Can a VAA default assessment deny a tax payer genuine VAT input?

Case Study:Tribus TSG Security Limited VS KRA

On?15/09/2019,TTSL received a?Value?Added Tax Auto assessment(VAA) from KRA?for the period Jan-April 2018,amounting to KES 3.2m. This related to disallowed input VAT for a number of purchase invoices.

On 03/02/2020, TTSL objected.

Upon review KRA reduced the assessment to KES 999K.

The invoices that?remained disallowed ?upon objection were?as follows:

• ?Invoice?from?Xtranet??Communications???limited?was?disallowed because?it had?no ownership??proof.?The amount?disallowed?was Ksh.10,560.00.
• ?Invoice?from Securex Agencies limited was disallowed??because?it was?claimed?prior?to?the?date?indicated?as having?been?issued. Amount?disallowed?was Ksh.988, 440.00.

TTSL appealed to TAT on the following grounds:

• ?KRA erred by disallowing genuine input VAT Claimed
• The decision by KRA failed to appreciate the provisions of section 12 & 17 of the VAT Act 2013

TTSL?averred?that?Securex Agencies Limited issued it with?an invoice?dated?8th?February,?2018 for security services it provided in the month??of?December,??2017.?TTSL??accordingly??claimed the invoice IN391019 in the month of January 2018. The service provider confirmed to KRA that the services were indeed offered and?that?the?invoice?was?genuine.??Further,?the?service provider duly accounted for VAT on this specific invoice and accordingly declared?the?same under?its VAT returns and as such, there?was no loss of revenue?to?KRA.

TTSL?averred?that Xtranet?Communications??Limited supplied it ?with?computer equipment in the?month?of November 2017?and?issued a tax?invoice?14050?for ?the?same?as?required?under Section 17 of the VAT Act.

TTSL?submitted?that in?disallowing?the input VAT claimed,?on the invoice??the said invoices,???KRA????did??not???put???into consideration the?provisions??of?Section?17(1) of?the?VAT Act.

KRA asserted that the law allows it to deny input VAT where the?requirements??are?not?met.?It quoted??Section?17(1) of the?VAT?Act.

"(l)lf, at the time when a deduction or input tax would?otherwise be allowable under?subsection (1), the?person?does?not?hold?the documentation referred to?in subsection (3),?the deduction?for input tax shall not be allowed until the first tax period in which the person hold such documentation

KRA averred that TSSL?had?the necessary? evidence??for?the?other??invoices?but?failed?to?provide??the necessary???invoices?in?support??of?the??Kshs.999,000.00???amount??that remained disallowed.?VAT was genuine.

KRA?further?submitted?that?it is allowed under?Regulation 9 of the VAT Regulations,?2017 to call for further?information??that would satisfy it of the veracity?of the input VAT claimed

In its ruling on 06/06/2021 , the Tax Appeal Tribunal observed that:

• ?Section 12 of the VAT Act provides?that:

"(1) subject to subsection (3), the time of supply, including an imported service, shall be the earlier of:

(a)??the date to which the goods are delivered or services performed; (b) the date a certificate is issued by an architect, surveyor or any other person acting as a consultant in a supervisory capacity; (c)the date on which the invoice for the supply is issued; or(d)the date on which payment for the supply is received, in whole or in part."

?????????As Such Section 12 of the VAT Act gives a list of situations that are ?considered to be time of supply and clearly states "whichever is earlier", (a) is the date to?which?the goods?are delivered or?services performed??and?(c) is?the date on which the invoice for the supply is issued.

TAT opinion was ?that?the time?of?supply(Securex)?in this case was?in December 2017 when?the security service was provided which?is earlier than when the??invoice?was??issued ?on??8th February,??2018.?TSSL ?was therefore?right?to?claim?input??tax?because?it?had?already??paid?the supplier.?Further, the supplier provided a copy of supplier confirmation and??its?VAT?returns??for?the??month???of??February???2018??which??further proves?that?the?service?was?provided?and?duly?paid?for.

• Upon?examination of the invoice?provided, the Tribunal?noted that?the same contained all the details as required;?it had the name of the supplier as Xtranet, ?the?address as 6th?floor?Citadel,?P.O Box 27346?-00100?and the PIN is P051244515P. As Such KRA assertion was not accurate
• There was no VAT fraud?or loss resulting from the said transaction

Consequently, SSTL won the case