4 Distribution Ltd

JurisdictionUK Non-devolved
Judgment Date18 September 2009
Neutral Citation[2009] UKFTT 242 (TC)
Date18 September 2009
CourtFirst Tier Tribunal (Tax Chamber)

[2010] TC 00191

[2009] UKFTT 242 (TC)

John Walters QC (Chairman), Sandi O'Neill

4 Distribution Ltd

The Appellant did not appear and was not represented

Philip Singer QC, Rory Dunlop and Peter Mant, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

VAT - MTIC fraud - Input tax - Whether the purchases by the Appellant in the eight identified deals were "connected with fraudulent evasion of VAT" as per Axel Kittel at para. [61] - Held yes - whether the Appellant was a taxable person who knew or should have known that by its purchase it was participating in a transaction "connected with fraudulent evasion of VAT" - Held yes, as to both means of knowledge (should have known) and actual knowledge (knew) - Whether there was any need for a reference to the ECJ on a possible application of the Community law principle of equality - Held no - Appeal dismissed - Costs awarded to R & C Commrs

Input tax - MTIC fraud - Whether purchases by the appellant were connected with fraudulent evasion of VAT - Whether the appellant knew or should have known it was participating in transactions connected with fraud - Whether need for a reference to the European Court of Justice on the application of the Community law principle of equality - The appeal concerned the deduction of input tax on eight purchases of mobile telephones made by the appellant in 2005 and 2006 - At an earlier hearing, the tribunal had considered its jurisdiction in relation to the issue of discrimination by the commissioners (see No. 20,931; [2009] BVC 4048) - The commissioners' case in the substantive appeal was that the transactions were part of fraudulent chains of supplies and that the appellant knew or should have known, in accordance with the principles established in Kittel v Belgium; Belgium v Recolta Recycling SPRLECASECAS (Joined Cases C-439/04 and C-440/04) [2008] BVC 559, that it was participating in transactions connected with the fraudulent evasion of VAT - Having given consideration to the question of whether the transactions were connected with fraud and having reached the conclusion that they were so connected, the issue for the tribunal was to determine whether the appellant knew or should have known that by making the purchases it was participating in transactions connected with fraudulent evasion of VAT - Held, that the appellant should have known it was participating in transactions connected with fraudulent evasion - This conclusion was reached on the basis that the appellant had failed to discharge the burden of proof on it to show that it had no such means of knowledge and because the commissioners had shown, on the balance of probabilities, that the appellant had such means of knowledge - The tribunal further concluded that the appellant actually knew it was participating in transactions connected with fraudulent evasion of VAT - Although it was possible for a particular individual participant to be an innocent dupe unaware that it was complying with the requirements of one or more orchestrators of an MTIC fraud, in this case it was more probable than not that the appellant was not such an innocent dupe but was a knowing participant in the fraud - The tribunal considered if reference should be made to the European Court of Justice for a preliminary ruling on whether the Community law principle of equality had been breached in relation to the treatment of domestic transactions and transactions carried out between member states - It concluded that such reference was not necessary on the ground that the circumstances which demonstrated that the appellant had abused its right to repayment of input tax also demonstrated that it had abused any right not to be discriminated against as a trader supplying to an entity in another member state - The appellant's point that where a tribunal had found objective knowledge sufficient to deny repayment of input tax as a matter of law, that result could be reversed by reliance on another Community law principle, namely equal treatment, was clearly misconceived - Appeal dismissed.

DECISION
Introductory - direction to hear the appeal in the absence of the appellant pursuant to rule 26(2) of the VAT Tribunals Rules 1986

1. This Tribunal made a Decision on a preliminary issue in this appeal (our "Preliminary Issue Decision"), which was released on 20 January 2009. As recorded in the first paragraph of our Preliminary Issue Decision, there had been a Directions hearing in this appeal, held on 17 October 2008. Directions made at that hearing and released on 21 October 2008 included directions fixing the hearing of the substantive appeal to begin on 9 March 2009 and to end on 27 March 2009 (15 hearing days). At the request of the parties the first hearing day (9 March 2009) was taken by the Tribunal as a reading day. The Tribunal assembled at the hearing venue to hear the substantive appeal for the first time on the morning of 10 March 2009.

