Best Buys Supplies Ltd v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 December 2011 |
| Neutral Citation | [2011] UKUT 497 (TCC) |
| Date | 20 December 2011 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2011] UKUT 497 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Judge Theodore Wallace, Judge John Clark.
Timothy Brown (instructed by the VAT Consultancy) for the appellant.
Richard Smith (instructed by the Solicitor for HM Revenue and Customs) for the respondents.
The following cases were referred to in the decision:
C & E Commrs v JH Corbitt (Numismatists) Ltd VAT(1980) 1 BVC 330
C & E Commrs v John Dee Ltd VAT[1995] BVC 361
Edwards v Bairstow ELRTAX[1956] AC 14; (1955) 36 TC 207
Flannery v Halifax Estate Agencies Ltd WLR[2000] 1 WLR 377
Golobiewska v C & E Commrs [2006] V & DR 267
Jeunehomme v Belgium ECAS(Case 123/87) [1988] ECR 4517
Kohanzad v C & E Commrs VAT[1995] BVC 3
Merton London Borough Council v Williams UNK[2002] EWCA Civ 980
Reisdorf v Finanzamt Köln-West ECASVAT(Case C-85/95) [1997] BVC 317; [1996] ECR I-6257
Value added tax - Input tax - Absence of valid invoices - First-tier Tribunal finding HMRC acted unreasonably in refusing input tax claims on ground of absence of valid tax invoices in respect of supplies actually made - Whether same decision reached had HMRC acted reasonably - Whether supplies actually made - Appeal remitted for appropriate findings of fact - Value Added Tax Regulations 1995 (1995/2518), reg. 29(2).
This was an appeal by the taxpayer from a decision of the First-tier Tribunal ([2010] UKFTT 304 (TC); [2010] TC 00591) dismissing its appeal against a VAT assessment in the sum of £110,324.
The taxpayer carried on business as a wholesaler of alcoholic drinks. It had been advised by HMRC that because that trade sector contained a high incidence of fraud it should take great care and exercise due diligence checks on suppliers. It had checked in March 2006 that its main supplier (S Ltd) was VAT registered. When the taxpayer informed HMRC that it was receiving supplies from S Ltd, HMRC told the taxpayer that S Ltd had been deregistered from April 2006. The taxpayer claimed input tax on 43 invoices from S Ltd in its 05/06 return. Of the 43 invoices, 19 were dated after the date when S Ltd was deregistered, and 15 invoices including five dated before the date of deregistration did not carry S Ltd's VAT number and were therefore invalid. HMRC decided to disallow input tax on 24: tax on 19 invoices after the date of deregistration was not VAT and therefore was not deductible, in addition five invoices with no VAT number were deemed invalid.
The taxpayer initially contended that the invoices were valid, but at the commencement of the appeal hearing, it conceded that that was incorrect. The remaining sole ground of appeal was that HMRC had acted unreasonably in not exercising their discretion to allow the input tax claims under reg. 29(2) of the Value Added Tax Regulations 1995.
The First-tier Tribunal considered that, since HMRC accepted that supplies had been made in respect of the transactions shown on the valid invoices, there were sufficient grounds for concluding that supplies had also been made in respect of the goods shown on the invalid invoices. HMRC had acted unreasonably in refusing to allow the deduction of input tax. However, acting reasonably and applying the terms of the then current Statement of Practice entitled "Input Tax Deduction Without a Valid VAT Invoice", HMRC would have come to the same conclusion. Therefore the appeal was dismissed ([2010] UKFTT 304 (TC); [2010] TC 00591). The taxpayer appealed and HMRC challenged the finding that the relevant supplies had been made.
Held, allowing the appeal:
1.Although the jurisdiction of the First-tier Tribunal was formally appellate since the appeal was against a decision as to the amount of input tax to be credited within VATA 1994, s. 83(c) and an assessment within s. 83(p), it was common ground that the jurisdiction in respect of the decision of HMRC under reg. 29(2) not to allow the input tax which was not covered by valid invoices was supervisory in that the tribunal could not substitute its own decision but could only decide whether the discretion had been exercised reasonably. The burden of proof was on the taxpayer to satisfy the tribunal that the decision was incorrect. (Kohanzad v C & E Commrs [1995] BVC 3 applied.)
