5 THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

CIVIL APPEAL No. 0018 OF 2020

(ARISING FROM TAX APPEALS TRIBUNAL APPLICATION No. 24 OF 2017)

10

UGANDA REVENUE AUTHORITY ...................................................... APPELLANT

VERSUS

ENVIROSERV UGANDA LIMITED ...................................................... RESPONDENT

15 BEFORE: HON. LADY JUSTICE SUSAN ABINYO

JUDGMENT

Introduction

This is an appeal from the ruling of the Tax Appeals Tribunal in respect of an
application by the Applicant (Respondent herein) challenging a Value Added
20 Tax (VAT) assessment of UGX 1,030,625,893 arising from the Respondent’s decision
(Appellant herein) to disallow some of the Respondent’s claims of input VAT, in
which the Tribunal found in favour of the Respondent on 24th January, 2020.

Background

The Respondent is a company that was incorporated on 6th June, 2013 under the
25 Laws of Uganda, whose primary business is waste management and disposal.
That the Respondent was registered for VAT and issued with a Certificate of
Registration effective 1st October, 2013. That from October 2013 to June 2014,
taxable supplies were made to the Respondent, who filed monthly VAT returns,
and invoices with the Appellant. The Respondent applied for VAT refund of UGX
30 2,553,724,387(Uganda Shillings Two Billion Five Hundred Fifty Three Million Seven
Hundred Twenty Four Thousand Three Hundred Eighty Seven only) for the said
period, in which the Appellant did a VAT refund audit. That during the VAT refund
audit, the Appellant disallowed a VAT refund claim of UGX 123,930,226(Uganda
Shillings One Hundred Twenty Three Million Nine Hundred Thirty Thousand Two
35 Hundred Twenty Six only), arising out of the VAT imposed on the variance

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 5 between the sales in the audited financial statements and submitted VAT returns
for the year ended 30th June 2016.

The Respondent further challenged the input VAT credit of UGX

285,972,969(Uganda Shillings Two Hundred Eighty Five Million Nine Hundred
Seventy Two Thousand Nine Hundred Sixty Nine only) for the period October 2013
10 to June 2014 and UGX 90,286,003(Uganda Shillings Ninety Million Two Hundred
Eighty Six Thousand, and Three only), arising from input VAT charged by its
suppliers between January 2015 and June 2016, on grounds that the invoices
were not verified. The Respondent then filed TAT Application No. 024 of 2017,
challenging the Appellant’s decision to disallow VAT input credits for the said
15 amounts, in which the Tribunal found in favour of the Respondent. That in the
course of the proceedings at the Tribunal, the parties entered into and filed a
partial consent dated 2nd August 2018. Subsequently, the amount in dispute
between the parties was reduced to UGX 500,188,925(Uganda Shillings Five
Hundred Million One Hundred Eighty Eight Thousand Nine Hundred Twenty Five
20 only)

The Appellant being dissatisfied with the ruling and orders of the Tax Appeals
Tribunal filed this appeal.

The grounds of appeal as stated in the Notice of Appeal are that: -

1. The Tax Appeals Tribunal erred in law in holding that the Respondent
25 satisfied the conditions for entitlement and was entitled to input Value
Added Tax (VAT) credit from the Respondent under s. 28(1) of the VAT Act,
whereas not.
2. The Tax Appeals Tribunal erred in law in not applying s.25 (1) and paragraph
1(b) of the Fourth Schedule to the VAT Act to the dispute, thereby coming
30 to an erroneous finding that the Respondent was entitled to input VAT
credit, whereas not.
3. The Tax Appeals Tribunal erred in law in holding that the Respondent is
entitled to input VAT credit of UGX 123,930,226 contrary to the issue framed
by the Tribunal.
35 4. The Tax Appeals Tribunal erred in law in holding that the Respondent is
entitled to input VAT credit of UGX 123,930,226 contrary to its finding that
the Respondent had not accounted for output VAT giving rise to the input
VAT credit.

