• Mars Logistics Limited had contested Tax Appeal Tribunal’s decision that transportation of goods in transit attracts VAT at the rate of 16 per cent.
• The tribunal had also held that transportation services that end outside Kenya are not exported services and are thus taxable.
The High Court has dismissed an appeal by Mars Logistics Limited against a charge of Value Added Tax on transportation services among other claims.
Mars Logistics Limited had contested Tax Appeal Tribunal’s decision that transportation of goods in transit attracts VAT at the rate of 16 per cent.
The tribunal had also held that transportation services that end outside Kenya are not exported services and are thus taxable.
Delivering his judgment on Friday, Justice John Mativo said there was no basis to fault the findings of the tribunal.
“I find that this appeal fails. The upshot is that I dismiss this appeal with no orders as to costs,” Mativo said.
According to the court, the First Schedule to the VAT Act, 2013, exempts VAT on services offered in relation to goods in transit.
In its decision of February 27, 2018, the tribunal had ruled that Mars Logistics sole business offered transport services for transit goods that were taxable under the VAT Act, 2013.
The tribunal thus dismissed an appeal by the company against the commissioner for domestic taxes on tax assessment for 2013 to 2015 demanding Sh105,693,847.
In the amount, VAT was valued at Sh82,982,244 and income tax at Sh82,982,244.
The tribunal had further held that the company was not entitled to claim exempt status for the sale of motorbikes because the bikes were not exempt.
In the decision delivered last week, the High Court held that under the VAT Act, the determination of whether the services are exported is that the same must be for consumption outside Kenya.
“Consumption is not determined by reference to the payer, location of the service payer or of the person who is requisitioning for the service, but the place where the services are consumed,” the court said.
The court thus found out that the transport services were consumed in Kenya and had not been exported.
In dismissing Mars Logistics Limited argument that regulations made pursuant to the repealed Act continued to apply until the 2017 Regulations came into force, the court held that "subsidiary legislation cannot override the express provisions of statute."
“Under the VAT Act, 2013, transportation of goods in transit is not zero-rated nor was it exempt from VAT,” Mativo said.
The court upheld the findings of the tribunal that to qualify for zero-rated status, the service should be specifically provided in the law.
It said services offered in relation to goods in transit were previously zero-rated but were not under the VAT Act.
The court also dismissed Mars Logistics' contention that the provisions of the Finance Act, 2014, on exemption from VAT of supply of services in ISO 9001:2015 certified public respect of goods in transit as read together with the VAT Act created ambiguity.
It held that the firm did not demonstrate important principles applicable to the construction of statutes, including the presumption against absurdity, the presumption against unworkable or impractical result, and the presumption against unusual or illogical results.
On allowable deductions under the Income Tax Act, the court said one of the fundamental conditions that must be satisfied for an item of expenditure to be deductible, is that it must be incurred ‘wholly and exclusively’ for the purposes of the trade, profession or vocation.
Mativo concluded that the burden of proof was on Mars Logistics to persuade the commissioner for domestic taxes that the expenses were incurred.