2. Before the appeal was called on for hearing on that day, at the request of both of them, we received Mr. Andrew Young, Counsel for 4 Distribution Limited ("the Appellant"), and Mr. Philip Singer QC, Leading Counsel for the Respondent Commissioners ("HMRC") in our retiring room. Mr. Young stated that the Appellant was unable to finance legal representation at the hearing, and that his junior counsel had recently withdrawn from the case because of non-payment of his fees. He also said that the Appellant was exploring the possibility of HMRC releasing sufficient of the reclaimed input tax withheld - the subject matter of the appeal - to fund the Appellant's representation in the appeal.

3. Mr. Singer said that this matter had already been raised with HMRC and a request for such a release had been refused. He commented that the difficulty had been raised at a very late stage increasing the inconvenience.

4. The Chairman of the Tribunal noted what had been said and stated that the Tribunal was in no position to concern itself with HMRC's decision on the Appellant's request. He went on to point out that it was open to the Tribunal to hear the appeal in the absence of the Appellant under rule 26(2) of the VAT Tribunals Rules 1986 ("the Rules") - which applied at the time of the hearing.

5. Subsequently we received both counsel again, and, this time, the instructing solicitors also. Mr. John Ioannou of Messrs. Devereaux, Solicitors for the Appellant (and no relative of Mr. Vladimir Ioannou ("VI") a director of the Appellant) stated that his firm was unable to accept the commitment to fund the appeal hearing without payment from the Appellant or HMRC and requested us to adjourn the hearing of the appeal pending legal proceedings for judicial review of HMRC's refusal to release sufficient of the reclaimed input tax withheld to fund the Appellant's representation in the appeal.

6. We indicated that we were minded not to adjourn or postpone the appeal.

7. At a third meeting, we again received both counsel and instructing solicitors. We were informed by Mr. John Ioannou that Mr. Young and his firm would withdraw from the appeal if no adjournment was granted. He also said that the Appellant would make an emergency judicial review application and informed the Tribunal that the Appellant (which we understood to mean effectively VI, and also Iveta Nemcova ("IN") a director of and the sole shareholder in the Appellant) would not appear because the appeal was too complex a matter for lay representation. (It transpired that VI and IN also did not make themselves available for cross-examination.)

8. The matter was then adjourned into open court, where Mr. Young, on behalf of the Appellant formally made an application to adjourn the appeal. Mr. Singer opposed the application - reluctantly, because he recognised that it was highly unfortunate that the Appellant should be unrepresented at the hearing of the appeal - because of the lateness of the application and the remote likelihood of the Appellant being successful in the contemplated judicial review application.

9. The Tribunal ruled (and later directed) that the application for an adjournment was refused and the Tribunal would, in the circumstances, proceed to hear the appeal in the absence of the Appellant pursuant to rule 26(2) of the Rules.

10. In reaching its conclusion on the application the Tribunal had weighed the general desirability of granting an adjournment (as a means of possibly eventually having the benefit of legal representation of the Appellant at the hearing of the appeal) against the certain inconvenience to the Tribunal and to HMRC (including wasted costs) of adjourning a 3-week fixture indefinitely at the last moment. The Tribunal had regard to its own view (concurred in by Mr. Singer) that the contemplated judicial review application was most unlikely to be successful and, particularly, to the safeguard provided by rule 26(3) of the Rules under which a party has the opportunity to apply to the tribunal for it to consider setting aside a decision or direction given in that party's absence on such terms as the tribunal thinks just.

The appeal

11. The Appellant, by VI, as director, appealed to the Tribunal against the decision of HMRC, contained in a letter dated 5 October 2007 sent on behalf of HMRC MTIC Central Enquiry Hub by Mrs. B Thakker, the case officer, to the Appellant, denying the Appellant's right to deduct the input tax claimed of £731,867.50 for period 05/06 and £523,600.00 for period 06/06.

The input tax claimed

12. The input tax in issue for period 05/06 relates to 6 deals carried out by the Appellant and the input tax in issue for period 06/06 relates to 2 deals carried out by the Appellant. The details are as follows:

  1. 05/06 (May 2006)

  2. Deals 1 and 2 re: purchases by the Appellant from Owl Ltd. ("Owl") of 800 Nokia 9300i phones and 1,000 Nokia 91 phones respectively. The input tax claimed in respect of these...

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