2.If the appeal had involved issues which did not depend on the exercise of HMRC's discretion, the tribunal would have had a full appellate jurisdiction. Since the appeal was solely in relation to the exercise of the discretion the tribunal could only allow or dismiss the appeal. The correct test was that the tribunal could dismiss the appeal if it concluded that HMRC's decision would inevitably have been the same. That test had to be applied in the light of the findings of fact by the tribunal that there were supplies by S Ltd in the disallowed transactions, unless HMRC established that that finding was perverse. (John Dee Ltd v C & E Commrs [1995] BVC 361 applied.)
3.The reasons for the FTT's finding that the supplies had taken place had not been adequately explained by the FTT in its decision. Without clearer findings, the Upper Tribunal was unable to decide whether to accept or reject the taxpayer's submission that the tribunal could not have been sure that HMRC's decision would inevitably have been the same. Therefore the matter would be remitted to the First-tier Tribunal to make appropriate findings, if necessary with further evidence, and to determine whether supplies were made in the transactions for which the taxpayer did not have valid invoices.
1.This was an appeal against the decision of the First-Tier Tribunal ("FTT") released on 6 July 2010 ([2010] UKFTT 304 (TC); [2010] TC 00591) dismissing the appeal by the Appellant against an assessment in the sum of £110,324 VAT for the period ending 31 May 2006 on the grounds that 24 invoices for alcohol in the name of Samson Traders Ltd ("Samson") were invalid either because they showed no VAT registration number or because they were issued after Samson was deregistered on 21 April 2006.
2.The grounds of appeal can be summarised as follows:
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(2) that the FTT misdirected itself in deciding that it had a supervisory jurisdiction and that it could dismiss the appeal on the basis that the decision by the Respondents would have been the same had it taken all the relevant information into account on a review, such power being only exercisable if the jurisdiction was appellate;
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(3) that, if the FTT did not so misdirect itself, it failed to apply the correct test, namely whether the decision would inevitably have been the same, see C & E Commrs v John Dee Ltd VAT[1995] BVC 361, at 372;
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(4) that, if the FTT did apply the correct test, it was wrong to conclude that the decision would inevitably have been the same bearing in mind that it found as a fact that the supplies did take place.
3.In a Respondents' Notice it was contended that the finding at paragraph [37] that the disputed supplies had taken place was perverse being contrary to the weight of the evidence.
4.The Appellant was registered for VAT following an application dated 11 March 2005 giving its activity as wines, beers and confectionery wholesale. Within a year its turnover had grown to over £2 million. The Appellant had no warehouse facilities of its own and only purchased goods after a customer placed an order. The goods were delivered directly to the Appellant's customer by its supplier as its margins did not allow for the cost of haulage. Mr Patel, the managing director, was always looking for a deal in this high volume business.
5.On 13 December 2005 the Appellant was visited by Mr Abdul-Karim and another officer to verify the supply chain to another company. Mr Patel was told that because the Appellant was involved in a trade sector with a high incidence of fraud on the Revenue great care should be taken when entering into transactions to ensure that potential suppliers were bona fide traders.
6.In March 2006 Samson became the Appellant's main supplier. Before any transactions Mr Patel undertook due diligence checks obtaining details of Samson's registration and certificate of incorporation and on 1 March obtained confirmation from the National Advice Service that Samson's VAT registration number was valid.
7.The FTT recorded that Mr Patel described a typical transaction between the Appellant and Samson. After receiving an order, usually by telephone from Checkprice UK Ltd ("Checkprice"), Mr Patel would order supplies of wines and beers which Samson would then deliver to Checkprice. The Appellant would invoice Checkprice and receive payment by an exchange of goods or cash. Mr Patel paid Samson in cash at Samson's office in Edgware. In practice Samson usually gave credit for longer than the agreed period of 7 to 14 days. Mr Patel did not ask about the location of Samson's warehouse or how it obtained its stock. Mr Peneron, managing director of Checkprice, confirmed Mr Patel's evidence insofar as it involved Checkprice.
8.On 6 June 2006 Mr Abdul-Karim telephoned Mr Patel to arrange an inspection of the Appellant's records; when informed by Mr Patel that the Appellant was receiving supplies from Samson, Mr Abdul-Karim told him that Samson appeared to have been deregistered from April.
9.Mr Abdul-Karim...
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