Awards Drinks Ltd ((in Liquidation)) v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judgment Date | 06 August 2021 |
| Neutral Citation | [2021] EWCA Civ 1235 |
| Court | Court of Appeal (Civil Division) |
[2021] EWCA Civ 1235
Lord Justice Henderson, Lady Justice Elisabeth Laing and Sir David Richards
Court of Appeal (Civil Division)
Value added tax – Best judgement assessments – Place of supply – Whether UK or France – Burden of proof – Whether HMRC had to establish fraud – No – Whether HMRC had conceded appellant was no longer in control or possession of goods – No – Appeal dismissed – VATA 1994, s. 73(1).
The Court of Appeal upheld the previous decision of the Upper Tribunal that no credible evidence had been provided by the taxpayer to discharge their burden of proof in relation to properly issued best judgement assessments. They did not agree with the taxpayer that HMRC had conceded on a key issue in their pleadings and dismissed the appeal.
The Court of Appeal upheld the decision of the Upper Tribunal (UT) in Awards Drinks Ltd (in iquidation) v R & C Commrs [2020] BVC 537 and dismissed an appeal by the taxpayer who alleged a key issue had been conceded by HMRC in their response to an application for further and better particulars (FBP response) in relation to an amended statement of case submitted to the FTT, but this had been misunderstood by the UT leading to procedural unfairness.
Awards Drinks Ltd (Awards) was a wholesaler of beers, wines and spirits incorporated in the UK. A major part of their business was carried on through bonded warehouses in France. In 2014 HMRC issued two best of judgement assessments, based on bank deposits, alleging sales declared as being made in these warehouses were, in fact, made in the UK and should have been subject to UK VAT.
On appeal to the First-tier Tribunal (FTT), Awards maintained the sterling cash sums deposited in various branches throughout the UK were for in-bond sales of alcohol from bonded warehouses in France to cash and carry operators in France. The deposits being made by cash couriers who had travelled from France. HMRC contended they had traced the relevant supply chains and the goods sold by Awards had entered the UK as a result of an inward diversion fraud, and were supplied in the UK, although they made no allegation of fraud against Awards.
The FTT comprehensively rejected Awards case and found, following Khan (t/a Greyhound Dry Cleaners) v R & C Commrs [2006] BVC 336, in relation to best of judgement assessments, the burden of proof was on the taxpayer to establish the correct amount of tax due, even where allegations of fraud may have been involved. The factual case that had been advanced by Awards was not supported by the evidence and did not hold water. It was insufficient to displace the assessment.
Permission to appeal was initially refused but later permitted on two grounds.
- The FTT had erred in failing to conclude, on unchallenged documentary evidence, Awards had divested itself of possession and/or control of the goods while they were outside the UK.
- The FTT had failed to give sufficient reasons for their decision.
The Upper Tribunal (UT) found the various transaction documents exhibited by Awards had been sufficiently challenged by HMRC and, had the FTT relied only on the documentary evidence to find possession and control had been lost, they would have reached a decision no reasonable tribunal could have reached. However, the FTT ought to have given at least a brief explanation of why it decided not to accept the transaction documents at face value. The UT therefore set aside the FTT decision and remade it adopting the original decision in its entirety but also providing reasons why the transaction documents could not be taken at face value – the lack of any payment link, no evidence of alleged couriers bringing money from France, no customs declarations, the lack of any sign the customers were trading from the alleged premises in France, no evidence from other bonded warehouses, suppliers or alleged cash couriers. The only evidence was from the owner of Awards who the FTT had not found convincing or truthful. The UT also relied on additional factors identified by HMRC for treating the transaction documents with caution including the fact that some documents showed that Awards was still dictating what happened to the goods even after their purported sale.
Awards sought permission to appeal on 4 grounds and was refused but, again, was subsequently permitted to appeal on one of the grounds – procedural irregularity leading to unfairness – which alleged the UT had misunderstood HMRC's case as pleaded to the FTT.
Awards contended that, in their FBP response, HMRC had conceded that neither Awards nor agents of Awards had been involved in importing the goods into the UK. If that was the case, it would have contradicted the conclusion of the UT that it was for Awards to show it had lost possession and control of the goods.
