Tanzania Appeals' Court upholds decision against UK firm’s Sh3.5 billion VAT refund claim

Arusha. The Court of Appeal has endorsed the decisions of the Tax Revenue Appeals Board (TRAB) and the Tax Revenue Appeals Tribunal (TRAT), rejecting Aggreko International Projects Limited's claim for a Value Added Tax (VAT) refund amounting to over Sh3.56 billion.

Aggreko International Projects Limited, a subsidiary of Aggreko International Projects based in the UK, provides emergency power generation services in Tanzania.

The company’s sole client in 2011 was the Tanzania Electric Supply Company Limited (Tanesco), with whom it had agreed to supply 100 megawatts of power, a project that was successfully completed.

The appeal records show that while discussions were underway for an additional 50 megawatts, the talks were not finalized before the project’s completion. Despite this, the company imported generators and paid VAT amounting to Sh3.56 billion.

In 2014, the Tanzania Revenue Authority (TRA) audited Aggreko and identified the VAT claim, which the company argued should be refunded since the generators were imported for a business that was anticipated but did not materialize.

Aggreko contested TRA’s decision to deny the VAT refund by appealing to TRAB, which in turn supported TRA's decision.

The company further challenged this outcome at TRAT, but the tribunal ruled against them, stating that the VAT refund was not applicable as the generators were not used for business purposes.

The Court of Appeal reviewed the case (Appeal No. 364 of 2021) on August 6, 2024, with a panel of three judges—Dr Paul Barke, Kihwelo, and Gerson Mdemu—upholding TRAT and TRAB’s decisions. The court’s verdict is available on the judiciary’s website.

The appeal stemmed from a judgment and order by TRAT on April 21, 2021, regarding Tax Appeal No. 34 of 2020. After hearing arguments from both parties, the Court of Appeal affirmed TRAT and TRAB’s decisions, rejecting Aggreko’s claim for a VAT refund.

Court’s Findings

TRAB and TRAT had previously agreed with TRA’s stance that the VAT refund claim was invalid.

TRAB concluded that the generators were not intended for business purposes, thus disqualifying the refund claim.

This was supported by evidence presented in the appeal records, including a significant finding on page 757 that no ongoing business or contractual arrangement existed between Aggreko and Taneco regarding the additional 50 megawatts.

Legal Arguments

Aggreko’s legal team, represented by Allan Kileo and Norbert Mwaifwani, presented three main arguments, based on misinterpretation of evidence, legal error and business justification.

They argued that TRAT misunderstood evidence on whether the imported generators were for business purposes, claiming the VAT should be refunded as stipulated under section 16(1)(b) of the VAT Act.

They also contended that the court incorrectly interpreted the timeframe for importing goods as it pertains to claiming VAT refunds and that the generators were imported with a legitimate expectation of continuing business operations, thus justifying the VAT claim.

In response, TRA’s legal team, led by Chief Government Counsel Juliana Ezekiel, argued that the generators were for domestic use, not for business expansion, and thus did not qualify for VAT refunds.

Court’s Ruling

Judge Mdemu summarized the court's reasoning, noting that the appeal was based on an incorrect interpretation of section 16(1)(b) of the VAT Act. The evidence showed no active business relationship or project between TANESCO and Aggreko regarding the additional generators, as the project was terminated.

The court concurred with TRAT’s finding that the VAT refund claim was invalid due to the lack of a qualifying business purpose for the generators. The appeal was dismissed, and the company was ordered to bear its own costs.