Kishore
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 December 2018 |
| Neutral Citation | [2018] UKFTT 759 (TC) |
| Date | 20 December 2018 |
| Court | First-tier Tribunal (Tax Chamber) |
[2018] UKFTT 0759 (TC)
Judge Barbara Mosedale
Mr B McGurk, counsel, appeared for the appellant
Mr C Foulkes, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Misdeclaration penalty – Penalty of approx. £2.5m imposed after Kittel v Belgium; Belgium v Recolta Recycling SPRL (Joined Cases C-439/04 and C-440/04) [2008] BVC 559 appeal struck out and shortly before HMRC agreed to pay repayment supplement for earlier periods – Preliminary issue whether assessment formally valid – Yes – Preliminary issue whether tribunal has jurisdiction to award hardship – No – Guernsey Leasing Co [2007] BVC 4,059 not followed – Whether all grounds of appeal to be struck out – All struck out except case that penalty disproportionate.
[1] Mr Kishore was VAT registered and made quarterly VAT returns. He claimed repayments of input tax in his VAT returns. HMRC delayed repayment of the input tax claimed in his VAT returns of 12/05, 03/06 and 06/06. The input tax (some £22,892,998.42) claimed in his 12/05 return was repaid in tranches in early 2006; the input tax claimed in the 03/06 and 06/06 returns (in total, £22,392,775.10) was never repaid. By decisions dated 13 July 2007 (in respect of 03/06) and 28 March 2008 (in respect of 06/06) HMRC refused repayment on the grounds that Mr Kishore knew or ought to have known that his transactions in those periods were connected with the fraudulent evasion of VAT.
[2] The appellant appealed both of those decisions. The appeal proceedings were protracted. The appeals were ultimately struck out on 9 September 2015 for failure by the appellant to comply with an unless order dated 6 August 2015. The appellant later applied for the appeals to be reinstated; this was refused by the Tribunal by decision dated 2 November 2016. The Upper Tribunal refused leave to appeal that decision on 2 November 2017. Therefore, the appellant exhausted his appeal rights against the two decisions and cannot recover the input tax he claimed in respect of periods 03/06 and 06/06.
[3] On 3 August 2017, HMRC issued the appellant with misdeclaration penalty assessments on the basis that his 03/06 and 06/06 returns contained inaccuracies. The penalties imposed were £1,707,846.00 in respect of period 03/06 and £811,340.00 in respect of period 06/06. The total in penalties was £2,519,186.
[4] The appellant appealed these assessments on 13 September 2017. This hearing is concerned with those penalties: on 7 December 2017, HMRC applied to strike out the appeal against the penalties.
[5] The appellant's position was that the delayed repayment of his 12/05 return is relevant to his appeal against the misdeclaration penalties. On 6 March 2006, on late receipt of the repayment, Mr Kishore had requested HMRC pay him a repayment supplement of £1,144,649.92. HMRC refused the claim on 18 April 2006 and on 13 July 2006 that refusal was appealed to this Tribunal.
[6] Like the “MTIC” appeal, the repayment supplement appeal was protracted. Ultimately, on 7 August 2017, HMRC conceded the appeal. The appellant has not, however, yet been paid his repayment supplement. HMRC informed him that the repayment supplement due to him would be set off against his liabilities to HMRC. HMRC had imposed the misdeclaration penalties four days earlier.
[7] The hearing was originally called to determine three matters:
- As Mr Kishore's appeal against the misdeclaration penalties was filed late, whether his application for the Tribunal's leave to allow him to lodge his appeal late should be allowed;
- The appellant's application for a preliminary hearing of his application for relief from payment of the penalties pending determination of his appeal on the ground of hardship; this was also phrased as an application for the Tribunal to determine whether HMRC was entitled to set-off the repayment supplement against the assessed penalties. While they were logically different applications, they were both aimed at the same end: to have immediate repayment of the repayment supplement to which HMRC have accepted the appellant is entitled.
