Eurosel Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 September 2010 |
| Neutral Citation | [2010] UKFTT 451 (TC) |
| Date | 23 September 2010 |
| Court | First-tier Tribunal (Tax Chamber) |
[2011] TC 00716
[2010] UKFTT 451 (TC)
David S Porter (Chairman), Beverley Tanner (Member)
Jeremy Woolf for the Appellant.
Jeremy Benson QC and Vinesh Mandalia, his Junior, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents
Input tax - MTIC fraud - Sale of urine testing strips - Whether appellant knew or should have known of existence of fraud - Whether abuse of power by commissioners - The appellant challenged a decision of the commissioners disallowing input tax credit of £267,850 claimed by the appellant in VAT period 06/06 in respect of the purchase and subsequent export of urine testing strips - The commissioners submitted that the evidence established the existence of fraudulent evasion in the deal chains of contra-traders - They contended that the appellant carried out little due diligence and that any reasonable businessman would have known, or ought to have known, that the transactions were connected with fraud or with a fraud-related chain of supply - The commissioners maintained that the appellant was not just aware of the fraud, but was willingly involved in it - The appellant denied any involvement with fraud - It was not aware of any fraud being perpetrated and could not reasonably be expected to take steps against a risk of which it had no notice - Held, that the appellant's trading methods were casual in the extreme - There was no doubt that the transactions were such that any reasonable businessman would have been put on notice that there was something wrong - In the judgment of the tribunal, the appellant knew that the transactions were orchestrated and were, therefore, connected with the fraudulent evasion of VAT - Finding that there was no abuse of power by the commissioners, the tribunal dismissed the appeal.
1. Jeffrey Paul Jordon (Mr Jordon), Managing Director, of the Appellant (Eurosel) appeals on behalf of Eurosel against the decision of the Respondents (HMRC) contained in their letter of 19 December 2007 denying Eurosel's entitlement to deduct input tax of £267,850 in respect of the period 06/06 arising from the export of Urine Testing Strips. Mr Jordon says that he neither knew nor ought to have known that the transaction was connected with fraud. HMRC say that Mr Jordon carried out little due diligence and any reasonable businessman would have known or ought to have known that the transaction was connected with fraud or with a fraud in a related chain. As the hearing progressed HMRC suggested that Eurosel were parties to the fraud.
2. Jeremy Benson QC (Mr Benson) appeared on behalf of HMRC with Vinesh Mandalia, his junior. Mr Benson produced a skeleton argument and written submissions by way of summing up. He called the following witnesses who gave evidence under oath:
Allistair Duncan Strachan
Eleanor Joan Jones (nee Carnes)
Andrew Nicholas Charles
Roderick Guy Stone
Julie Mary Sadler
Michael Quarty
Frank Spackman
Karen Maconald
The following unchallenged witness statements were produced to the tribunal:
Ian M Lester a verification officer, since retired, whose evidence was taken over by Mr Strachan
Michael James Downer, who produced evidence of two discs recovered by the West Midland Police, which had been found at the house of a Mr Bhupinder Singh Samara during the course of a criminal investigation into a conspiracy to commit murder.
Stephen John Mills, who was responsible for finding the documentation evidencing the incorporation, shareholding and directors of Digikom Limited (Digikom) details of which appear later in this decision.
Margaret Davies Business Centre Director at Brampton, who gave evidence of Eurosel's occupation of a unit at the site.
Daniel O'Neil who gave evidence with regard to UR Traders, who were not relied on as a defaulting trader for the purposes of this appeal
3. Mr Woolf appeared on behalf of Eurosel, produced a skeleton argument and written submissions by way of summing up and called Mr Jordon and David Walker,an employee of PJA Wholesalers Limited (PJA) as witnesses, who gave evidence under oath. He produced the following unchallenged witness statements to the tribunal:
Chris Haigh who gave a business reference of his involvement with Mr Jordon.
David Condliffe a buying director for Enterprise OTC, with whom Eurosel had dealt over many years, who also gave a business reference
We were also provided with 38 lever arch files a large number of which contained details of HMRC's witnesses' working papers.
