Butt
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 October 2015 |
| Neutral Citation | [2015] UKFTT 510 (TC) |
| Date | 13 October 2015 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Jennifer Blewitt, Mr John Wilson
Mr Jeremy Benson QC leading Ms Karen Robinson of counsel instructed by the General Counsel and Solicitor of HM Revenue & Customs appeared for the Respondents
Mr Rory Mullan leading Ms Harriet Brown of counsel appeared for the Appellant
Penalty pursuant to Value Added Tax 1994 (“VATA 1994”), s. 61 – Recusal – Test to apply in relation to penalty – Right to silence – ECHR, art. 6 and 7 – EU Charter, art. 49 and 50 – Dishonesty – Relevance of Kittel v Belgium; Belgium v Recolta Recycling SPRL (Joined Cases C-439/04 and C-440/04) [2008] BVC 559– Proportionality.
Summary judgment – Application by appellant in respect of an appeal against a penalty issued under Value Added Tax 1994 (“VATA 1994”), s. 61 – Whether respondent's case has no reasonable prospect of succeeding – Application refused.
Procedure – Application for judge to recuse herself following summary judgment decision and decisions in respect of disclosure – Application refused.
[1] This is an appeal against HMRC's decision (“the disputed decision”) dated 29 March 2010 and confirmed following review on 12 July 2010 by which a penalty was imposed on the Appellant in the sum of £3,137,483.03 pursuant to section 61 of the Value Added Tax Act (“VATA”) 1994.
[2] The disputed decision was imposed by reference to the Appellant's conduct as a director of Waterfire Ltd (“Waterfire”). The case for HMRC as summarised in its Statement of Case is as follows:
i) Waterfire rendered itself liable to a penalty pursuant to section 60(1) VATA 1994 in that, for the purpose of evading VAT, it entered into various transactions and rendered VAT returns. In particular, Waterfire made claims to input tax credit when it knew that its underlying transactions were connected with fraud. HMRC allege that Waterfire, through Mr Butt as a director, deliberately and artificially constructed its trading in such a way as to enable what would otherwise give rise to large claims for repayment from HMRC to be offset and made by other companies acting as brokers. It is contended that Waterfire knowingly acted as a contra trader in VAT periods 04/06 and 07/06 as part of a scheme to defraud the public revenue;
ii) Waterfire sought to evade VAT in the sum of £6,972,184 in VAT period 04/06;
iii) The conduct giving rise to Waterfire's liability to a penalty was, in whole or in part, attributable to the dishonesty of the Appellant who was at the material time a director and 50% shareholder of the company.
[3] By Notice of Appeal dated 11 August 2010 the Appellant appealed against the disputed decision. The grounds of appeal can be summarised as follows:
• The Appellant had significant experience of trading in consumer electronics and in the mobile phone industry;
• Waterfire's transactions were genuine commercial transactions and detailed trading due diligence procedures were carried out to verify this;
• Neither Waterfire nor its directors (Mr Umaad Butt and Mr Tahir Tahir) were aware of any information at the time of the transactions which indicated that the transactions were contrived;
• The Appellant's conduct as a director was not dishonest;
• Waterfire conducted intense due diligence procedures on both suppliers and customers and had been assured by HMRC that it was doing all it could.
[4] This seems an appropriate point at which to address the preliminary matters that were raised by the Appellant at the start of the hearing.
[5] By email dated Friday 13 June 2014 the Appellant put the Tribunal on notice that an application would be made on the first day of the hearing (Monday 16 June 2014) that Judge Blewitt recuse herself from hearing the substantive appeal. The application arose from her previous involvement in two applications which were heard on 14 May 2014; the first to vacate the substantive hearing and the second to bar HMRC from taking further part in proceedings and summarily determine the appeal in favour of Mr Butt.
[6] The relevant decisions which form the background to the application to recuse were as follows:
a) Summary judgment decision issued on 20 May 2014 refusing the Appellant's application (Appendix A);
b) Decision refusing permission to appeal issued on 28 May 2014 in respect of (i) the decision not to vacate the substantive hearing and (ii) the summary judgment decision (Appendix B);
c) Refusal of permission to appeal dated 2 June 2014 in respect of (i) the decision not to vacate the substantive hearing and (ii) the summary judgment decision following consideration on the papers by Judge Berner (Appendix C);
d) Refusal of permission to appeal dated 10 June 2014 in respect of (i) the decision not to vacate the substantive hearing and (ii) the summary judgment decision following an oral hearing before Judge Sinfield (Appendix D); and
e) Disclosure directions dated 23 May 2014, 6 June 2014 and 11 June 2014 (Appendix E).
