McNicholas Construction Company Ltd v Commissioners of Customs and Excise

JurisdictionUK Non-devolved
Judgment Date16 June 2000
Date16 June 2000
CourtValue Added Tax Tribunal

VAT Tribunal

McNicholas Construction Co Ltd

Appeal - McNicholas Construction Co Ltd ("McNicholas") applied for the hearing of the appeal to be in private - The assessment appealed against covered periods from April 1990 until March 1996- All the assessments were made to recover input tax which, it was alleged by the commissioners, had been claimed on the strength of invoices provided in the course of fraudulent activities of McNicholas and others - Some of the assessments were out of time and could only be sustained if the commissioners could establish that the VAT had been lost to them as a result of dishonesty on the part of McNicholas - Reliance was placed by the representative of McNicholas on a previous decision of the tribunal in which it had stated that an appeal should be heard in private when a hearing in public would defeat the end of justice or would be likely to harm the appellant in the course of the business or when the evidence to be given thereon would include confidential information concerning another which such other could restrain the appellant from disclosing to the public - The case for McNicholas was based on the words "or would be likely to harm the appellant in the course of his business" - Here, it was argued, McNicholas's business could be damaged by the allegations of fraud - It was argued that the allegations of fraud were based on no direct evidence - Some of McNicholas's employees and some subcontractors were to be prosecuted for offences based on the same fraudulent activities - The implicit assumption behind the present allegations against McNicholas was that the evidence against the employees and others in the impending criminal proceedings was equally applicable to McNicholas in the present proceedings - The allegation that McNicholas knew that the invoices were false and that money originating from McNicholas was received back by it from the subcontractors was, it was said, wholly unsubstantiated and based on inference - Indeed, it was said, the rationale for McNicholas's involvement in the fraud was founded on a hypothesis - In earlier proceedings before the court, the judge commented on an explanation given by Customs that employees of McNicholas charged with criminal offences were acting on behalf of McNicholas - This seemed to the judge to be a 'tenable albeit highly debatable stance' - The tribunal did not think that this was a proper case for a direction that the hearing should take place in private - The allegations advanced by the commissioners which underlay the present assessments could well impact on the good reputation of McNicholas and its standing in the construction trade - But the assessments and the allegations on which they were based must be assumed to be made seriously and in good faith by the commissioners through their own professional lawyers - Dishonesty on McNicholas's part based on its involvement in the fraud was the key ingredient in the exercise by the commissioners of their decision to assess - McNicholas's real complaint was that the commissioners' case was so weak and so based on inference that it would be unjust to expose McNicholas to the risk of harm resulting from the allegations of its involvement in fraud - The tribunal could not adopt that approach as it would necessarily involve the tribunal in assessing evidence before it had heard the appeal itself - For those reasons, the tribunal did not think this a proper case to direct that the hearing be in private - Dicta in Guy Butler (International) Ltd (1974) VATTR 199 explained and applied - SI 1986/590Value Added Tax Tribunals Rules 1986 (SI 1986/590), r. 24.

VAT Tribunal

(LON/97/578) No. 14,975.

McNicholas Construction Co Ltd

The following cases were referred to in the decision:

Jefferson Ltd v Bhetcha UNK[1979] 2 All ER 1108

R v The Institute of Chartered Accountants in England and Wales, ex parte Brindle UNK[1994] BCC 297

R v The Panel on Takeovers and Mergers, ex parte FayedUNK[1992] BCC 524

Secretary of State for Trade & Industry v Willars; heard 19 July 1996 (unreported)

Tribunals - Procedure - Standover of appeal - Application by commissioners for extension of time for service of statement of case - Possibility of criminal proceedings against appellant - Commissioners wanted such proceedings disposed of prior to hearing of appeal - Balance of conflicting interests - Whether right of appellant to have appeal processed outweighed public interest in criminal trial - SI 1986/590 section 8 section 19 subsec-or-para (1)Value Added Tax Tribunals Rules 1986 (SI 1986/590), r. 8 and 19(1).

The issue was whether the tribunal should, against the company's wishes, accede to the commissioners' application to have the appeal stood over pending consideration by the commissioners of possible criminal proceedings against the appellant.