4. We were referred to the following cases:
R v IR Commrs, ex parte Unilever plcTAX[1996] BTC 183
Polanski v Conde Nast[2005] 1WLR 637
Optigen Ltd v C & E CommrsECAS (Case C-354/03) [2006] BVC 119
Kittel v Belgium; Belgium v Recolta Recycling SPRLECASECAS (Joined Cases C-439/04 and C-440/04) [2008] BVC 559
R (on the application of Just Fabulous (UK) Ltd) v R & C CommrsVAT[2007] BVC 490; [2007] EWHC 521 (Admin)
Calltell Telecom Ltd; Opto Telelinks (Europe) Ltd No. 20,266; [2007] BVC 2544
Ecotrade SpA v Agenzia delle Entrate - Ufficio di Genova 3ECASECAS (Joined Cases C-95/07 and C-96/07) [2010] BVC 235
Netto Supermarkt GmbH & Co OHG v Finanzamt MalchinECAS (Case C-271/06) [2009] BVC 157
Reemtsma Cigarettenfadriken GmbH v Ministero della FinanzeECAS (Case C-35/05) [2008] BVC 705
R (on the application of Teleos plc & Ors) v C & E CommrsECAS (Case C-409/04) [2008] BVC 705
Blue Sphere Global Ltd v R & C CommrsVAT[2009] BVC 580; [2009] EWHC 1150 Ch
Late Editions LtdTAX[2009] TC 00128
Calltel Telecom Ltd v R & C Commrs; Opto Telelinks (Europe) Ltd v R & C CommrsVAT[2009] BVC 555; [2009] EWHC 1081 (Ch)
R & C Commrs v Livewire Telecom Ltd; R & C Commrs v Olympia Technology LtdVAT[2009] BVC 172; [2009] EWHC 15 (Ch)
Mobilx Ltd (in administration) v R & C CommrsVAT[2009] BVC 205; [2009] EWHC 133 (Ch)
Oxfam v R & C CommrsVAT[2010] BVC 108; [2009] EWHC 3078 (Ch)
Megtian Ltd (in administration) v R & C CommrsVAT[2010] BVC 314; [2010] EWHC 18 (Ch)
Mobilx Ltd (in Administration) v R & C Commrs; R & C Commrs v Blue Sphere Global Ltd; Calltel Telecom Ltd & Anor v R & C CommrsVAT[2010] BVC 638; [2010] EWCA Civ 517
CGI Group (Europe) LtdTAX[2010] TC 00525
1. Mrs Tanner advised the tribunal that she had known Mr Strachan, one of the witnesses for HMRC, when she worked, some 17 years ago, for HMRC in their fraud team. She left HMRC in 1996 and worked for Hammonds solicitors thereafter. The parties confirmed that they had no objection to Mrs Tanner sitting as the member. Mr Benson asked that the Statement of Case be amended by reference to Mobilx Ltd (in Administration) v R & C Commrs; R & C Commrs v Blue Sphere Global Ltd; Calltel Telecom Ltd & Anor v R & C CommrsVAT[2010] BVC 638; [2010] EWCA Civ 517 and by including further details with regard to the Digikom transactions. We agreed that the amendments could be added. In the event Mr Woolf, on behalf of Eurosel, agreed the tax loss in the Digikom chain. Mr Benson also wished to introduce evidence in relation to a letter from Concorde, one of Eurosel's suppliers but, as Mr Woolf had not had an opportunity to consider the letter and there had been ample opportunity for Mr Benson to require its production prior to the hearing, we disallowed its production
6. Most readers of this decision will be familiar with the way in which Missing Trader Fraud operates. Dr John Avery-Jones gave a helpful introduction in R & C Commrs v Livewire Telecom Ltd; R & C Commrs v Olympia Technology LtdVAT[2009] BVC 172; [2009] EWHC 15 (Ch):
In order to demonstrate where the loss arises from MTIC fraud we start with a simple example of an import of goods by X, who sells them to Y, who exports them. The tax on acquisition (import) by X is cancelled by input tax of the same amount, and the output tax charged on the sale by X will be cancelled by the input tax repaid to Y on the export, so that the United Kingdom exchequer receives no net tax.
If both X and Y are fraudsters Y will have to finance the output tax charged by X because X disappears with it, and Y will recover the same when it is repaid to Y by HMRC on Y's repayment claim.
The only gain by the fraud is if HMRC pay the input tax to Y, when the exchequer is left with the loss of the amount of the import tax: The non-payment of the output tax by X is merely the recovery of what Y put in. If the exporter is innocent of that fraud he is entitled to repayment of the input tax that he has actually paid even though this represents tax never paid by X and the exchequer is left with the same loss of the amount of input tax.
The case law, as now developed in Mobilx Ltd (in Administration) v R & C Commrs; R & C Commrs v Blue Sphere Global Ltd; Calltel Telecom Ltd & Anor v R & C CommrsVAT[2010] BVC 638; [2010] EWCA Civ 517, provides that an exporter will not be innocent if he knew or ought to have known that his transaction was connected with the fraudulent avoidance of tax.
7. Carousel fraud was rife from 2003 up to 2007, when the reverse charge was introduced. Any loss to the exchequer only occurred when the input tax was refunded on a repayment claim. HMRC had been repaying substantial sums of money, in many cases well in excess of £10,000,000. The total loss to HMRC during those years amounted to in excess of £2 billion each year. It appears that many of the frauds have been financed by third parties outside of the various transaction chains.
8. We think it would be helpful to set out how the money flows in such schemes and, in that regard we have been much helped by the evidence given by Mr Stone, who also confirmed that losses only occur when the repayment is made to the exporters in the transactions. The participants in the chain are all seen to make a small profit, and between the beginning and end, make appropriate VAT payments to the Revenue. However, they do not necessarily pay each other the correct amounts, either under the apparent contracts, or of VAT. They are...
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Ilford Cellular Ltd
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