Awards Drinks Ltd (in iquidation) v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 22 June 2020 |
| Neutral Citation | [2020] UKUT 201 (TCC) |
| Date | 22 June 2020 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2020] UKUT 201 (TCC)
Judge Swami Raghavan, Judge Thomas Scott
Joseph Howard, counsel, instructed by TT Tax, appeared for the appellant
Brendan McGurk, counsel, instructed by the General Counsel and Solicitor to Her Majesty's Revenue & Customs, appeared for the respondents
Value added tax – Best judgment assessments to VAT – Whether FTT erred in not finding that the appellant could not have made taxable supplies in the United Kingdom because it had lost possession and control of the relevant goods in France – No – Whether insufficient reasons for decision – Yes – Decision remade confirming FTT decision.
In the Upper Tribunal confirmed an FTT decision that the appellant had supplied alcoholic drinks in the UK and had not, as it contended, lost possession and control of the goods in France. The UT accepted the appellant's argument that the FTT had given insufficient reasons for its decision. It set aside the FTT decision and remade it giving reasons for its dismissal of the appeal.
Award received two assessments from HMRC for over £6.5m. Award traded as a wholesale distributor of alcoholic beverages and it operated a bonded warehouse in France. Over £33m in cash was deposited into its bank account at various UK branches. Award maintained that these were receipts from the sale of alcohol to trade customers in France. However, HMRC maintained that the purported transactions in France were sham transactions intended to disguise the fact that the alcohol had been brought to the UK and sold here.
The FTT dismissed Award's appeal ([2018] TC 06783). Award appealed to the UT on two grounds:
- The FTT had erred in law in failing to conclude on the basis of the evidence provided that Award had divested itself of possession and/or control of the goods in France; and
- The FTT had given insufficient reasons for its decision.
The UT first considered on which party the burden of proof lay. Award's case was that HMRC had issued a best judgment assessment which was wrong. Although it is normally for the taxpayer to demonstrate what the correct amount of tax due is, in this case the allegation of dishonesty (if the alcohol had not been sold in France it was smuggled into the UK for sale) meant that burden of proof had passed to HMRC. The UT (agreeing with the FTT) concluded that it was for Award to demonstrate that the best judgment assessment was incorrect, the burden of proof did not shift simply because fraud or dishonesty might be an explanation for the error (see para. 42). In making its case that the cash deposits were from UK alcohol sales, HMRC did not make a direct allegation of fraud.
Award's evidence at the FTT had included “French Transaction Documents” (“FTD's”) – a collection of documents relating to the alcohol in France which it maintained demonstrated that possession and control of the goods had passed in France. Award's director, whom the FTT had concluded was neither convincing nor truthful also gave evidence (para. 7).
The UT dismissed Ground 1 of Award's appeal. It reviewed the evidence before the FTT and concluded that Award had not demonstrated that the goods were sold in France. HMRC argued that there was considerable evidence that the FTD's should not be relied upon. E.g. some of the purported customers could not be shown to exist, investigations by the French authorities revealed that some were unsuitable customers for wholesale alcohol as they lacked premises, there was no evidence that £33m in cash had been couriered securely to the UK and no commercial reason for this sum to have been transported to banks in the North of England rather than deposited at banks near Dover.
The UT concluded that, had the FTT determined, on the basis of the FTD's, that possession and control of the goods had been lost in France, it would have “erred in law by reaching a decision which no reasonable tribunal, properly directed, could have reached” (para. 83).
The UT did accept Award's argument that the FTT had not provided sufficient explanation for conclusion in the written decision. It decided that, on this basis, the decision of the FTT should be set aside and remade. The UT remade the FTT decision dismissing Award's appeal.
This case turned on its facts. Given the huge sums of VAT at stake it is unsurprising that the appellant appealed against the FTT's upholding of the assessment. However, given the strength of HMRC's evidence and the FTT's finding that the director was not a reliable witness, it is unsurprising that the UT dismissed the appeal.
[1] This is an appeal by Awards Drinks Limited (in liquidation) (“Award”), a wholesale alcoholic beverages distributor, against a decision of the First-tier Tribunal (“FTT”) issued on 23 October 2018 published as Award Drinks Ltd (in liquidation) [2018] TC 06783 (“the FTT Decision”).