Lord Justice Henderson considered first the burden of proof on an appeal against a best of judgement assessment and whether it was open for HMRC to run a case entailing fraud without establishing the fraud. He agreed the position on an appeal against a best of judgement assessment was well established and the onus to displace the assessment, if it is issued within normal time limits, was on the taxpayer. Furthermore, following his own conclusions set out at para. 62ff in the decision of Ingenious Games LLP v R & C Commrs [2015] BTC 508, there was no obligation on HMRC to plead an allegation of fraud.
In light of these conclusions, the pleaded case of HMRC before the FTT was examined to determine if they had caused a serious procedural irregularity as contended by Awards.
HMRC's amended statement of case was considered by Lord Justice Henderson as well as the FBP Response provided in response to a request from Awards, and on which Awards were seeking to rely. The relevant parts are set out in para. 53 of the judgement. The interpretation proposed by counsel for Awards was rejected. Taken in proper context, Awards could not have sensibly understood any of the responses as amounting to an unequivocal acceptance by HMRC that the supplies in question were not made by agents on behalf of Awards, and were not made in circumstances where Awards still retained possession and control of the goods.
HMRC were maintaining their fundamental contention the cash paid into Awards UK bank account represented the proceeds of sales made by or on behalf of Awards in the UK. HMRC were entitled to take this stand and leave it to Awards to provide, if it could, a credible alternative explanation for the very substantial cash payments involved. This is what they had failed to do.
With the agreement of the other two members of the court, the appeal was dismissed.
Despite the persistent efforts of the taxpayer to reverse the burden of proof at each stage in this case, the Court of Appeal fully endorsed the view of the Upper Tribunal that once a best judgment assessment has been properly issued the burden remains on the taxpayer to show the assessment was incorrect even if that may, or must, involve fraud.
Mr Kieron Beal QC and Mr David Bedenham (instructed byMorrisons Solicitors LLP) appeared for the appellant
Mr BrendanMcGurk (instructed by the General Counsel and Solicitor to HMRC) appeared for the respondents
[1] The appellant, Awards Drinks Ltd (“Awards”), is a company incorporated and based in the United Kingdom. Until it went into members' voluntary liquidation on 26 June 2013, Awards carried on business as a wholesaler of beers, wines and spirits. A major part of that business, and the only part with which we are concerned, was carried on through bonded warehouses in France.
[2] Awards was registered for VAT on 1 August 2002. Awards was also registered as a “high value dealer” under the Money Laundering Regulations 2003 with effect from 1 April 2004, and remained so registered until 2014. Awards ceased to be registered for VAT on 2 July 2013, having stopped trading after it went into liquidation.
[3] Following a series of compliance visits and meetings with officers of the respondents (“HMRC”), two “best of judgment” assessments to VAT were made against Awards on 30 September 2014 and 5 November 2014 respectively. Each assessment was signed by an HMRC Investigator, Mr Ian Cathie, and contained this explanation:
I believe that you have not declared or we have not assessed the correct amount of VAT due for the periods shown below. This is because monies have been deposited in the UK for the sale of goods said to be made in non-UK bonded warehouses, and the monies said to be transported into the UK by cash couriers. However, subsequent HMRC checks reveal this scenario is not credible and the monies must have had a UK origin. Therefore the goods [are] subject to UK VAT at the standard rate.
I have made assessments of VAT due under section 73 of the VAT Act 1994. This letter is our notice of those assessments.
[4] Section 73(1) of the Value Added Tax Act 1994 (“VATA 1994”) provides that:
Where a person has failed to make any returns required under this Act … or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.
The two assessments were for VAT due in the 11 quarterly periods from December 2010 to June 2013 and totalled £6,573,391.
[5] The quantum of the assessments was calculated by reference to information obtained by HMRC, including bank statements from Barclays Bank, which showed that between 1 January 2011 and 28 December 2012 there had been 1,311 separate deposits of cash totalling £32,650,305.89 made into the Barclays account of Awards at 42 separate branches in England and Wales. The average amount of each deposit was £22,500. The majority of the deposits were made at 3 branches in East...
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