In April 1997, a number of employees of the appellant were committed for trial for allegedly fraudulent claims for input tax on non-existent supplies. At the time of the hearing, Customs were considering the possibility of also bringing criminal charges against the appellant company. Also at that time, Customs issued an assessment against the appellant to recover input tax claimed by the appellant on invoices from subcontractors whose activities were the subject of the alleged criminal proceedings. The assessment related to all accounting periods between April 1990 and March 1996, with the total amount assessed in excess of £1m. The company appealed against the assessment, the grounds of which were, inter alia, that it was not made to the commissioners' best judgment. The appeal was lodged on 18 April 1997 and the statement of case should, in the ordinary course of events, have been served on the tribunal within 30 days thereafter. Customs applied to have matters relating to the appeal stood over, pending the outcome of possible criminal proceedings. The appellant wanted the appeal dealt with straight away.

Customs contended that the main issues in the appeal were similar to those on which any criminal proceedings would depend and, unless these were disposed of, witnesses might not be prepared to give evidence in the civil proceedings for fear of incriminating themselves.

The appellant contended that, in the event that the commissioners decided to commence criminal proceedings against the company, there would be no risk of prejudice to a fair trial if the appeal was heard first.

Held, refusing the commissioners' application to have the appeal adjourned:

1. The question to be determined was whether Customs or the appellant would be seriously prejudiced as a result of the appeal being heard before any criminal proceedings were concluded.

2. Among the factors to be taken into account were: (a) the fact that no actual proceedings had been brought against the appellant; (b) the appellant's right not to have to subordinate its interests in the civil matter to those of third parties in the criminal proceedings; and (c) the fact that the appellant, on whom the burden of proof rested in civil proceedings, was prepared to take the risk of any injustice which might occur as a result of the prior determination in these proceedings.

3. Taking these factors into account there was no such risk to either party and the appeal should proceed.

DECISION

[The tribunal set out the facts summarised above and continued as follows.]

McNicholas' grounds of appeal are that the assessment:

  1. (2) Is not to best judgment and is void ab initio;

  2. (3) relates to input tax which the appellant has a fundamental right to deduct;

  3. (4) was raised out of time;

  4. (5) extends beyond the statutory three year limitation period; and

  5. (6) the respondents are put to strict proof to show that the Revenue has suffered loss if at all and if it has not then the appellant avers that the Revenue has been enriched and therefore interest should not have been applied.

Mr Parker, for the commissioners, says that the main issues in the VAT appeal will be similar to those raised in the criminal proceedings (whether or not McNicholas is involved in those), namely - were the services actually provided to McNicholas and are the invoices genuine? Unless the civil VAT appeal is stood over until after the criminal proceedings are heard, it was said, individual witnesses called at the VAT appeal might not wish to give evidence in case they should incriminate themselves. Moreover, the Crown might wish to argue that it was an abuse of process at the subsequent VAT appeal for an appellant to raise issues that had been determined at a prior criminal trial.

Mr Graham Aaronson QC for McNicholas stated that they wished to get on with the appeal against the assessment. They could see no risk of prejudice of a fair trial if a criminal prosecution were brought against them and the criminal trial occurred after the hearing of the civil tax appeal.

This tribunal has a statutory jurisdiction over the McNicholas appeal consequent on the serving of the notice of appeal on the tribunal centre: see SI 1986/590 section 3r. 3 of the Value Added Tax Tribunals Rules 1986 (SI 1986/590). SI 1986/590 section 8 section 19 subsec-or-para (1)Rules 8 and 19(1) give us power to extend the time-limit, normally 30 days for the service of the notice of appeal, within which the commissioners are required to serve a statement of case. In exercising our discretion we would follow the principles adopted by the Supreme Court in carrying out its own procedure and practice.

For this purpose I was referred by Mr Aaronson to three authorities in which the issue of whether "civil" proceedings should be stood over pending the outcome of criminal or disciplinary proceedings arising out of the same subject matter. In Jefferson Ltd v BhetchaUNK[1979] 2 All ER 1108 (Court of Appeal), a civil action had been commenced to recover money. In the civil action misappropriation of cheques was alleged and an Order 14 summons...

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