Aria Technology Ltd v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 November 2018 |
| Neutral Citation | [2018] UKUT 363 (TCC) |
| Date | 02 November 2018 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2018] UKUT 0363 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Roth, Judge Jonathan Richards
Michael Firth, instructed by direct access, appeared for the appellant
James Puzey, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Missing trader fraud – Whether HMRC made an assessment – Whether HMRC's case adequately pleaded and put to witnesses – Nature of appeal against FTT's factual findings – Company's appeal dismissed.
The Upper Tribunal (UT) dismissed Aria's appeal against the decision of the First-tier Tribunal (FTT) ([2016] TC 04888) to dismiss its appeal against HMRC's denial of a deduction in respect of input tax and a VAT assessment, on the basis that Aria knew, or should have known, that the transactions in question were connected to the fraudulent evasion of VAT. The UT held that the FTT was entitled to reach the decisions that it made.
In this case on alleged missing trader intra-Community (MTIC) fraud, the company unsuccessfully appealed from the First-tier Tribunal regarding whether it knew, or should have known, that the transactions were connected to the fraudulent evasion of VAT. The dispute is not of general interest, so a detailed headnote has not been prepared.
The products were components for computers. Aria accepted that (1) there was a tax loss to HMRC, which resulted from fraudulent evasion of VAT, and (2) its transactions were connected to that fraud. However, it contended that it did not know, nor should it have known, that its transactions were so connected.
The FTT had decided that Aria knew, or should have known, that its transactions were connected to an MTIC fraud.
On appeal to the UT, Aria argued that a large part of the FTT's decision simply recited the evidence, divorced from any assessment by the FTT, and so served only as background.
The UT rejected that contention. There is no one right way of structuring a decision. Where the evidence is voluminous, the way a judge may discuss the evidence and justify the factual findings is not to be put into a straitjacket. Here, the FTT set out, in detail, those aspects of the evidence which it regarded as relevant for its approach to the question. The relatively short, “Findings of fact” subsection was not to be read in isolation. It must be read with the earlier section giving a much fuller account of the evidence, which provides the basis for the findings. Nor is that long section discussing the evidence entirely neutral (para. 10 of the decision).
Aria challenged numerous specific findings of fact (at para. 12 of the decision) on the basis that:
- They were unsupported by the evidence or contrary to the evidence.
- The FTT had taken into account irrelevant considerations in making its findings, or it had failed to take into account relevant considerations.
- They were not supported by adequate reasons.
Further, Aria advanced what it described as “general criticisms” of certain findings on the basis that:
- (4) They were not adequately pleaded or put to Aria's witnesses.
- (5) The FTT was not entitled to make findings as to how a reasonable businessman would have acted without expert evidence.
The UT held that almost every overall conclusion of fact, such as that Aria knew or should have known that the relevant transactions were linked to fraud, was based on an evaluation of an assemblage of findings of primary fact. The decision of what primary facts were relevant for the purpose of reaching the overall factual conclusion is one for the fact-finding tribunal: it is part of the fact-finding process. Therefore, if an appellate body simply substituted its own assessment of what primary facts should be taken into account, it would itself be engaged in fact-finding and not restricting the appeal to a question of law. It is only if the tribunal had failed to take into account a matter, which no tribunal properly instructed would have left out of account, or conversely took into account a matter which no tribunal properly instructed would have taken into account, that there is an error of law. Indeed, the reference to taking into account irrelevant considerations or failing to take account of relevant considerations reflects the test for judicial review expounded in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223, 229, and it is significant that Lord Greene there regarded these, along with a conclusion that was absurd, as aspects of unreasonableness.
The UT accepted that a failure to give adequate reasons is an independent ground of appeal and constitutes an error of law. However, the question of reasons must be addressed by considering the judgment as a whole. Also, the requirement for reasons, while significant, must not be set too high.
Irrespective of whether a failure to have regard to relevant considerations or having regard to irrelevant considerations is a separate ground of challenge or falls within a broader Edwards (HMIT) v Bairstow (1955) 36 TC 207 category, there remains the question of the consequence if an error (or errors) in the decision is established.
