Kenya Revenue Authority's VAT demand of Sh333,320 against CMC Di Ravenna has been upheld by the Tax Appeal Tribunal after input VAT claims were disallowed.
CMC Di Ravenna had challenged KRA’s VAT demand on grounds it had accumulated VAT input claims of Sh147 million that it sought to use to offset the VAT demand. The input VAT claims had not been validated by KRA.
In a judgment dismissing CMC Di Ravenna’s appeal, the tribunal held KRA lawfully disallowed the Sh147 million input VAT for 2016-2017.
The Italian construction firm was to build the Arror and Kimwarer dams in Elgeyo Marakwet and Itare Dam in Nakuru. It has filed for bankruptcy protection in Italy.
CMC Di Ravenna’s case was that its services were VAT- exempt and relied on an alleged private ruling issued by KRA dated December 20, 2016, and confirmed on May 16, 2017.
It submitted that the two letters created the belief that supplies made to an official aid-funded project were zero-rated and not VAT exempt, thus creating a legitimate expectation.
In response, KRA questioned why CMC Di Ravenna applied for a private ruling in a matter where the law was very clear and whether it was necessary in the circumstances.
In addition, KRA relied on a letter from the National Treasury dated May 30, 2016, which had advised CMC Di Ravenna that goods and services supplied to the Itare Dam project are exempt from Customs Duty and Value Added Tax as provided for under the East African Community Customs Management Act 2004 and the Value Added Tax Act, 2013.
CMC Di Ravenna failed to produce its letter dated November 10, 2016, applying for the private ruling to enable the Tribunal to scrutinise it as to whether it met the threshold envisaged under Section 67 (3) of the Tax Procedures Act, 2015.
The Tribunal agreed with KRA’s arguments and dismissed the appeal, thus holding KRA’s additional assessment of Sh333,220 as due and payable.
(Edited by V. Graham)