Asylum Distributions Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 April 2013 |
| Neutral Citation | [2013] UKFTT 281 (TC) |
| Date | 26 April 2013 |
| Court | First-tier Tribunal (Tax Chamber) |
[2013] UKFTT 281 (TC)
Judge Miss Jill C Gort, Dr Michael James
No appearance by or on behalf of the Appellants
Mr Christopher Foulkes and Mr Jamie Sharmer of Counsel, instructed by the Solicitor to HM Revenue and Customs appeared for the Respondents
VAT - input tax reclaim - MTIC fraud - contra-traders - whether trader knew or should have known that its purchases were connected with VAT fraud - appeal dismissed
[1]This is an appeal against three decisions of the Commissioners of HM Revenue & Customs ("the Commissioners") contained in letters dated 13 August 2007, 19 June 2008 and 4 August 2008 denying input tax in a total sum of £5,792,536.73 in respect of 22 deals relating to computer peripherals, satellite navigation systems and various other electronic and other items carried out by the Appellant in the Value Added Tax periods between 03/06 and 08/06. The grounds for each of the decisions were that the input tax incurred by the Appellant, Asylum Distributions Ltd "(Asylum") in every instance was done so in transactions connected with the fraudulent evasion of VAT and that Asylum knew, or should have known of that fact.
[2]By its three Notices of Appeal dated respectively 17 August 2007, 14 June 2008 and 17 August 2008, Asylum's grounds of appeal in essence were that it did not have the knowledge, or means of knowledge that a) VAT fraud existed in its supply chains, or b) its transactions formed part of an overall scheme to defraud the Revenue. It was, therefore, entitled to a deduction for input tax by virtue of eu-directive 77/388 article 17article 17 of the Sixth Directive.
[3]Up until the start of the hearing of the appeal, Asylum had been represented by Mr Liban Ahmed of Controlled Tax Management ("CTM"), and there had been an agreed timetable between the parties prior to the opening. However no opening submissions were received by the Commissioners on behalf of Asylum in accordance with that agreed timetable, the Commissioners only received Asylum's opening submissions on the first day of the hearing of the appeal (19 November 2012), although those submissions were dated 7 November 2012. Also on the opening day the Court was notified of the proposed non-attendance either by or on behalf of Asylum, however Mr Ahmed agreed to be a contact point between the Commissioners and Mr Marcello Auletta, the director of Asylum, in the event of the need to clarify any specific matters which might arise. We will refer below to the outcome of any such communications where relevant.
[4]Following a joint application on 10 September 2010 by Asylum and IT Wholesale Ltd ("ITW"), (a company of which Mr Marcello Auletta was company secretary and whose brother, Mr Elio Auletta, was director, and which had also appealed against a denial of input tax) for the two appeals to be heard together, on 3 November 2010 it had been directed inter alia that evidence be cross admissible between the appeals of Asylum and ITW. However, on 29 November 2011 ITW had been dissolved and it had decided that, whilst it did not accept that it was not entitled to the input tax in the sum of £4,386,179.89 that it had been denied by the Commissioners in respect of VAT periods 04/06 and 05/06, the subject of its appeal, it could not afford to continue with the appeal. In the circumstance we decided that it was nonetheless appropriate to consider the evidence available which concerned ITW in so far as it was relevant to the appeal of Asylum.
[5]Also on the morning of first day of the hearing of the appeal an email was received on behalf of Asylum from Mr Ahmed stating:
Please be advised that we have been informed by the Appellant that he doesn't feel that he can attend such a daunting hearing without representation and he does not have the funds to pay for any more litigation. We have supplied opening submissions on the Appellant's instructions, and he wished that the trial goes ahead, but without his attendance. He relies on the opening submissions.
There was no explanation given as to the reason for Mr Elio Auletta's non-appearance, although as a witness in Asylum's appeal his attendance had been required. In the circumstances the Tribunal directed in accordance with rule 33 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 that, the parties having being notified of the hearing, it was in the interests of justice for the hearing to proceed in the absence of Asylum or its representative.