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 5 5. The Tribunal erred in law in failing to properly evaluate the evidence on
record, thereby coming to erroneous holdings and conclusions relating to
entitlement to input VAT that;
a) Some of the invoices were properly declared by the Respondent to the
Appellant, whereas not.
10 b) The Respondent presented evidence of payment of input VAT whereas,
not.

Representation

The Appellant was represented by Counsel Alex Alidekki Ssali jointly with Counsel
Namutebi Crista of the Legal Services and Board Affairs Department, Uganda
15 Revenue Authority while the Respondent was represented by Counsel Ronald
Kalema jointly with Counsel Apollo Katumba of M/S MF Mpanga Advocates.
Counsel for the parties herein, filed written submissions as directed by this Court.

Counsel for the Respondent raised a preliminary objection on grounds that the
instant appeal offends the express provisions of section 27(2) of the Tax Appeals
20 Tribunal Act, Cap 345.

Counsel contended that grounds 1 and 2 of the appeal call for a determination
of the question of whether the Respondent is entitled to VAT input credit of UGX
285,972,696. That the criterion as to how a person becomes entitled to claim VAT
input credit is majorly factual and can be decided on purely questions of fact
25 namely: whether the claimant is a taxable person; whether taxable supplies were
made to the claimant during a tax period and whether taxable supplies were for
the use in the business of the claimant. Counsel relied on Uganda Revenue
Authority Vs Tembo Steels Ltd, High Court Civil Appeal No. 09 of 2009, in support
of the above submissions.

30 Counsel further contended that grounds 3 and 4 of the appeal call for the
determination of the question: whether the Respondent is entitled to VAT input
credit of UGX 123, 930,226 and that this calls for the examination of facts that is,
the Respondent’s monthly returns filed with the Appellant for the months of June
2015 and July 2015. That the question whether the Respondent accounted for
35 and declared to the Appellant VAT revenue amounting to UGX 123, 930, 226, for
which the Respondent is entitled to a refund of VAT input is not a question of law
at all but purely a question of fact.

Counsel argued that like in grounds 1-4, ground 5 calls for this Court to examine
facts and not law.

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 5 In reply, Counsel for the Appellant submitted that in light of the provision of section
27(2) of the Tax Appeals Tribunal Act and case law, the appeal falls within the
ambits of the law and as such is rightly before this Honourable Court.

Determination of the preliminary objection

Section 27(2) of the Tax Appeals Tribunal Act, Cap 345 provides as follows:

10 “An appeal to the High Court may be made on questions of law only and the
notice of appeal shall state the question or questions of law that will be raised on
the appeal.”

I am fully persuaded by the decision in Uganda Revenue Authority Vs Tembo Steel

Ltd, Civil Appeal No. 09 of 2009, cited by Counsel for the Appellant on the
15 proposition that points of law by their nature involve a controversy about the law
and that there must be misdirection on the part of the Tribunal or an error of law,
which must be stated in the grounds contained in the Notice of Appeal. (See Elias
Kasolo Vs Security Group Uganda Limited & Anor, CACA No. 212 of 2020, cited
with approval in Luwaluwa Investment Limited Vs Uganda Revenue Authority Civil
20 Appeal No. 43 of 2023), cited by Counsel for the Respondent.

The Court further observed in Tembo’s case that the legislature intended to leave
questions of fact such as assessment to the professionals and reserve to the Courts
only points of law for determination.

The phrase “an error of law” refers to instances where there is no evidence to
25 support a finding or where the evidence contradicted the finding or where the
only reasonable conclusion contradicted the finding. (See Edwards Vs Bairstow
[1956] AC 14, cited with approval in Barry Edwards Vs The Commissioner for Her
Majesty’s Revenue & Customs [2019] UKUT 0131(TCC) Appeal No. UT/2017/0172)