- HMRC's application to strike out the appeal if admitted;
[8] In reality, the appellant's case developed and changed before and during the course of the hearing. There were two significant changes. Firstly, although no prior mention was made of this, in his skeleton argument Mr McGurk asked for the appeal to be summarily allowed or for a preliminary issue on the basis there were no valid or timely assessments to the penalties. Secondly, he introduced during the hearing a new and significant ground of appeal, which was that the penalties were a breach of Mr Kishore's human rights as imposed so long after the (alleged) misdeclaration. This was in part responsible for the adjournment of the hearing for some weeks. He also asked for disclosure.
[9] So while I deal with the issues and arguments in what I consider to be the logical order, which was not quite the order in which the arguments were made to me.
[10] Mr Kishore's appeal was lodged with the Tribunal about ten days late. HMRC raised no objection to this and the appellant gave a good explanation (he was out of the country on extended leave at the time of receipt). I therefore admit the appeal out of time.
[11] As I have said, the application for summary judgment in favour of the appellant was not foreshadowed before service of the appellant's skeleton argument. Nevertheless, HMRC did not suggest that the appellant was unable to argue the matter.
[12] Having said that, the hearing proceeded on the footing that it was a preliminary hearing of these issues (indeed, the appellant had requested a preliminary hearing). That meant I was asked to make a ruling on the four points of law the appellant raised to justify the application and not merely to decide whether the points were so strong I should award the appellant summary judgment.
[13] On the last day of the hearing, Mr McGurk suggested that I was only being asked to decide whether the points were fit to go to hearing but that was not how the matter was argued: indeed, I understood that Mr McGurk raised them because the appellant wanted immediate payment of the repayment supplement and did not want to wait until the end of the appeal proceedings. In any event, it would be wasteful for matters on which the Tribunal had had nearly two days of full argument to be heard again. I take account of what Lewison LJ said in Mellor v Partridge [2013] EWCA civ 477:
- vii) On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better …
The points were fully argued and did not depend on factual findings, so it was appropriate to decide them.
[14] Those four points of law were whether:
- the assessment was invalid because (i) it referred (allegedly) to the wrong assessing provision and/or (ii) because the appellant had not been given a chance to state his defence before he was assessed;
- The provision giving liability was repealed without saving;
- The assessment was out of time.
I deal with each in turn.
[15] A new case which was not in the appellant's grounds of appeal and which was first put in Mr McGurk's skeleton argument was that the assessments were invalid because (i) they were made under the wrong statutory provision and/or (ii) because they had been made without giving the appellant the chance to put a case that he had a reasonable excuse or any other defence.
[16] The notices of assessments stated that they were made under s 63 Value Added Tax Act 1994 (“VATA”). The parties were agreed, however, that s 63 is a provision which sets out circumstances in which a taxpayer incurs liability to a misdeclaration penalty but that such a penalty has to be assessed under s 76 VATA, which is the assessing provision.
[17] I consider this argument misconceived. While s 76 is the provision which gives HMRC the power to assess, it does not require HMRC to refer to it when making an assessment. So the failure to refer to s 76 could not invalidate the assessment.
[18] In any event, it is clear that a defect in an assessment does not invalidate it save in certain circumstances:
Even if the process of assessment is found defective in some respect … the question remains whether the defect is so serious or fundamental that justice requires the whole assessment to be set aside, or whether justice can be done simply by correcting the amount to what the Tribunal finds to be a fair figure on the evidence before it.
C & E Commrs v Pegasus Birds Ltd [2004] BVC 788 per Carnwath LJ
[19] The appellant's view was that the reference to s 63 rather than s 76 in the notices of assessment indicated that HMRC hadn't made the assessments under s 76 at all and so the defect was fundamental and incapable of rectification. I do not agree. S 76 was the only applicable assessing provision and the only power which HMRC could have been exercising and so clearly the assessments were made under s 76 whether or not this was expressly stated. The assessments were not defective.
[20] HMRC referred me to cases such as Queenspice Ltd v R & C Commrs [2011] BVC 1,623 and Foneshops Ltd [2015] TC 04587 which had...
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Revenue and Customs Commissioners v Kishore
...The assessment was issued under the now repealed VATA 1994, s. 63. Mr Kishore appealed against the misdeclaration penalty but the FTT ([2019] TC 06892) struck out his appeal. Mr Kishore appealed the FTT decision. The UT ([2020] BVC 539) allowed the appeal on the ground that the penalty viol......
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Kishore v Revenue & Customs Commissioners
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