Gandalf IT Ltd ((in Administration)) and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 31 August 2012 |
| Neutral Citation | [2012] UKFTT 573 (TC) |
| Date | 31 August 2012 |
| Court | First-tier Tribunal (Tax Chamber) |
[2012] UKFTT 573 (TC)
Judge Swami Raghavan
Mr R. Holland, solicitor, of Dass solicitors appeared for the Appellants
Mr S. Mehta, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Procedure - applications for stay of proceedings pending two references to the CJEU - applications refused
1.the appellants' applications to stand over the appeals are refused.
2.there be a Pre Trial Review on the first available date after 29 June 2012.
1.The appellants appeal against HMRC's refusal to allow to them to reclaim input tax incurred by the appellants in VAT periods in 2006. The appeals are travelling together because of commonality of ownership/management of the appellants. HMRC say the appellants are part of closely connected network of companies whose pattern of trading was not commercial and the companies knew or should have known their transactions were connected with the fraudulent evasion of VAT. Accordingly the input tax reclaims are denied following the test established by the CJEU in Kittel v Belgium; Belgium v Recolta Recycling SPRLECASECAS (Joined Cases C-439/04 and C-440/04) [2008] BVC 559 and applied by the Court of Appeal in Mobilx Ltd (in Administration) v R & C CommrsVAT[2010] BVC 638. The amount of input tax at stake is nearly £7.4 million.
2.This decision concerns the appellants' applications to stand over their appeals until after the CJEU has handed down judgments in the cases of Mahagében Kft v Nemzeti Adóés Vámhivatal Dél-dunántúli Regionális Adó FoigazgatóságaECAS (Case C-80/11) 21 June 2012 and David v Nemzeti Adó- és Vámhivatal Észak-alföldi Regionális Adó FoigazgatóságaECAS (Case C-142/11) 21 June 2012. These applications are contested by HMRC.
3.I understand from the parties that the evidence has largely been served. HMRC having served replacement witness evidence (Officer Yeomans), the appellants were due to serve any further evidence in response to Officer Yeomans' material and/or to earlier supplemental evidence of HMRC by 29 February 2012, but had made applications to stay on 22 December 2011. Following closure of evidence the next step would be to finalise the pre-hearing directions and list the matter for hearing. Mr Mehta has indicated a time estimate in the order of 3 weeks to hear all 3 matters. Given the additional challenges of listing cases of this length it is likely that the case would not come on until some time next year.
4.Under Rule 5(3)(j) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, the Tribunal has discretion to stay (or in Scotland, sist) proceedings. In terms of the test which I should apply I was referred to the decision of the Inner House of the Court of Session in the case of R & C Commrs v RBS Deutschland Holdings GmbHVAT[2008] BVC 16 and in particular the test suggested there of first considering whether the decision in the other case would be of material assistance to resolving issues in the current matter, and then considering whether it was expedient to order a stay.
5.The test was expressed by the Court as follows:
a Tribunal or court might sist proceedings against the wish of a party if it considered that a decision in another court would be of material assistance in resolving the issues before the Tribunal or court in question and that it was expedient to do so.
6.I was also referred by the parties to a number of First-tier Tribunal decisions dealing with applications to stay of similar appeals behind similar CJEU references which amongst others included Mahagében and Dávid. These decisions were Unistar Group Ltd v R & C Commrs MAN/07/1441, Matrix Europe Ltd (In Liquidation)TAX[2011] TC 01628, Chandanmal (t/a C Narain Bros)TAX[2012] TC 01883, Daryanani (t/a Teletape)TAX[2012] TC 02005, and Enta Technologies Ltd v R & C Commrs TC/2011/4444.
7.In relation to the first test of material assistance Mr Mehta drew attention to the particular formulation given in RBS Deutschland. The test was whether the decision in the other court will materially assist in resolving issues. Given the inherent uncertainties in predicting what another court might decide and on what basis I do not understand the court in RBS Deutschland to mean that there must be absolute certainty that the case will assist. Rather, the judgment's reference to "would be of material assistance …" indicates I think that where there is a high degree of probability that the decision would materially assist in resolving issues, then that would be a reason, subject to expediency considerations, to ordering a stay.