I have taken into consideration grounds 1, 3, 4, and 5 as above, to find that the
30 VAT input credit claim of UGX 123,930,226 (Uganda Shillings One Hundred Twenty
Three Million Nine Hundred Thirty Thousand Two Hundred Twenty Six only), arising
out of the VAT imposed on the variance between the sales in the audited
financial statements and submitted VAT returns for the year ended 30th June 2015;
input VAT credit of UGX 285,972,969(Uganda Shillings Two Hundred Eighty Five
35 Million Nine Hundred Seventy Two Thousand Nine Hundred Sixty Nine only) for the
period October 2013 to June 2014 and UGX 90,286,003(Uganda Shillings Ninety
Million Two Hundred Eighty Six Thousand and Three only), arising from input VAT
charged by its suppliers between January 2015 and June 2016, involve the

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 5 examination of the Applicant’s VAT returns for the periods in question and
invoices, which delve on questions of fact and not law.

For the foregoing reason, this Court finds that grounds 1, 3, 4, and 5 of the appeal
offend the provision of section 27(2) of the Tax Appeals Tribunal Act, Cap 345,
and are improper before this Court.

10 Accordingly, grounds 1, 3, 4, and 5 of the appeal as above are dismissed.

Counsel for the Appellant preferred to argue grounds 1 and 2 together, which
approach was adopted by Counsel for the Respondent however, this Honourable
Court having found as above, will only consider the merits of ground 2 of the
appeal hereunder.

15 Ground 2. The Tax Appeals Tribunal erred in law in not applying s.25 (1) and
paragraph 1(b) of the Fourth Schedule to the VAT Act to the dispute, thereby
coming to an erroneous finding that the Respondent was entitled to input VAT
credit, whereas not.

Submissions by Counsel for the Appellant

20 Counsel submitted that the Respondent is not entitled to any refund claims for the
period when it was not making any taxable supplies. That in order for the
Respondent to be entitled to a refund for the period October 2013 to June 2014,
the Respondent ought to have made taxable supplies as per sections 6, 7, 25,
and 28 of the VAT Act.

25 Counsel contended that it is not enough that a taxpayer (Respondent), appears

on the VAT register but one should qualify as a taxable person. That section 28(1)
must be read together with section 25, as the latter provides the statutory formula
on how one should arrive at a tax payable for a particular period.

Counsel further submitted that it is not tenable that the Respondent claims to
30 have a zero output and still benefit from the equation of (X-Y) provided for and
specified under section 25(1) unless they are zero rated as per section 24(4) of the
VAT Act and the 3rd Schedule to the Act, which provides for zero rated supplies.
That the evidence on record shows that they were not anticipating to supply zero
rated services.

35 Submissions in reply by Counsel for the Respondent

Counsel submitted that input tax and or input VAT is defined under section 1(1) of
VAT Act to mean a tax paid or payable in respect of a taxable supply to or an

5
 5 import of goods or services by a taxable person. That an input VAT credit arises
from the supply of goods or services bought by or supplied to a taxable person,
who is indirectly charged VAT for those goods or services or who pays the VAT
charged by a supplier of those goods or services it consumes.

Counsel further submitted that the criteria as to how a person becomes entitled
10 to claim input VAT is long settled; it is that:

1. The claimant is a taxable person;

2. Taxable supplies have been made to the claimant during the taxable
period; and
3. Taxable supplies were for the use in the business of the claimant.

15 Counsel contended that the Tribunal rightly stated the foregoing legal position in
its ruling and that the question for determination is whether the Claimant
(Respondent herein) met the aforesaid criteria for entitlement to claim input VAT
credit.

Decision

20 “Input tax” means the tax paid or payable in respect of a taxable supply to or an
import of goods or services by a taxable person. (See section 1 (I) to the Value
Added Tax Act, Cap 349) hereinafter referred to as “the Act” and Warid Telecom
Uganda Limited Vs Uganda Revenue Authority, Civil Appeal No. 24 of 2011, at
pg12, cited by Counsel for the Respondent.

25 A taxable person is defined under section 6 of the Act to mean a person

registered under section 7 and takes effect from the time of registration and or a
person who is not registered, but who is required to be registered or to pay tax
under this Act, from the beginning of the tax period immediately following the
period in which the duty to apply for registration or to pay tax arose.