The UT held that the FTT's factual conclusions from the lack of meaningful due diligence, including customer due diligence, were fully open to it to make (para. 75 of the decision).
The UT decided that the submissions relating to Aria's turnover were an example of failing (1) to see the wood for the trees and (2) to read the decision as a whole. The FTT was entitled to find, on the evidence, that the disputed transactions were “too good to be true” and that a reasonable businessman would have sought to understand how that could be achieved (para. 95 of the decision).
In a letter dated 6 October 2008, HMRC wrote to Aria explaining that they were denying Aria's claim for input tax of £758,770. That letter informed Aria of its right to appeal against HMRC's decision within 30 days and stated that: “A further letter showing the corrected amount of VAT now due in respect of 07/06 is enclosed.” The UT noted that the question whether HMRC have issued an assessment is not one of the “matters” listed in VATA 1994, s. 83. However, this does not mean the FTT lacked jurisdiction to consider whether an assessment was made. The UT held that the “making” of an assessment refers to the determination that an amount is due (para. 181 of the decision). HMRC had, by letter, communicated an “assessment” to Aria.
Thus, Aria's appeal failed.
The UT reached the expected conclusion in this case. HMRC have a difficult fight against MTIC fraud.
[1] With permission granted by Judge Roger Berner following an oral hearing, Aria Technology Limited (“Aria”) appeals against the decision of the First-tier Tribunal (Tax Chamber) (“FTT”) (Judge Jennifer Dean and Ms Susan Stott). The FTT dismissed Aria's appeal against the denial by the Respondents (“HMRC”) of a deduction in respect of input tax and a VAT assessment for the relevant accounting period (period 07/06), on the basis that Aria knew, or should have known, that the transactions in question in the appeal were connected with the fraudulent evasion of VAT.
[2] This is yet another case of so-called “missing trader” or “MTIC” fraud on the VAT system. The characteristics of MTIC fraud have been described on many occasions, and it is sufficient to refer to the description in the judgment of the FTT (the “Judgment”) at [5]. In this case, as in many others, the products involved were components for computers. Aria accepted in its appeal before the FTT that there was a tax loss to HMRC which resulted from fraudulent evasion of VAT, and that its transactions were connected with that fraudulent evasion. However, it contended that it did not know nor should it have known that its transactions were so connected. The critical issue before the FTT was accordingly whether Aria knew or should have known that its transactions were connected to an MTIC fraud.
[3] Aria is a company based in Manchester engaged in both the retail and wholesale of computer components and peripherals. In the year ended 31 July 2005, it declared gross profit of £3.3 million; for the 18 months ended 31 January 2007, a gross profit of £4.6 million; and for the subsequent year ended 31 January 2008, a gross profit of £2.3 million. The managing director and sole shareholder is Mr Aria Taheri, who exercised overall control of the business. At the material times, the finance director was Mr Frank Harasiwka and the purchasing manager was Mr Eddy McFadden. The retail side of the business employed some 120 people, but the wholesale side was essentially run by Mr Taheri and Mr McFadden, with some involvement from Mr Harasiwka regarding the finances. Aria's wholesale deals involved purchasing central processing units (CPUs) and flat screen monitors from UK suppliers for resale to customers abroad.
[4] The appeal was concerned with 11 transactions (the “disputed transactions”), all carried out in a short period between 17 May 2006 and 1 August 2006. Because Aria also placed reliance on another wholesale deal carried out in that period which was not traced to any tax loss, the 11 disputed transactions were numbered chronologically for the purpose of the hearing below 1–2 and 4–12, with the unobjectionable transaction referred to as deal 3.
[5] Deals 1–2, made on 17 and 19 May 2006, involved the purchase of Giga CPUs from Supreme Distribution Ltd (“Supreme”) and their resale to Mitz International FZE (“Mitz”) based in Canada. Deals 4–9, in the period 8 June to 10 July 2006, involved the purchase of Intel Pentium 4 CPUs from Supreme and their resale to a purchaser referred to simply as Mona in Luxembourg. Deals 10–12, in the period 21 July to 1 August 2006, involved the purchase of, again, Intel Pentium CPUs from Ashtec Distribution Ltd (“Ashtec”) and their resale to Silver Pound Trading...
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