High Court overturns judgment in a case challenging the shifting of Burden of Proof to KRA

NAIROBI, Kenya Feb 4-The High Court has overturned a decision of the tax appeals tribunal that had shifted the burden of proving payment of taxes to the tax administration contrary to the law.

In the appeal, the tax appeals Tribunal had held that Pearl Industries Ltd, had discharged its obligation of proving that there was a purchase for Vatable goods upon providing invoices and proof of payment for the supplies.

The Tribunal further attributed the burden of proving that Pearl Industries Ltd knew or ought to have known the transaction it was involved in was part of a fraudulent scheme to the Commissioner, in the end arriving at the wrong decision that the Commissioner failed to establish fraud.

In an application for a VAT refund, a registered supplier of Vatable goods is expected under the tax laws to provide original ETR receipts, signed delivery notes, and payment documents to enable the Commissioner to establish whether the purchases took place in the first instance.

In this case, the tax investigations by the Commissioner had revealed that there was no sale or delivery of goods at all but a fraudulent scheme had been hatched where fictitious invoices and Electronic Tax Register receipts were being printed and sold clandestinely to companies to support VAT refund claims.

The businesses from which Pearl Industries Ltd was claiming input VAT from, were not registered for VAT, the investigations had established.

In overturning the decision of the Tax Appeals Tribunal in a judgment delivered on January 31, the High Court observed that both the Tax Appeals Tribunal Act and the Tax Procedures Act impose the burden of proof on the taxpayer to prove that an assessment is excessive or incorrect.

“It was incumbent upon the Respondent (Pearl Industries Ltd) to prove that the Commissioner’s findings were wrong. Since the validity of the invoices, ETR receipts and delivery notes issued to it were doubted by the Commissioner, the Respondent could have produced witnesses including some from the suppliers to prove that they actually supplied goods to it,” said the Court.

The High Court disagreed with the Tribunal that it was upon the Commissioner to prove that the invoices and deliveries were not genuine and that the cash withdrawals made by Pearl Industries Ltd Banks went to other persons other than its suppliers.

The Court further held that the documents requested for by the Commissioner were not unreasonable or outside of the law as had been insinuated by the Tribunal because the request was within the Commissioner’s powers under the Tax Procedures Act.