30 Section 7 (1)provides for persons required or permitted to register to include any

person, who is not already a registered person, to apply to be registered in
accordance with section 8-

(a)within twenty days of the end of any period of three calender months if during
that period the person made taxable supplies, then value of which exclusive of
35 any tax exceeded one-quarter of the annual registration threshold set out in
subsection (2) ; or

(b) at the beginning of the any period of three calender months where there are
reasonable grounds to expect that the total value exclusive of any tax of taxable

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 5 supplies to be made by the person during that period will exceed one-quarter of
the annual registration threshold set out in subsection (2).

(c) at the beginning of any tax period of more than three calendar months where
there are reasonable grounds to expect that the total value exclusive of any tax
of taxable supplies to be made by the person will exceed the annual threshold
10 set out in subsection (2). [Emphasis added]

I have taken into consideration the fact that the Respondent was registered for
Value Added Tax on 1st October, 2013 and issued a certificate of registration as
required under section 8(2) and (4) of the Act.

Section 18 of the Act defines taxable supply to include a supply of goods or

15 services, other than an exempt supply made in Uganda by a taxable person for
consideration as part of his or her business activities.

A supply is made as part of a person’s business activities if the supply is made by

him or her as part of, or incidental to, any independent economic activity he or
she conducts, whatever the purposes or results of that activity.

20 Section 25 (1) provides that subject to section 26, the tax payable by a taxable
person for a tax period is calculated according to the formula specified in section
1(b) of the Fourth Schedule.

Paragraph 1(b) of the Fourth Schedule provides that:

“ For purposes of section 25, the following formula shall apply-

25 X-Y

Where X is the total of the tax payable in respect of taxable supplies made by the
taxable person during the tax period; and Y is the total credit allowed to the
taxable person in the tax period under the Act.”

The Tribunal in its ruling at pg. 11 stated that:

30 “ A person’s entitlement of VAT input after being issued a certificate is determined

by s. 28 of the VAT Act, which reads:

“(1) Where section 25 applies for the purposes of calculating the tax payable by
a taxable person for the tax period, a credit is allowed to the taxable person for
the tax payable in respect of-

35 (a) All taxable supplies made to that person during the tax period; or
(b) All imports of goods made by that person during the tax period,

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 5 If the supply or import is for use in the business of the taxable person.”

In addition, the Tribunal stated that the application of s.25 which deals with
accrual and cash basis accounting does not seem to be in contention by the
parties. For the Applicant to be entitled to the input tax credit under this section
the Applicant has to prove the following: (i) The Applicant is a taxable person; (ii)
10 Taxable supplies have been made to the Applicant during the tax period and (iii)
The taxable supplies were for use in the business of the Applicant. It is not in
contention that the Applicant was registered for VAT and is a taxable person.
What seems to be in contention is whether the Applicant made taxable supplies
during the tax period. S. 28 states that a taxable person is entitled to input VAT for
15 taxable supplies made to it during the tax period. It does not state that the person
ought to have made taxable supplies…”

The Tribunal further stated in its ruling at pg.12… that it is not in contention that the
Applicant supplied goods or services which were not exempt. Taxable supplies
were made to the Applicant during the tax period. However, a taxpayer is entitled
20 to input VAT for all the taxable supplies made during a tax period if the supply or
import is used for its business. There is no contention that the supplies to the
Applicant were not for use in its business.”

The Tribunal further observed that they had perused the Applicant’s VAT returns
and invoices to conclude that the Applicant proved that they incurred input VAT
25 of UGX 285,972,696 for the period October 2013 – June 2014 and that the
Applicant was entitled to the said input VAT credit, which was used in the
Applicant’s business of waste disposal and management.

From the definition of the phrase” error of law” and the ruling of the Tribunal
above, this Court finds as follows:

30 The Tribunal, having found that the Applicant was a taxable person, taxable
supplies were made to the Applicant during the tax period and that there is no
contention that the supplies to the Applicant were not for use in its business is the
proper interpretation of the criteria for a person to be entitled to input tax credit
in accordance with section 28 of the Act.