[7] The application to recuse was heard by Judge Blewitt alone on 16 June 2014 prior to the commencement of the hearing. Given the potential consequences to the hearing should the application have been granted, a full written decision was issued on 17 June 2014, a copy of which is found at Annex F of this decision. Time was extended for any application for permission to appeal that decision to be made in line with this decision on the substantive matter.
[8] Having refused the application Judge Blewitt and Mr Wilson proceeded to hear the substantive appeal. As will become apparent, the Appellant sought to rely on a number of the grounds raised in support of its application for summary judgment against HMRC. It should be made clear that the arguments were heard and considered afresh by this Tribunal and considered in the context of the evidence that was presented (which had not formed part of the application for summary judgment, which was determined on legal submissions only).
[9] Section 60 VATA 1994 provides as follows:
(1) In any case where–
a) for the purpose of evading VAT, a person does any act or omits to take any action, and
b) his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability),
he shall be liable, subject to subsection (6) below, to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct.
(2) The reference in subsection (1)(a) above to evading VAT includes a reference to obtaining any of the following sums–
a) a refund under any regulations made by virtue of section 13(5);
b) a VAT credit;
c) a refund under section 35, 36 or 40 of this Act or section 22 of the 1983 Act; and
d) a repayment under section 39,
in circumstances where the person concerned is not entitled to that sum.
(3) The reference in subsection (1) above to the amount of the VAT evaded or sought to be evaded by a person's conduct shall be construed–
a) in relation to VAT itself or a VAT credit as a reference to the aggregate of the amount (if any) falsely claimed by way of credit for input tax and the amount (if any) by which output tax was falsely understated; and
b) in relation to the sums referred to in subsection (2)(a), (c) and (e) above, as a reference to the amount falsely claimed by way of refund or repayment.
(4) Statements made or documents produced by or on behalf of a person shall not be inadmissible in any such proceedings as are mentioned in subsection (5) below by reason only that it has been drawn to his attention–
a) that, in relation to VAT, the Commissioners may assess an amount due by way of a civil penalty instead of instituting criminal proceedings and, though no undertaking can be given as to whether the Commissioners will make such an assessment in the case of any person, it is their practice to be influenced by the fact that a person has made a full confession of any dishonest conduct to which he has been a party and has given full facilities for investigation, and
b) that the Commissioners or, on appeal, a tribunal have power under section 70 to reduce a penalty under this section,
and that he was or may have been induced thereby to make the statements or produce the documents.
(5) The proceedings mentioned in subsection (4) above are–
a) any criminal proceedings against the person concerned in respect of any offence in connection with or in relation to VAT, and
b) any proceedings against him for the recovery of any sum due from him in connection with or in relation to VAT.
(6) Where, by reason of conduct falling within subsection (1) above, a person is convicted of an offence (whether under this Act or otherwise), that conduct shall not also give rise to liability to a penalty under this section.
(7) On an appeal against an assessment to a penalty under this section, the burden of proof as to the matters specified in subsection (1)(a) and (b) above shall lie upon the Commissioners.
[10] Section 61 VATA 1994 provides as follows:
(1) Where it appears to the Commissioners–
a) that a body corporate is liable to a penalty under section 60, and
b) that the conduct giving rise to that penalty is, in whole or in part, attributable to the dishonesty of a person who is, or at the material time was, a director or managing officer of the body corporate (a “named officer”),
the Commissioners may serve a notice under this section on the body corporate and on the named officer.
(2) A notice under this section shall state–
a) the amount of the penalty referred to in subsection (1)(a) above (“the basic penalty”), and
b) that the Commissioners propose, in accordance with this section, to recover from the named officer such portion (which may be the whole) of the basic penalty as is specified in the notice.
(3) Where a notice is served under this section, the portion of the basic penalty specified in the notice shall be recoverable from the named officer as if he were personally liable under section 60 to a penalty...
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