarry site, KRA observed that the steel used to construct the weighbridge was different from that claimed in the invoices and that only a few culverts were used to facilitate the movement of trucks but it could not be ascertained if the culverts were constructed by LCL. Notwithstanding, KRA allowed some input to cater for the culverts.
On 1st of April 2021, KRA conducted the final analysis and issued its findings to LCL, to which LCL objected.
KRA partially accepted LCL’s objection and issued its objection decision on 9th June 2021.
LCL appealed to the TAT
LCL contended that it provided KRA with all the documentation as requested including the necessary tax invoices and bank statements.
LCL, in its submissions averred that it made the following additional representations to KRA:
• That it operated two quarry sites in Machakos and Sagana;
•That it was building an office block, weighbridge and parking area at its Sagana Quarry Site;
• That it bought steel from ASL Limited in the months of March, April, June, August, and September 2020 which was used in the construction of the office block, weighbridge, and parking area;
• That its nature of business that is quarry mining and the subsequent transportation of the mining supplies made its employees to work from home thus it provided them with necessities including food and accommodation; That it had claimed input VAT on the supplies
• That it contracted Mamba Petroleum Limited to supply it with fuel on credit, and it would make payments later; That it withdrew cash from its accounts to pay Mamba Petroleum Limited per the bank statements. That it has ownership of the title and was in possession of the transport vehicles and excavators that were fueled at Mamba Petroleum Limited;
• That it used pipes bought to repair excavators above;
• That it claimed input VAT on lubricants, fuel and other motor vehicle accessories for the vehicles above;
•That it used manhole covers, manholes and plumbing accessories at both its office premises and quarries. They were for drainage solutions; and That it bought floor tiles from Saj Ceramics Ltd in the months of August and September 2020. This was used for the construction of the office block, weighbridge and parking area at its Sagana Site.
KRA stated that it disallowed LCL’s VAT input claim on grounds that the same was not wholly and exclusively related to its business .
KRA hinged its case on the following findings:
- The steel and ceramics claimed in the input were not found to have been used in LCL’s business.
- The foodstuff and household payments made without reflecting LCL’s name could not be allowed. A refrigerator claimed was not found on site.
- Some fuel invoices were missing, e.g, Invoice No. 1044 for Kshs. 2,599,212.30 from Mamba Kenya Limited as there was no proof of payment from the bank statements provided by LCL.
- The weighbridge alleged to have been constructed at a cost of Kshs. 62, 712,920/- was not in LCL’s 2020 annual return.
In its ruling on 04/04/2022,the TAT observed that:
- Section 56(1) of the Tax Procedures Act provides that:
“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”
- LCL should have provided further evidence to support the various supermarket purchases over and above the receipts as the same can not be verified to show that they were incurred during the normal course of its business.
- LCL does not appear to have provided KRA with missing bank statements requested for on 17th February, 2021 and the additional support documents required after the Sagana quarry site visit.
- LCL did not adequately challenge the KRA’s averments that the steel used in the construction of the weighbridge is not the same as that purchased and claimed in the invoices and that the weighbridge said to have been constructed at the cost of Kshs. 62,712,920/- was not reflected in LCL’s 2020 annual returns.
As such, LCL lost
https://hisibati-consulting.co.ke/
