Meridian Defence & Security Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 March 2014 |
| Neutral Citation | [2014] UKFTT 300 (TC) |
| Date | 25 March 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 300 (TC)
Judge John Brooks, Mrs Susan Lousada
The Appellant was not represented
Maria Roche, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
VAT - Strike out application - Penalty imposed following withdrawal of appeal by appellant - Effect of VATA 1994, section 85s. 85 on withdrawal of appeal - Whether appellant estopped from appealing against penalty on the same grounds as it raised in withdrawn appeal and/or whether an abuse of process to do so.
[1]This is an application by HM Revenue and Customs ("HMRC") to strike out the appeal of Meridian Defence and Security Limited ("Meridian") against misdeclaration penalties of £102,955 and £85,519, imposed under section 63 subsec-or-para 1s 63(1)(a) of the Value Added Tax Act 1994 ("VATA"), in respect of overstated claims for input tax in its 04/06 and 05/06 VAT accounting periods respectively.
[2]Although Maria Roche of counsel appeared for HMRC Meridian was not represented. However, shortly before the hearing was due to commence the tribunal office received a telephone call from Meridian's director, Parvaz Ali, to explain that he was unable to attend as he was suffering from a bad back. Although it was a long term problem he said that it had been exacerbated that morning when he getting ready to travel to the hearing. He presented no medical evidence and was unable to provide any in relation to his condition, although he said that he could do at later date, and asked for the hearing to be postponed to enable him to attend when it was re-listed.
[3]However, this was not the first time that an adjournment had been sought by Meridian. The application had originally been listed for a hearing before us on Monday 5 August 2013 and was adjourned following a renewed oral application (as a written postponement application made on 26 July 2013 had been refused by the Tribunal) by Mr Ali and Mark Hussey, Meridian's company secretary. The basis of that adjournment application was that, although it had received notice of the hearing, due to a "strained relationship" with its accountant who had until recently been acting for the company and had not forwarded relevant documents, they were not in possession of sufficient information to enable a fair hearing to take place having only received a copy of HMRC's Statement of Case on Thursday 1 August 2013, following a request to the Tribunal the previous day.
[4]Ms Roche, who also appeared for HMRC on 5 August 2013, opposed the adjournment emphasising, quite correctly, that Meridian, which had been professionally represented until shortly before the 5 August 2013 hearing, had been aware of HMRC's arguments as its professional adviser had received the Statement of Case in September 2012.
[5]Having regard to the overriding objective contained in rule 2 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the "Rules") to "deal with cases fairly and justly", we reluctantly concluded, on balance, to allow the adjournment application which would give Meridian an opportunity to obtain legal advice and/or prepare for hearing which was re-listed for 3 March 2014. Notice of the date of the re-listed hearing was sent to the parties on 18 November 2013. This warned the parties that if they did not attend "the Tribunal may decide the matter in your absence."
[6]Under rule 33 of the Rules the Tribunal may proceed with a hearing if satisfied that a party has been notified of the hearing and considers it in the interests of justice to do so. It is clear, from his telephone call to the Tribunal, that Meridian's director Mr Parvaz had received notice of the hearing and was aware of the hearing date.
[7]In considering whether it was in the interests of justice to proceed with the present hearing in the absence of any representation on behalf of Meridian we had regard, as we must, to the overriding objective of the Rules to deal with the case fairly and justly. This includes the avoidance of delay, so far as compatible with proper consideration of the issues (see rule 2(2)(e) of the Rules). Given the lapse of time, the merits of the case, the need to do justice to both parties and the possibility of an application by Meridian under rule 38 of the Rules for this decision to be set aside on the basis that it was not represented at this hearing if it were in the interests of justice to do so, we considered that it was in the interests of justice to proceed with the hearing in the absence of any representation on behalf of Meridian.
