HM Revenue and Customs v IA Associates Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Nugee |
| Judgment Date | 07 November 2013 |
| Neutral Citation | [2013] EWHC 4382 (Ch) |
| Docket Number | Case No: FTC/88/2012 |
| Court | Chancery Division |
| Date | 07 November 2013 |
[2013] EWHC 4382 (Ch)
IN THE HIGH COURT OF JUSTICE
UPPER TRIBUNAL, TAX & CHANCERY CHAMBER
Rolls Building
Fetter Lane
London, EC4A 1NL
The Honourable Mr Justice Nugee
Case No: FTC/88/2012
Mr V Mandalla (instructed by Howes Percival LLP) appeared on behalf of the Claimant
I will say in advance this is not a particularly well crafted or polished decision but I will make a decision now.
I have before me sitting in the Upper Tribunal, Tax and Chancery Chamber, an appeal by Her Majesty's Revenue and Customs Commissioners, HMRC, against a direction made by the First Tier Tribunal, Judge Demack, on 27 January 2012 following a hearing on 13 January in which he directed that the witness statement of John Fletcher dated 13 February 2009 be redacted in accordance with a redacted version which was attached to his directions.
I have heard counsel for HMRC, Mr Mandalla. The respondent to this appeal who is the appellant below, IA Associates Limited who I will call IA, was not present or represented before me having been barred from taking any further part in these Upper Tribunal proceedings by reason of failing to comply with directions released by the Upper Tribunal on 17 May 2013 and in consequence of notification released by the Upper Tribunal on 17 June 2013 that IA had been so debarred with effect from 31 May 2013.
Because this is not an appeal which (in the words of Rule 40(2) of the Tribunal Procedures, Upper Tribunal Rules 2008/2698) finally disposes of all issues in the proceedings or of the preliminary issues, it is open to me to give a decision orally at a hearing rather than give written reasons and Mr Mandalla has confirmed that his clients are content for me to give an oral decision this afternoon rather than wait for a written decision. For the reasons that follow, I propose to allow this appeal.
The procedural history of this matter is as follows. IA is a company that before it ceased trading used to trade in mobile phones. It claimed a deduction of input tax in respect of the VAT period June 2006. That claim was rejected by HMRC in a letter dated 28 September 2007 on the basis of the Community Law doctrine of Abuse of right. HMRC expressed themselves satisfied that the transactions set out in the appendix to the letter formed part of an overall scheme to defraud the Revenue and that there were features of the transactions and conduct on the part of IA which demonstrated that they knew or should have known that that was the case.
In short, HMRC contend that this is an example of what is known as MTIC fraud. It is not necessary for the purpose of this decision for me to give any description of MTIC fraud which is well known to HMRC, to those who practise and, indeed, those who trade in this area.
On 11 October 2007, IA appealed that decision to the First Tier Tribunal in relation to the sum of money which HMRC had disallowed, the sum of £628,000. In the course of the proceedings in the tribunal, HMRC served a witness statement from Mr Fletcher. That was served on 13 February 2009.
Mr Fletcher is a principal advisor in KPMG and his witness statement which runs to 40 pages (but is, I am told, accompanied by three lever arch files running to several hundred pages, documents that I have not myself seen) gives what has been described as generic evidence as to the existence, of and opportunities available in, the grey market for mobile telephone handsets.
It is generic evidence in the sense that it looks at the market as a whole and it does not attempt to say anything about the facts of this particular case and it is apparent from the material that has been placed before me that HMRC have used Mr Fletcher to give evidence of that type in very many similar cases and before that used another individual at KPMG in a similar way.
On 23 July 2009, the First Tier Tribunal, or FTT as I will refer to it, directed the appeal be allocated to the complex category, and gave various directions leading up to the hearing of the appeal. Sometime later, on 30 September 2010, the (FTT Judge Colin Bishop) again gave further directions including a direction that the appellant, that is, IA, should serve a schedule of issues identifying whether it accepts that a tax loss has been identified by the respondents, HMRC, whether it accepts that the tax loss is fraudulent, and whether it accepts that there is a connection between the appellant's trades and any fraudulent tax loss.
IA complied with that direction on 4 November 2010. The appellant's listed issues listed four issues. Issue 1 is not in contention. The appellant does not take issue with the contention that there has been a tax loss. The £628,000 input tax related to five trades in each of which HMRC have identified a chain leading back to an individual trader who has either gone missing or otherwise defaulted on payment of the output tax which it was liable for. As I say, issue 1 is not in issue.
