6-Months Rule with respect to Input VAT

After a compliance check, KRA communicated its findings to Highland Mineral Water Limited on 16/11/2017

Among the findings, KRA disallowed input VAT worth KES 258.3m on the grounds that it was time-barred.

Upon objecting, KRA?issued an objection decision disallowing input VAT?worth KES 155.4m

HMWL appealed to TAT

?In its decision dated 31/02/2020, the Tribunal considered whether the Commissioner was justified in disallowing input tax claimed by the HMWL due to late filing of its VAT returns and or whether payment for late submission penalty for the VAT return by the Appellant allowed it to deduct input tax beyond the prescribed time.

?The Tribunal held that the wording of section 17(2) of the VAT Act is clear and ambiguous and that where a tax payer filed its VAT return late, then the input VAT should only be allowed for deductibility to the extent that it is within 6 months at the time of filing the return.

As such TAT dismissed HMWL appeal

HMWL appealed to High Court

In its ruling on 13/05/2021, the High Court stated that KRA has no power under section 17 of the VAT Act to disallow an input VAT claim for the reason of late filing as long as the claim is made within 6 months after the end of the tax period within which the supply or importation is made

39. I therefore find and hold that?section 17(1)?and?(2)?of the?VAT Act, permits the taxpayer to claim input tax at any time provided the claim falls within 6 months from period which the supply or importation occurred notwithstanding that the VAT Return is filed late. In other words, the fact of late filing does not preclude a taxpayer from claiming input VAT and that this claim ought to be allowed as long as Return is filed and claimed within six months from the date of supply or importation. Neither?section 17?nor?section 44?of the?VAT Act?permit the Commissioner to disallow input VAT claim on the ground that the VAT Return was filed outside the period permitted. The Commissioner’s power is limited to allowing an extension of time for filing the return upon an application whose effect is to relieve the Tax payer from the penalty or accept the return and demand the appropriate penalty.

HMWL appeal succeeded

This ruling implies that input VAT does not 'expire' with the passage of time, as long as it can be backdated to the relevant period to which it was incurred