Once the tax payer produces to KRA the requested information and documentation, the tax payer then can be said to have discharged his burden

Once the tax payer produces to KRA the requested information and documentation, the tax payer then can be said to have discharged his burden

CASE STUDY: KRA VS KARSHAH LTD

On 18/4/2018, KRA issued a tax demand notice to KL of Kshs 3,971,493.27 for input VAT and Kshs 2,590,104.31 as corporation tax. KL objected to the assessment on 14/5/2018, whereby KRA gave objection decision on 26/6/2018, which confirmed the VAT of Kshs 1,381,388.96.

Aggrieved by the objection decision, KL lodged an appeal at the Tax Appeals Tribunal.

On 30/10/2020, the Tribunal delivered its judgment in favour of KL.

KRA appealed to the High Court on the following grounds:

· That the Tribunal erred in shifting the burden of proof to KRA and failing to appreciate that section 17 of the Value Added Tax (“the Act”) could not be read in isolation

· That the Tribunal erred in holding that KL had availed all the required documents

KL contended that KRA did not prove that KL was involved in fraudulent dealings and that the Tax Procedures Act did not mandate KL to provide a list of suppliers listed by KL. That KRA, being the custodian of the iTax, VAT, and ETR, could not go round and require KL to produce a missing trader. Further, the law did not require KL to inquire whether a supplier had a valid pin or not.

KRA submitted that the Tribunal extended KRAs duty beyond what was prescribed under section 51(9) of the Tax Procedures Act (“TPA”). That it erred in finding that the burden of proof was on KRA to prove that there was an actual supply of goods. It was submitted that the Tribunal failed to apply the provisions of section 43 of the Act, which requires KL to keep records of transactions for 5 years. That it only considered the provisions of section 17 of the Act while ignoring the provisions that were relevant with regard to documentation.

KL submitted that KRA failed to produce evidence to support the allegation that KL was involved in fraudulent evasion of VAT. It was KL’s submissions that KRA failed to present an investigation report to show that KL was a participant or beneficiary of the fraud. It was submitted that KL had submitted all the invoices for the purchases and proof of payments for the supplies.

In its ruling on 02/012/2022, the High Court observed that:

· In Commissioner of Domestic Taxes V One Stop Trading Limited (Income Tax Appeal E098 of 2020 [2021], the court observed: –

“Once the tax payer produces to KRA the requested information and documentation, the tax payer then can be said to have discharged his burden, and the evidentiary burden then shifts to KRA to support his assessment. The basis for this is because a taxpayer is required to be a keen trader who should keep his documentation for all commercial transactions that he undertakes for tax purposes.”

· KL produced all the documents that were requested of it. It further availed of a cashbook ledger, which gave evidence of the payments made in cash. There was no further documentation or information that was requested that was reasonably expected to be within its knowledge that it failed to avail to KRA. Having done so, its evidentiary burden shifted to KRA. KRA, having done nothing, the evidentiary burden rested with him. It was for him to disapprove of the evidence of KL. This he failed to.

As Such KL won the case

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