Issue 2, 3 and 4 are. IA took issue with each of these; the contention that the tax loss was fraudulent, the contention that its trades connected back to a fraudulent tax loss and the contention that it knew or ought to have known that its trades connected back to a fraudulent tax loss. That formulation of the issues sufficiently identifies what will be in issue at the hearing of this substantive appeal in the FTT. It follows the Court of Appeal decision in a case called Mobilx Ltd, Blue Sphere Global Ltd and Calltel Telecom Limited v HMRC [2010] EWCA Civ 517, which itself followed the decision of the European Court of Justice in a case called Axel Kittel v Belgium State C439/04 and another case which was joined with it, case C-440/04, reported in 2006, ECL 16161. There does not appear to be any dispute between the parties that it is HMRC which has the burden of proof to establish that IA knew or should have known that it was participating in transactions connected with fraudulent regulation of VAT.
On 7 December 2010, the FTT, in this case Judge John Dent, gave directions with a view to the appeal being listed for hearing. At that stage, it was envisaged that the listing of the appeal would be at some time in the six months between 1 April 2011 and 1 October 2011. However, on 12 May 2011, IA applied to exclude the statements of two of HRMC's witnesses, Officer Stone and Mr Fletcher and parts of other witnesses' statements on the grounds that these generic witness statements were irrelevant or if not irrelevant, unfairly prejudicial.
Directions were given by the FTT (Judge David Demack) in July requiring the appellant, IA, to suggest redactions to the witness statement of Mr Fletcher. That was done on 19 August 2011, the substantive objection being to parts of Mr Fletcher's witness statement dealing with what are called negative indicators. HMRC gave notice of its objections to the redactions. That came before Judge Demack sitting on 13 January 2012 and as already said by written directions given on 27 January following that hearing, he directed that the witness statement of Mr Fletcher be redacted in accordance with the redacted version attached. The redacted version attached, in effect, took out of his witness statement references to negative indicators, that is, those characteristics of a particular trade in mobile phones which Mr Fletcher, in his opinion, thought were indicative that the trades were not of a genuine type of the four types of legitimate trading opportunities that he had identified in the grey market, as I will refer to later.
The directions were followed by written reasons given by Judge Demack on 23 May 2012. HMRC appealed that decision to the Upper Tribunal and permission for that appeal was granted by Judge Demack himself. On 31 October 2012, he is saying that he considered whether to review the decision in accordance with Rule 40 of the First Tier Tribunal Rules but decided not to undertake a review because I was not satisfied that there was an error of law. I am satisfied however that it is reasonably arguable there is no withdrawing that decision and, in those circumstances, I grant the respondent's permission to appeal to the Upper Tribunal. Under the governing Act, which is the Tribunals Courts Enforcement Act 2007, an appeal to the Upper Tribunal lies on any point of law arising from a decision made by the First Tier Tribunal and that is(?) by exception 11(1) and by exception 12(1)(i) applies to the Upper Tribunal in deciding the appeal under section 11 finds that making a decision concerned involved in making an error in a point of law; (ii) the Upper Tribunal may but need to set aside the decision of the First Tier Tribunal and if it does can either remit the case to the First Tier Tribunal's directions through consideration or remake the decision; (iv) in acting under 2(b)(ii), that is the remaking of the decision, the Upper Tribunal may make any decision which the First Tier Tribunal could make as the First Tier Tribunal will be making the decision and may make such findings of fact as it considers appropriate.
Guidance on the exercise of the appellate jurisdiction for the Upper Tribunal in relation to case management decisions has been given recently by the Court of Appeal in a case called Atlantic Electronics Limited v HMRC [2013] EWC Civ 651 and all three members of the court gave judgments; Lord Justice Ryder, Lord Justice Beatson and Lady Justice Arden. I should refer to some of the things that...
To continue reading
Request your trial
-
Mark Mitchell v The Commissioners for HM Revenue and Customs
...evidence could be excluded if it there was some compelling reason to do so ([29], [30] and [32]) relying on HMRC v IA Associates [2013] EWHC 4382 (Ch) per Nugee J at [35]: “one starts with asking the question whether the evidence is admissible. It is admissible if it is relevant. It is rel......
-
(1) Mark Mitchell and (2) Paul Bell v The Commissioners for HM Revenue and Customs [2021] UKUT 0250 (TCC)
...statements. In particular, the respondent’s statement informs the applicant of the case that he has to meet. In HMRC v IAC Associates [2013] EWHC 4382 (Ch), Nugee J said at [33] that, when dealing with an application for specific disclosure, the test of relevance must be … by reference to t......
-
Halfaoui
...Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 15(2) and the guidance given by Nugee J in R & C Commrs v IA Associates Ltd [2013] EWHC 4382 (Ch), that it could not refuse to admit the evidence simply because it was generic. Instead, it had to consider (a) whether it was relevant, and ......