[6]Although following its dissolution, there was no longer an appeal by ITW before the Tribunal, nonetheless, the direction of 3 November 2010 as to cross-admissibility of evidence remained extant. Initially, Mr Foulkes on behalf of the Commissioners objected to the admission into evidence of Asylum's witness statements in the light of the proposed non-attendance of its witnesses for cross-examination. The Tribunal directed that the Commissioners inform Asylum's representatives of the proposed objection, in order to ascertain whether this affected Asylum's intention that its director not attend for the duration of the hearing and specifically for cross examination. By an email dated 19 November 2012, Mr Ahmed responded as follows:
(2) The Director will not be attending on any given day. We appreciate that this raises certain problems for the Appellant and these have been fully explained to Mr Auletta.
(3) The issue of the pleaded case and inadmissibility of evidence is withdrawn, given we will not be there to properly argue our point and given the lateness of the issue. …
In the circumstances, given that Asylum had been advised of the possible consequences of failing to make its witnesses available for cross-examination, and in the light of the Respondents' subsequent withdrawal of their objection to the admissibility of the witness statements, we decided under rule 15 of the Procedure Rules to admit both witness statements in evidence. It will, nonetheless, be a matter for us as to the weight to be attributed to the evidence contained in those witness statement given the failure of the witnesses to attend for cross examination.
[7]The appeal is in respect of Missing Trader Intra Community ("MTIC") VAT fraud which also involved contra-trading (see para 9 below for an explanation of MTIC fraud)
(i) Whether the Commissioners had provided evidence of the fraudulent evasion of VAT in respect of any or all of the transactions.
(ii) Whether there is a connection with any or all of Asylum's transactions to fraud.
(iii) Whether Asylum knew of this connection
(iv) Whether Asylum should have known of this connection there being no other reasonable explanation.
Other issues were raised in Mr Ahmed's skeleton argument which we deal with towards the end of the Decision.
[8]The following matters were agreed between the parties:
In his skeleton argument Mr Ahmed on behalf of Asylum conceded the following:
(i) The Commissioners have identified the correct supply chains in both the Appellant's chains and those of all the contra traders.
(ii) The witness statements that provide factual evidence regarding the actions and trading patterns of the contra traders are not disputed. Therefore, no contra trader witnesses are required to give oral evidence. It is the opinion of these Officers that is challenged through submissions.
(iii) A fraudulent tax loss has occurred at the start of all the contra traders supply chains. Therefore no defaulting trader witnesses are required to give oral evidence.
[9]Mr Ahmed's skeleton argument continues at paragraph 6 that Asylum continued to contest: "… that a tax loss, let alone a fraudulent tax loss, has been proved in any of its supply chains." Following the non appearance by the Mr Ahmed at the hearing, the Tribunal directed the Commissioners to contact Mr Ahmed to clarify the apparent conflict between (iii) above and paragraph 6 of the skeleton argument. By an email sent on 23 November 2012 Mr Ahmed set out Asylum's position as follows:
(2) There is a tax loss in all the dirty supply chains.
(3) There is no tax loss in its own supply chains.
(4) The contra traders did not act fraudulently and, therefore the Appellant is not connected to fraud.
(5) The construction of the supply chains is correct in all the dirty and clean chains and, therefore, the goods purchased by the contra traders were later purchased by the Appellant.
[10]eu-directive 2006/112 article 167 article 168Articles 167 and 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of VAT1 provide:
167- A right of deduction shall arise at the time the deductible tax becomes charged.
168- In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following form the VAT which he is liable to pay;
(a)the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person
Value Added Tax Act 1994 section 24 section 25 section 26Sections 24, 25 and 26 of the VAT Act 1994 provides:
-
24(1)Subject to the following provision of this section, "input tax", in relation to a taxable person, means the following tax, that is to say-
(a) VAT on the supply to him of any goods or services;
(b) VAT on the acquisition by him from another Member state of any goods; and
(c) VAT paid or payable to him on the importation of any goods from a place outside the Member States.
being (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him.
…
(6)Regulations may provide-
(a)for VAT on the supply of goods or services to a taxable person, VAT on the acquisition of goods by a taxable person from other member States and...
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