8.Having said that I hesitate to interpret the test set out in RBS Deutschland in the rigid terms that if there is not a high probability then that is the end of the matter given the context in which the test operates is that of a general case management discretion accorded to the Tribunal. The reference to "might" in the extract at paragraph 4 above suggests that it was not thought that a Tribunal must order a stay if the two part test was satisfied. Also, given that even if the material assistance test is established, there will be other factors to throw into the balance, I suggest it is appropriate to consider the level of probability of material assistance and weigh that in the scale in deciding whether or not to order a stay. That means the higher the likelihood of material assistance the stronger the case for ordering a stay subject to taking into account any other relevant factors. I do not think this approach is inconsistent with RBS Deutschland. In particular, it does not fall foul of error of law highlighted there which was that it was wrong of the Tribunal in that matter to insist that the court decision awaited for should be determinative of the issues.
9.Mr Holland submits that I am bound by the Upper Tribunal decision in Mynt Ltd v R & C Commrs PTA/140/2011 not on the basis of the particular facts of that matter but on the basis of the legal issues which were put to the Upper Tribunal there. The determination there was that the referred decisions "may provide answers of relevance to the outcome …" of the appeals which were under consideration there. That determination is something I take into account but I disagree that Mynt binds me to finding that the material assistance test is made out for the purposes of these applications to stay.
10.The nature of the proceedings being stayed is I think relevant to the question of material assistance. The material assistance to be derived in the context of fact finding proceedings such as these ones, being appeals before the First-tier Tribunal, are different from the material assistance to be derived in the context of proceedings which are predicated on an appeal on a point of law as was the case for the appeals to the Upper Tribunal and the permissions to appeal to the Upper Tribunal in Mynt. In any case the level of probability as expressed in Mynt falls short of the high probability of assistance I suggest was envisaged in RBS Deutschland to indicate a stay might be appropriate, subject to expediency. At best, even if Mynt were binding, it would only indicate the CJEU references may be of relevance.
11.I was referred to the First-tier Tribunal decision in Enta Technologies Ltd where Mynt was regarded as binding. That does not lead me to alter my conclusion above. As pointed out by Mr Mehta a concession was made there by the party opposing the stay on the point of material assistance which is not made here.
12.I therefore must consider the degree of probability that the decisions in Mahagében and Dávid will materially assist the Tribunal in these cases in resolving the issues in these appeals.
13.Mr Mehta in his skeleton drew attention to the very different factual scenarios of the references. Mahagében concerns a timber trader in possession of otherwise valid VAT invoices for the supply of logs where the Hungarian authorities considered the alleged supplier could not have fulfilled the order and sought to deny the right to deduct input tax on the basis that the invoices could not be regarded as authentic. Dávid raises the question of whether the right to deduct input tax can be denied on the basis that the issuer of an invoice for the construction of a dam could not guarantee the involvement of further subcontractors and such that the invoices they had issued complied with the requisite formalities.
14.Different factual scenarios are not in themselves a reason to refuse the stay. I must consider the questions of interpretation referred to the CJEU and the likelihood that the CJEU, in answering the questions referred, would uncover issues of legal principle which will materially assist in the resolution of the issues in the appeals before the Tribunal.
15.I have already dealt with Mr Holland's primary submission that the Tribunal is bound by Mynt above. But, his submissions also made it clear that the appellants wish to stay is founded on the expectation that the CJEU will deal with a particular legal point of principle namely whether HMRC may deny the right of the taxpayer to recover input tax only where there is privity of contract between the taxpayer and the fraudulent trader.
16.Mr Holland referred to me to the 3 questions referred to the CJEU in Mahagében (annexed to this decision) and the 3 questions referred to the CJEU in Dávid (set out at [18] below). Mr Holland suggested that only one of the questions, the third question in Dávid, could be said to speak to the principle in Kittel. The three questions are inter-linked so I set out all of them below. In the course of his submissions on the...
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