The High Court of Kenya has found that Galaxy Tools Limited was liable to pay Kshs 1, 698, 702.00 Valued Added Tax (VAT) and Kshs 3, 210, 651.00 for Corporation Tax with resultant interest and penalties.
KRA had demonstrated that there was loss of VAT in the “missing traders” transactions. The tax dispute related to the credits for VAT input, which the Taxpayer had claimed pursuant to Section 17 of the VAT Act. Galaxy Tools Press release(2)
The Authority’s position was that the Tribunal did not appreciate the provisions of the Tax Procedures Act and the VAT Act relating to the production of additional information and documents.
In addition, the High Court found that the Tribunal arrived at the wrong conclusion, after shifting the burden of proof to the KRA contrary to the provisions of the Tax Appeals Tribunal Act that laid the burden of proof on the taxpayer. ITA E088 of 2020 Judgment Commissioner Domestic Taxes Vs Galaxy Tools Ltd(2)
The Court observed that as a reasonable businessman, the Taxpayer was expected to keep all the transactional details of the subject transactions.
It is only then it would have satisfied the KRA and the Court that it was innocent in the fraud perpetrated by the missing traders whom the KRA had concluded were in the business of selling air and invoices to colluding traders.