Kenya Revenue Authority (KRA) has been ordered to refund more than Sh54 million to household and electronics appliances supplier Hotpoint on account of bad debts arising from goods delivered to fallen retail giant Nakumatt.
The Tax Appeals Tribunal faulted the Commissioner of Domestic Taxes for disallowing the VAT (value-added tax) refunds of Sh54.8 million as sought by Hotpoint Appliances Ltd.
The tribunal chaired by Christine Muga said the fact that Nakumatt Holdings had been proven to be insolvent was enough to qualify the company for a refund as required by section 31 (1) of the VAT Act.
“In view of the foregoing, the tribunal finds that the respondent (KRA) erred in disallowing the appellant’s refund application,” the tribunal said in a decision on April 29.
The tribunal noted that the KRA used extraneous reasons to justify its rejection of the application.
Hotpoint submitted that the law allows a taxpayer to apply for a refund of VAT three years after the buyer has been declared insolvent.
The company said it was only required to demonstrate either insolvency or lapse of three years to qualify for refund and in its case, it had shown that it supplied goods to Nakumatt, paid VAT and the supermarket was declared insolvent on January 22, 2018.
The tribunal was informed that the supplier applied for a refund of VAT of Sh61.8 million in March 2018, for January 2016 to July 2017.
KRA then partially approved the claim of Sh6.9 million but rejected a claim of Sh54,896,504.
According to Hotpoint, the application was rejected partly because the refund claim was not lodged before the lapse of three years after the goods were supplied.
However, the supplier maintained that its application was based on the fact that Nakumatt was declared insolvent and not on the three-year threshold rule.
On its part, KRA submitted that section 31(1) of VAT Act provides that one may lodge a refund claim either on the three-year rule or on the grounds of insolvency.
The taxman maintained that the application on the grounds of insolvency had not met the threshold to qualify for a refund.
According to KRA, the Act allows for the refund of bad debts when a debtor is confirmed to be legally insolvent.
However, debts owed by Nakumatt Supermarkets were still under litigation and as such the debtor had not been declared legally insolvent by the court.
