- May 28, 2024
- Posted by: admin
- Category: Uncategorized
Time of Supply for VAT purposes
CASE STUDY:KASTRAN MOTORS LIMITED VS KRA
KML is a limited liability company whose principal activity is the sale and distribution of motor vehicles as the authorized distributor and dealer of TATA Africa Holdings (K) Limited (“TATA”).
KRA conducted a verification on the tax affairs of KML in the year 2017.
On 13th October 2017, KRA communicated its findings of the verification exercise. It stated that there was an undeclared supply of 5 tipper trucks made by the Appellant to Dittman Construction Limited (“Dittman”) in July 2016 and that Dittman claimed the input VAT as provided under section 17 of the VAT Act, 2013, but the sales were not declared in the VAT returns by KML.
KRA contended that the supply was for a sum of KES. 26,939,655.00 with a VAT amount of KES. 4,310,345.00, and that Dittman paid a deposit of KES. 1,562,500.00, which was 5% of the consideration for the supply through RTGS to the Appellant’s Bank at Diamond Trust Bank and the balance of KES. 29,687,500.00 paid by Kenya Commercial Bank after the KML delivered the tippers
KML objected to KRA’s findings through its letter dated 7th November 2017. It stated that it had attached the filed tax invoices which were handed over to KRA in October from TATA after the wrong transaction was reversed by TATA and Dittman refused to file the same and that the invoice was reflective of the same units which were sold to Dittman and that the Chassis, Engine and Registration numbers would confirm this since they could never be altered.
KML averred that the entire VAT transaction was declared by TATA. However, it had been to a wrong vendor, not Dittman, and that Dittman had erroneously claimed the KML’s sale invoice instead of TATA’s. KMLfurther contended that the defective claim was with KML and was exhaustively explained with proof and that the audit raised substantive issues which were followed through by TATA to their head office in Mumbai, India to be corrected but that KRA did not wait to see this correction leading to the demand letter.
KML averred that the entire VAT transaction was declared by TATA. However, it had been to a wrong vendor, not Dittman, and that Dittman had erroneously claimed the Appellant’s sale invoice instead of TATA’s.
KML argued that it is an agent and only refers clients to TATA and in the unlikely event they refuse to deal directly due to after sales reasons, it engages in a back-back transaction through the banks and that the entire process is controlled, owned and managed by TATA as the owner of first instance of the units.
KML explained that the transaction with Dittman ought to be looked at holistically as follows; TATA invoices KML, KML subsequently invoices Dittman, KML will have input VAT and output VAT figures that are matching and have a zero effect, Ditmann is the last in the chain to claim VAT and TATA will be the entity paying the output VAT on the sale. KML stated that the aforementioned explanation was now sufficient enough to conclude that there was no instance of non-declaration of VAT on the whole transaction originating from TATA through KML as agents to Dittman
In a letter dated 13th December 2017, KRA made its objection decision (“the Objection Decision”). It reiterated its earlier position on the trail of the transactions, concluding that there were two separate transactions; supply from TATA to KML and supply from KML to Dittman.
KML appealed to the TAT
The Tribunal found that the tippers were contracted for in July 2016, and the same were delivered and paid for in August 2016, which facts KML admitted. The Tribunal held that the time of supply of the tippers was therefore August 2016 and that KML should have accounted for the output VAT in the same month as provided for by section 12(1) of the VAT Act, 2013. The Tribunal rejected KML’s submissions of the mix-up in the transaction between it and its principal, TATA stating that this had no legislative backing and that the parties therein are separate legal entities and taxpayers who ought to account for tax individually
The Tribunal was of the view that the accounting for the sale of the five tippers which occurred in August 2016 ought to have been done within the same month and not October 2017 as was done by KML, following which the respective VAT was payable by the 20th day of the following month, that is 20th September 2016. The Tribunal found that the relevant accounting for the sale of the said tippers was accounted for in the wrong month and that the same applied to the related VAT payable and that in view of this, the appropriate remedy would have been for KML to amend the self-assessment for October 2017.
KML appealed to the High Court
In its ruling on 28/07/2022, the High Court observed that:
- Under section 12(1) of the VAT Act, 2013, the time of supply of VATable goods or services is the earlier of the date on which the goods are delivered or services performed or the date on which the invoice for the supply is issued or the date on which payment for the supply is received, in whole or in part. There is also no dispute that KML issued a proforma invoice to Ditmann sometime in July 2016 that KML delivered the tippers and Dittman paid for the same sometime in July and August 2016. The earlier of these events is the issuance of the invoice, which means that the time of supply of the tippers was July 2016.
- Under section 44 of the VAT Act, 2013, every registered person shall submit a return, in the prescribed form and manner, in respect of each tax period not later than the twentieth day after the end of that period. Under section 2 of the VAT Act, 2013, “tax period” means ‘one calendar month or such other period as may be prescribed in the regulations’ meaning that KML ought to have submitted a return at least by the 20th of the following month, being 20th August 2016.
- The supposed mix up/error between KML and TATA had nothing to do with the supply between KML and Dittman and that KML was obligated to file its return at the time of the supply just as Dittman did on its part
As such, KML lost the case
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