[8]Meridian was notified by HMRC, in a letter dated 22 October 2009, that its claims for deduction of input tax in the sums of £915,160.59 in its 04/06 VAT period and £760,173.46 in its 05/06 VAT period had been denied on the grounds that the relevant transactions were part of an overall scheme to defraud the Revenue and that Meridian knew or should have known of the connection to fraud.
[9]On 30 October 2009 Meridian appealed against the decision to deny its recovery of input tax. However, on 18 April 2011, Bark & Co, its solicitors wrote to the Tribunal withdrawing its appeal.
[10]The penalties, the subject of the present proceedings, were issued by HMRC on 22 October 2011 and were calculated at 15% of the input tax claimed by Meridian but were reduced by 15% because of mitigating factors. Following a review, requested by Meridian on 1 November 2011, there was a further 10% reduction in the penalties.
[11]On 23 February 2012 Meridian appealed to the Tribunal on the grounds that:
The original imposition of the 2 misdeclaration penalties was based on the refusal of HMRC to repay VAT claimed for the periods 04/06 and 05/06 in the sums of £915,160.59 and £760,173.46 respectively. HMRC contended that Meridian had been aware of an overall scheme to defraud the Revenue or should have known this was the case. Such accusation or inference was never proven. Furthermore Meridian employed VAT consultants and a barrister to pursue its claim to repayment but ultimately could not afford the extensive costs of going to court.
As Meridian could not continue its fight for repayment its claim fell into default. HMRC later issued a misdeclaration penalty for each of the periods mentioned above on 5 October 2011. A formal appeal to review was lodged on 1 November 2011. HMRC rejected Meridians case in their letter of 27 January 2012 although the penalties were reduced to £102,955 for 04/06 and £85,519 for 05/06. Copies of all documents are attached.
Meridians appeal against the misdeclaration penalty is on the basis that it is incorrect in law and in direct contravention of the findings in the case of HMRC v LIVEWIRE where the court laid down guidance that HMRC are obliged to accept.
Mr Justice Lewison soundly dismissed the case put forward by HMRC on the basis that "their case must fail". The court made it clear that a trader who has taken all reasonable steps to avoid being caught up in fraud has, to quote Justice Lewison 'an impenetrable shield against any claim by HMRC that he had the means of knowledge of fraud. Furthermore flaws in due diligence are not necessarily fatal unless HMRC can demonstrate a causative link to the failure.
The only tangible difference between Meridians case and Livewire is that Livewire had the financial resources to take their claim to the high court whereas Meridian, unfortunately did not
We consider that as no causative link to fraud or knowledge thereof has been proven by HMRC they cannot pursue the misdeclaration penalty for the reasons outline above.
Under the "Result" section of the Notice of Appeal it is stated:
Meridian consider that as their original claim to repayment was denied purely because they did not have the funds to pursue their case it is grossly unfair to levy a misdeclaration penalty.
Our clients received no money. HMRC did not lose any money. Meridian considers it is being fined for pursuing a legitimate claim which was denied without any evidence of fraud of knowledge thereof.
[12]On 7 March 2012, Bark & Co wrote to HMRC stating:
Our client's [Meridian] position remains clear: the VAT returns filed in respect of the 04/06 and 05/06 are correct and a reclaim is due to it
Our client withdrew its Appeals from the Tribunal on commercial grounds alone. You appear to have misunderstood the situation and assumed that our client's withdrawal was a concession that the VAT returns filed were incorrect.
[13]Insofar as it applies to the present case s 63 VATA provides:
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(2) In any case where, for a prescribed accounting period -
(a) a return is made which understates a person's liability to VAT or overstates his entitlement to a VAT credit, or
(b) an assessment is made which understates a person's liability to VAT and, at the end of the period of 30 days beginning on the date of the assessment, he has not taken all such steps as are reasonable to draw the understatement to the attention of the Commissioners,
(3) and the circumstances are as set out in subsection (2) below, the person concerned shall be liable, subject to subsections...
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R S Garments (a firm comprising Singh and Another)
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