Europeans Ltd v Her Majesty's Revenue & Customs, V 20883
| Jurisdiction | UK Non-devolved |
| Judge | W Theodore O WALLACE |
| Judgment Date | 26 November 2008 |
| Respondent | Her Majesty's Revenue & Customs |
| Appellant | Europeans Ltd |
| Reference | V 20883 |
| Court | First-tier Tribunal (Tax Chamber) |
20883
INPUT TAX – MTIC – Mobile phones – Appellant claiming input tax on phones sold to Luxembourg trader – Direct chains – Whether acquisitions part of chains connected with VAT fraud – Yes – Whether Appellant a knowing participant – Yes – Appeal dismissed
EUROPEANS LTD Appellant
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and –
Tribunal: THEODORE WALLACE (Chairman)
MRS SHAHWAR SADEQUE (Member)
Sitting in public in London on 15 to 19 and 22 to 24 September 2008
Kieron Beal, Counsel, instructed by BDO Stoy Hayward, chartered accountants, for the Appellant
Mark Cunningham QC and Daniel Margolin, instructed by Howes Percival LLP, for the Respondents
© CROWN COPYRIGHT 2008
1. This was an appeal against a decision dated 24 April 2007 denying £1,256,675 input tax for period 07/06 on the acquisition in the United Kingdom of mobile phones which then were sold to a Luxembourg trader.
2. There were five purchases, two on 14 June 2006, and one on each of 16 June, 20 June and 31 July 2006. In each case the phones were bought from Trade 247 Ltd (“247”) being warehoused at the Feltham premises of Edge Logistics (“Edge”) and were sold to 3G Trade SA (“3G”) in Luxembourg. There was no dispute as to the existence of the goods, as to their removal to Luxembourg or as to the content of the invoices.
3. The decision by Customs was based on the decision of the Court of Justice Kittel v Belgium and Belgium v Recolta Recycling SPRL (Joined cases C-439/04 and C-440/04) [2008] STC 1537, decided on 6 July 2006, to which we refer as Kittel, on the footing that the acquisitions formed part of chains connected with the fraudulent evasion of VAT and that the Appellant knew or should have known of that fact. This type of fraud is known as “MTIC fraud”, MTIC standing for missing trader intra-community. The missing trader in the first four chains was Astra Central Ltd, its name being wrongly spelt as Astar on some documents; the missing trader in the fifth chain purported to be Pearl Cosmetics Ltd but its VAT number had been hijacked. Both missing traders had acquired the goods from EU traders. Customs’ case was that these were direct chains: this was not a case of contra-trading.
4. There were over 3000 pages of exhibits. There were four witnesses for Customs: Mrs Mia Stevenson, who made the decision under appeal; Andy Monk and Kirsty Jolliffe, Customs officers, and Roderick Guy Stone, a Grade 7 officer, who is a senior policy adviser with operational oversight for MTIC fraud. A statement by Christopher Alan Solway was agreed with some exhibits being excluded. Terek Meghrabi, managing director and sole shareholder, was the only witness for the Appellant.
5. Mr. Cunningham opened the case and called his witnesses first. This was on the basis that the burden was on Customs to establish the various chains, that there was a default at the top of each chain and that the purpose of the default was fraudulent and also that there was also an initial burden on Customs to establish that the Appellant knew or ought to have known of these matters. Mr Cunningham accepted that although the standard of proof is the civil standard the nature of the allegations required a degree of cogency, see per Lord Hoffman at [55] in Home Secretary v Rehman [2003] 1 AC 153. The allegations were serious. In fact his case was that the Appellant had actual knowledge.
6. Mr Cunningham concluded his opening by saying that the transaction chains were 90 per cent weighted in favour of the Appellant; that it was obvious that the chains were contrived and orchestrated; that there must have been compliant connivance certainly at the buffer level; that no orchestrator of a fraud would have permitted an unwitting interloper to come in and take 90 per cent; and that the only inference must be that the role of the Appellant and Mr Meghrabi went beyond “should have known” to “knew”.
7. At the conclusion of Mr Cunningham’s opening Mr Beal said that the allegation that the entire transaction chain was contrived and pre-arranged was not in the Statement of Case served by Customs, apart from paragraph 30(viii) and (x). There was no distinct allegation against the Appellant of actual knowledge of matters in a transaction chain beyond his immediate customer or supplier. There was no allegation in the Statement of Case against the Appellant that it was all a pre-arranged scheme and that the Appellant knew of this or that it was masterminded by a puppet-master off stage. The opening thus differed substantially from the Statement of Case. The allegations of actual knowledge in the opening had not been properly pleaded and it was too late to raise them. He said that nowhere in Mrs Stevenson’s evidence did she allege that the Appellant was party to a pre-arranged scheme. He asked for a direction that the case against the Appellant be limited to the allegations contained either in the Statement of Case or in Mrs Stevenson’s statement and that Customs should not be allowed to allege knowing participation in a pre-arranged series of transactions.
8. He referred to Revenue and Customs Commissioners v Dempster [2008] STC 2079 where Briggs J said at [26],
“It is a cardinal principal of litigation that if serious allegations, in particular allegations of dishonesty, are to be made against a party who is called as a witness they must be both fairly and seriously pleaded and fairly and squarely put to that witness in cross-examination.”
9. Mr Beal said that if the Statement of Case had been clearly pleaded the Appellant might have sought evidence from Edge Logistics Ltd.
10. Mr Cunningham replied that it had always been clear on the Statement of Case and Mrs Stevenson’s evidence that one of the possible conclusions was that Mr Meghrabi was a knowing participant in the chains. In paragraph 33 it was pleaded that the Appellant knew or should have known that the assessed transactions formed part of chains in which one or more transactions was connected with fraudulent evasion of VAT. Actual knowledge was always in play. The words “in the premises” in paragraph 33 invoked the earlier matters pleaded, including paragraph 30. The contention that there were contrived chains was not new, it was in the Statement of Case.
11. After a short recess we dismissed Mr Beal’s application. The allegation of knowledge was clearly contained in the Statement of Case albeit in an omnibus form. The Statement of Case alleged artificial contrivance in a context which was not limited to the Appellant’s immediate transactions. It was clear at the directions hearing that dishonesty was alleged, see Decision No.20796.
12. In the event Mr Cunningham put the allegation squarely to Mr Meghrabi in cross-examination that he was the ringmaster.
Facts not in dispute
13. Although there was no agreed statement of facts, many of the underlying facts were not in issue. The Appellant was incorporated on 9 October 2001 and registered for VAT from 15 October 2001.
14. Mr Meghrabi had previously operated a chauffeur driven car hire business as sole trader and transferred this to the Appellant in October 2001. The Appellant’s business on registration was described as “performance and executive car hire”. On 21 November 2002 the Appellant notified Customs that it would in addition be trading wholesale in mobile phones “on an export import and inland trading basis” The Appellant was visited on 3 December 2002 when the...
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