35 Counsel for the Appellant submitted that the contention by the Respondent that
being in the VAT register makes them a taxable person is untenable within the
meaning of a taxable person as provided under section 6 of the Act.

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 5 It is notable that on pg 244 of the record of appeal, the Tribunal dealt with the
issue of registration by the Applicant under section 7(1) (c) of the VAT Act as
follows;

“ The Applicant claimed it registered under s.7(1)(c) of the VAT Act. For an
Applicant to be eligible for registration under section 7(1)(c), it ought to have for
10 more than three months, reasonable grounds to expect that the total value of
taxable supplies will exceed the annual threshold… It is not in doubt that the
Applicant’s threshold was over fifty million. It is also not in dispute that when the
Applicant applied to be registered for VAT, it expected to make taxable supplies
as it started constructing landfills for waste disposal. However, for the Applicant to
15 be eligible for registration it ought for more than 3 months to have had reasonable
grounds to expect that its taxable supplies will exceed the annual threshold. By
the time the Applicant registered for VAT in October 2013 and made taxable
supplies in January, 2015 it was more than one year. The Act does not limit the
expectation to three months, it states “ more than three months”. After three
20 months, the expectation is open ended. Therefore, by the time the Applicant
registered for VAT, it had an expectation of making taxable supplies for more than
three months. The Act does not create any offences and or prescribe any
penalties where the expectation for making supplies is more than three months.
Maybe it would have been a different matter if the expectation was less than
25 three months.”

It is my understanding that the provision of section 7(1) (c) of the Act, on the
period of more than three calendar months applies only where there are
reasonable grounds to expect that the total value exclusive of any tax of taxable
supplies to be made by the person will exceed the annual threshold set out in
30 subsection (2) thereof, which is one hundred and fifty million shillings.

It is therefore, my considered view that the provision of section 7(1) (c) of the Act,
that “at the beginning of any tax period of more than three calendar months
where there are reasonable grounds to expect that the total value exclusive of
any tax of taxable supplies to be made by the person will exceed the annual
35 threshold set out in subsection (2), should be construed to apply to the period of
three calendar months subsequent to the beginning of a tax period and remains
open for a normal year(annual) and not indefinitely. For purposes fo the Act, this
implies twelve (12) calendar months.

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 5 Accordingly, this Court does not fault the Tribunal on the interpretation of the
phrase “more than three calendar months” as provided under section 7(1) (c) of
the Act to be open ended. (See Attorney General Vs Bugishu Coffee Marketing
Association Ltd [1963] EA 39 at pg. 41, on the proposition that tax legislation is
strictly applied and interpreted according to the language with no implied
10 meaning or presumptions, cited with approval in Tembo’s case and relied upon
by Counsel for the Appellant in support of their submissions.

The submission by Counsel for the Appellant that the Tribunal failed to interpret
section 14(1) (c) of the VAT Act on the time of supplies is untenable for reasons
hereunder.

15 Section 14(1)(c) of the Act provides for time of supply as follows:

“(1) Except as otherwise provided under this Act, a supply of goods or services
occurs-

(c) in any other case, on the earliest of the date on which-

(i) the goods are delivered or made available, or the performance of
20 the service is completed; [Emphasis added]
(ii) payment for the goods or service is made ; or
(iii) a tax invoice is issued.

The Tribunal in its ruling at pg 12 stated that:

“ We have perused the Applicant’s monthly VAT returns and their invoices for
25 October 2013 to June 2014 which were in the additional trial bundle. These
included monthly rental payments to Lanor International Ltd for October , 2013 to
June 2014; printing, photocopying and telephone charges to Lanor International
Ltd for December, 2013; tax compliance fees to KPMG for January – April 2014;
Mobile Phone charges to MTN Uganda Ltd for May, 2014…, they prove that the
30 Applicant incurred Input VAT of Shs 285,972,696 for the period October 2013 to
June 2014. We are satisfied that they were for use in the Applicant’s business of
waste disposal and management. Therefore, under S.28(1) the Applicant would
be entitled to input VAT for all the taxable supplies made during a tax period.”