[2] Award had appealed to the FTT against two “best judgment” VAT assessments which HMRC had made on it for VAT for £1,543,714 and £5,029,677 in respect of goods which HMRC considered Award had sold or traded for consideration within the United Kingdom. The consideration was based on 1,311 separate sterling deposits made into 42 different UK bank branches to an account held by Award totalling £32 million. The FTT rejected Award's case that the deposits were payments for sales of alcohol from bonded warehouses in France to cash and carry operators in France and went on to dismiss Award's appeal. The backdrop against which the assessments arose was HMRC's view, having traced the relevant supply chains, that the goods sold had entered the UK as a result of “inward diversion fraud”. Such fraud entails goods held in duty suspension purportedly being released for consumption in a country where they attract a lower duty rate, for instance France, with an obfuscatory paper trail. In fact, the goods are smuggled to the UK where they are typically sold immediately for cash. HMRC had clarified in advance of the hearing that their case before the FTT involved no allegation of fraud against Award.
[3] Award's case on appeal to the Upper Tribunal (“UT”) is that the FTT erred in law in two respects. First, it erred by failing to conclude Award could not have made supplies of the goods in the UK. This was because of documentary evidence consisting of various transaction documents, which Award submits went unchallenged, proving that Award had divested itself of possession and/or control of the goods while they were located outside the UK, thereby depriving Award of the ability to have made the alleged supplies in the UK. Second, Award asserts that the FTT also gave insufficient reasons for rejecting this argument.
[4] Award does not, and may not, given the terms of its permission, mount any challenge to the findings of fact made by the FTT. We set out a summary of the FTT's Decision below.
[5] Award, a company based in the UK, was incorporated on 11 June 2002. It registered for VAT on 1 August 2002, describing itself as a wholesaler of beers, wines and spirits with an estimated annual turnover of £10 million. ([19] [22])
[6] After discussing the burden of proof, which we deal with below, the FTT outlined the documentary and oral evidence with which it was provided. The oral hearing took place over five days and further written submissions were received from both the parties. The FTT heard evidence from Mr Judd, Award's director, six HMRC officers and one UK Border Force Officer. It received documentary evidence consisting of visit reports and correspondence. Crucially, for the purposes of Award's appeal before us, Mr Judd's witness statement exhibited copies of various transaction documents which we describe in more detail below (“the French Transaction Documents”) and which we will refer to as the “FTDs”. The FTT also had a witness statement of Mr Manuel Gluck, the warehouse manager of a bonded warehouse in France, with which Award was said to have an account, but Mr Gluck did not attend to give evidence.
[7] The FTT explained, at [15] to [17], why it did not consider Mr Judd to be “a convincing or indeed a truthful witness” by reference to changes in his evidence in the course of cross-examination, inconsistency and lack of credibility. It did not ultimately have any issue with the evidence given by HMRC's witnesses.
[8] Award's registration for VAT, and also as a “high value dealer” under Money Laundering Regulations, entailed several visits from, and meetings with HMRC officers which the FTT set out in detail at [25] to [50] and which culminated in HMRC issuing the assessments giving rise to the appeal. The assessments were based on the gross amounts of cash deposited into Award's bank account at various branches throughout the UK. The FTT gave further detail on the amounts and locations ([52] [53]) and explained ([55]–[58]) that it was not possible to trace the deposits to any of the transactions that Mr Judd and Award said that Award had entered into. No paying in books were provided, and the French customs authorities did not have any record, as required by the French customs code, of declarations, relating to cash brought in to the UK from France by the couriers Award had identified to HMRC.
[9] The FTT then detailed the evidence relating to enquiries and visits pertaining to Award's purported customers ([59]–[72]). This was prefaced with some general findings relating to the “booze-cruising” market (which Award said many of its retailer customers sold to) which, having peaked in the late 1990s and the early 2000s, had declined by 2013; many outlets including Tesco had closed and the area they operated from had become run-down.
[10] Regarding particular customers with whom Award was claiming to be dealing, for instance Mammouth Trading, the FTT noted the French authorities had noted no visible activity at the headquarters address and had been unable to locate the...
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