High Court overturns judgment of Tax Appeals Tribunal in a tax case challenging the shifting of Burden of Proof to KRA

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 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 judgement delivered on 31st  January 2022, 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. The Court said;

“… it was incumbent upon the Respondent (Pearl Industries Ltd) to prove that the Commissioner’s findings … were wrong. How could it do so? By providing evidence and supporting documentation to dislodge the Commissioner’s findings. … 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.”

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.

On the “shifting of the burden of proof”, the court held as follows;

“…In this case, the pendulum of proof swung three times; the first was upon the Respondent (Pearl Industries Ltd), which it did by providing the documents requested by the Commissioner; the second shifted to the Commissioner, who after reviewing the documents challenged their authenticity and validity. This meant that the burden of proof finally swung back to the Respondent to prove that the Commissioner was wrong in its position and overall findings,” High Court 

 This holding by the Court buttresses Section 56 (1) of the Tax Procedures Act which provides: 

“In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect”. 

Commissioner, Legal Services & Board Coordination.

PRESS RELEASE 04/02/2022

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High Court overturns judgment of Tax Appeals Tribunal in a tax case challenging the shifting of Burden of Proof to KRA