Kenya Revenue Authority Headquarters in Nairobi County Kenya

KRA wins Kshs 105.6 million case against Mars Logistics Limited

By Samuel Migele

The High Court in Nairobi dismissed an appeal by Mars Logistics Limited

contesting a charge of Value Added Tax (VAT) on transportation

services among other claims.

Mars Logistics Limited had contested Tax Appeal Tribunal’s (TAT)

decision that transportation of goods in transit attracts VAT at the

rate of 16%. The TAT had also held that transportation services that

end outside Kenya are not exported services and thus taxable.

The First Schedule to the VAT Act, 2013 exempts VAT from services

offered in relation to goods in transit. In its decision of 27th

February 2018, TAT had ruled in favour of KRA, that Mars Logistics

Limited’s sole business offered transport services for transit goods

that were taxable under the VAT Act. 2013.

The tribunal had further held that the company was not entitled to

claim exempt status for the sale of motor bikes because the motor bikes

were not exempt.

The Court held that under the VAT Act 2013, the

determination of whether the services are exported out of the country

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. In the instant

case, the court found out that the transport services were consumed in

Kenya and had not been exported.

In dismissing Mars Logistics Limited argument that regulation 20 of the

Regulations made pursuant to the repealed Act continued to apply until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. The Court upheld the findings of the

Tribunal that in order to qualify for zero-rated status, the service

should be specifically provided in the law.

The Court emphasized that services offered in relation to goods in

transit were previously zero-rated but under the VAT Act, 2013 they

were not. The High Court also dismissed Mars Logistics Limited’s

contention that the provisions of the Finance Act, 2014 on exemption

from VAT of supply of services in respect of goods in transit as read

together with the VAT Act, 2013 created ambiguity.

Further, the High Court held that Mars Logistics Limited did not

demonstrate important principles applying 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 held that

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.

Mars Logistics Limited’s claim for input tax for exempt supplies was

therefore disallowed.

The Court stated that the burden of proof was on Mars Logistics Limited

to persuade the Commissioner for Domestic Taxes that the expenses were

incurred, which burden was not discharged and the High Court

therefore found no reason to fault the Tribunal’s decision.

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