The Tribunal further stated at pg 13 of its ruling that:

35 “The Respondent contends that since no taxable supplies have been made by
the Applicant, the fraction B/C under the above formula will be less than 0.05,
prohibiting the Applicant from claiming any input VAT for the period. The
Applicant contends that since it deals in standard rated supplies S. 28(8) does not

10
 5 apply. The Tribunal agrees with the Applicant that S. 28(8) applies to a taxable
person who deals in supplies that are either zero rated and standard rated or
standard rated , zero rated and exempt. The applicable provision in the instant
case is S. 28(7)(a) of the Act…the Appplicant only deals in standard rated
supplies. We find that S.28(8) is not applicable to the Applicant. We therefore, find
10 that the Applicant is entitled to input VAT credit of Shs 285,972,696 for the period
October 2013 to June 2014.”

In regard to invoice INV00047, which was issued in July for work partially done in
June 2015, the Appellant contended that there was no taxable supply by the
Applicant in the tax period from June 2015 and July 2015 therefore, the Applicant
15 is not entitled to input VAT, whereas on the other hand the Respondent
contended that they filed all the returns in July taking into consideration section
14(1)(3) of the Act and that the question should be that they paid but late, and
not that the Respondent did not pay.

The Tribunal found in the affirmative on the issue whether the Applicant properly
20 accounted for and declared VAT revenue in its audited financial statements for
the year ended 30th June 2015 amounting to Shs 123,930,226. The Tribunal
observed that annual income payable by a tax payer is determined by looking
at its audited financial statement and that it is imperative that the audited
financial statements reflect the true and proper company’s business.

25 The conclusion of the Tribunal in its ruling at pg.17 in regard to INV00047 was that:

“ … we find that the Applicant did not properly account for VAT of US$ 46,690 for
the year ending 30th June 2015. It ought to have severed the VAT for the
transportation done in June from July 2015. Though it did not properly declare the
invoices in respect of transport services the tribunal does not find that the invoices
30 in respect of waste management and disposal were not properly declared.”

This Court finds that the foregoing conclusion is a failure by the Tribunal to properly
evaluate the evidence and does not amount to an error of law.

To determine when the VAT liability of the Applicant arose in respect of the tax
period between June 2015 to July 2015, depends on the circumstances of the
35 case on account of section 34A (1) (c) and 14(1) (3) of the Act.

In addition, the formula specified in section 1(b) of the Fourth Schedule as

provided above under section 25 is relevant to the calculation of tax payable by
a taxable person for the tax period.

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 5 What amounts to a tax period in accordance with the Act is calculated every
month from the time of registration, when the person is registered under section 7
and where a person is not registered but is required to be registered or to pay tax
under this Act, from the beginning of the tax period immediately following the
period in which the duty to apply for registration or to pay tax arose.

10 It is my considered view that the duty to apply for registration or to pay tax arises
when a taxable value in relation to a taxable supply or an import of goods or
services has been determined under part VI of the Act.

It is therefore my understanding that the the question of double taxation and

delay in payment would not arise, since some of the transactions in the returns for
15 June 2015 were filed in the subsequent month of July 2015 when they were
complete. The directive by the Tribunal to the Respondent to have the input VAT
severed from the previous months of June 2015 and July 2015 was proper in the
given circumstances, taking into further consideration the provision of section 7(1)
(c) of the Act as explicated above and the formula specified in section 1(b) of
20 the Fourth Schedule as provided above under section 25 of the Act.

In other words, if the Respondent had decided to file their returns in July 2015,
which partially arose in June 2015, it would neither amount to double taxation or
delay since the said returns could be severed from the two months of June and
July, 2015 as directed by the Tribunal.

25 For reasons stated above, this Court finds that this ground of appeal fails.

Accordingly, this Court makes the following orders that:

1. This appeal is dismissed with costs to the Respondent.

2. The decision of the Tribunal is upheld.

Judgment delivered electronically on the 31st day of July, 2024.

30

SUSAN ABINYO
JUDGE
31/07/2024

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