J P Commodities Limited v Her Majesty's Revenue & Customs, V 19904
| Jurisdiction | UK Non-devolved |
| Judge | Colin BISHOPP |
| Judgment Date | 22 November 2006 |
| Respondent | Her Majesty's Revenue & Customs |
| Appellant | J P Commodities Limited |
| Reference | V 19904 |
| Court | First-tier Tribunal (Tax Chamber) |
19904
VALUE ADDED TAX — zero-rating — sales of good to Gibraltar-registered trader – goods transported to Belgium – purchaser not registered for VAT in Belgium – whether UK-registered supplier permitted to zero-rate supplies — Sixth Directive articles 28a, 28c — VATA 1994 s 30 — VAT Regulations 1995, reg 134 — Public Notice 725, paragraph 3 — whether conditions imposed by Notice authorised by article 28c — yes — whether conditions applicable to sale to unregistered trader — conditions validly imposed and applicable to sales — supplies not zero-rated — appeal dismissed.
MANCHESTER TRIBUNAL CENTRE
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Tribunal: Colin Bishopp (Chairman)
Sitting in public in Birmingham on 7 November 2006
Timothy Brown, counsel, instructed by AIMS Partnership plc for the Appellant
Owain Thomas, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents
© CROWN COPYRIGHT 2006
DECISION-
The Appellant, J P Commodities Limited, which is a VAT-registered trader in the United Kingdom, made two sales of electronic goods—hand-held games machines and MP3 players—to Bronteum, a company registered in Gibraltar, in December 2005. It did not, however, deliver the goods to Bronteum in Gibraltar, but (at Bronteum’s request) to an address in Belgium. Bronteum was not registered for VAT in Belgium. The Appellant took the view that as its sales were made to a purchaser established outside the territory of the European Union they were zero-rated, and prepared its invoices to Bronteum on that basis. It had bought the goods within the United Kingdom and in its VAT return for the period 12/05 claimed credit for the input tax it had incurred in the purchases. The return, by which a net repayment was sought, prompted an investigation by the Respondents. They concluded that the Appellant’s treatment of its two sales was incorrect. They accept that the goods were bought by the Appellant, sold to Bronteum and sent to Belgium, where they arrived. Their position is that the law does not permit the zero-rating of a sale made in this fashion, and that the Appellant must account for output tax on the sale. They adjusted the Appellant’s return accordingly, and the Appellant now challenges that adjustment. The tax in issue, £75,979.56, represents the VAT fraction of the Appellant’s aggregate selling price.
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Before me the Appellant was represented by Timothy Brown and the Respondents by Owain Thomas, both of counsel. I heard oral evidence from Prithpal Singh Johal, the Appellant’s only director, and had the unchallenged statement of Farzana Malik, the HMRC officer whose decision it was to adjust the return. I was provided with a bundle of relevant documents, skeleton arguments from both sides, copies of relevant authorities and a statement of the agreed facts and disputed issues.
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The facts of the case were indeed largely agreed and Mr Johal’s evidence in chief was almost entirely formal. He had been able to establish, after the disputed decision was made, that Bronteum had sold the goods on to a customer which (as the Respondents agree) was located and VAT-registered in Luxembourg. It appears, although the evidence on this point was not conclusive, that the goods did travel to Luxembourg, but it is not known whether the Luxembourg customer accounted there for acquisition tax. It has to be assumed, since it was not registered for VAT there, that Bronteum did not account for acquisition tax in Belgium, which (it was also agreed) was the Member State of acquisition of the goods sold to it by the Appellant, and that it did not claim credit for the same sum as input tax. It is clear that Bronteum did not charge VAT on its sale to the Luxembourg company. Copies of its invoices to that company were provided; although the amounts charged have been obscured, it is apparent that there is no addition to them for VAT, nor any indication that the prices charged are VAT-inclusive. The invoices bear no VAT registration number, of either seller or buyer.
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Mr Johal told me he believed that, since Bronteum was established in Gibraltar, the Appellant’s sale was one made to a customer outside the Member States and was properly zero-rated. He had, he said, raised the matter with his contact at Bronteum, who told him that Bronteum frequently made purchases from EU-based traders who zero-rated their sales even though the goods themselves did not leave the territory of the EU. Mr Johal relied on what his contact told him, and made no further enquiries elsewhere.
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Mr Thomas’s cross-examination of Mr Johal was directed, in large part, towards establishing that he had not taken proper care but, since the Respondents do not formally allege anything more serious than a misunderstanding of the law against the Appellant, and it is unnecessary for the purpose of deciding this appeal to make any finding of fact about the nature of his conduct, I do not propose to say any more about Mr Johal’s cross-examination, beyond the comment that, while he may have acted somewhat naively, I have no reason to think that Mr Johal realised at the time that he might be doing anything improper.
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Mr Brown founded his argument in support of the contention that the Appellant had correctly zero-rated its supplies to Bronteum on article 28c of the Sixth VAT Directive (77/388/EEC) which, so far as presently material, is as follows:
“Without prejudice to other Community provisions and subject to conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions provided for below and preventing any evasion, avoidance or abuse, Member States shall exempt:
(a) supplies of goods … dispatched or transported by or on behalf of the vendor or the person acquiring the goods out of the territory referred to in Article 3 but within the Community, effected for another taxable person or a non-taxable legal person acting as such in a Member State other than that of the departure of the dispatch or transport of the goods …”
It is common ground that that provision applies to supplies of the kind in issue here. The conditions prescribed by that article were satisfied here, Mr Brown said, because the goods were transported by the...
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