N2J Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judgment Date | 03 June 2009 |
| Neutral Citation | [2009] EWHC 1596 (Ch) |
| Docket Number | CH/2009/APP/0055 |
| Court | Chancery Division |
| Date | 03 June 2009 |
[2009] EWHC 1596 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
BEFORE:MR JUSTICE ARNOLD
CH/2009/APP/0055
MR A YOUNG (instructed by Dass Solicitors) appeared on behalf of the Appellant
MR J CANNAN (instructed by HMRC Solicitors Office) appeared on behalf of the Respondent
APPROVED JUDGMENT
Introduction
This is an appeal from a decision of the VAT & Duties Tribunal dated 12 th December 2008. In its decision, the Tribunal dismissed an appeal by N2J Limited against the Commissioners' decision by letter dated 21 st March 2006 to amend N2J's VAT return for the period 01/06 so as to reject N2J's claim to zero-rate certain supplies of mobile phones.
The law
The legal framework was set out by the Tribunal in its decision as follows:
“11. The conditions which must be satisfied if supplies of goods from a trader in one member State of the European Union to a taxable person in another member State may be zero-rated are to be found in article 28c(A) of the Sixth VAT Directive (77/388/EEC)—the European legislation in force at the time, since replaced by article 131 of Directive 2006/112. So far as material, that article read:
'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 [that Member State] 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…'
12. That provision is implemented in the United Kingdom's legislation by section 30(8) of the Value Added Tax Act 1994 and regulation 134 of the Value Added Tax Regulations 1995 (SI 1995/2518)… Regulation 134 authorises the Commissioners to impose the conditions envisaged by article 28c(A). The terms of the conditions imposed by the Commissioners are set out at what is now paragraph 4.3 of Public Notice 725. They were formerly set out, in identical words, in an earlier version of the Notice, as follows:
When can a supply of goods be zero-rated?
The text in this box has the force of law
A supply from the UK to a customer in another EC Member State is liable to the zero rate where:
· you obtain and show on your VAT sales invoice your customer's EC VAT registration number, including the 2-letter country prefix code; and
· the goods are sent or transported out of the UK to a destination in another EC Member State; and
· you obtain and keep valid commercial evidence that the goods have been removed from the UK within the time limits set out at paragraph 4.4.”
There is no challenge to the accuracy of that statement of the legal framework, nor is it disputed by N2J that the burden was upon it to satisfy the Commissioners, and then the Tribunal, as to each of the three conditions set out in the Notice.
The Tribunal also referred in its decision and purported to apply the judgment of the Third Chamber of the Court of Justice of the European Communities in Case C-409/04 R (on the application of Teleos plc & Others) v The Commissioners of Customs & Excise [2007] ECR I-7797. The facts of that case were summarised by the ECJ follows:
“14. In 2002, Teleos and Others sold mobile telephones to a Spanish company, Total Telecom España SA/Ercosys Mobil SA ('TT'). According to the sales contracts, the goods' destination was, in general, in France and, in certain cases, in Spain. In nearly every case, the contracts were concluded on the basis of one of the international commercial terms (known as 'Incoterms 2000') established by the International Chamber of Commerce, namely ' ex-works' or 'EXW', which means that Teleos and Others were required only to place the goods at TT's disposal at a warehouse in the United Kingdom, TT being responsible for arranging their transport to the specified Member State. The warehouse belonged to Euro-Cellars Ltd, a bonded warehousing and distribution company.
15. For each transaction, Teleos and Others received from TT, a few days after the sale, the stamped and signed original of the CMR consignment note (dispatch note drawn up on the basis of the Convention on the Contract for the International Carriage of Goods by Road, signed at Geneva on 19 May 1956, as amended by the Protocol of 5 July 1978), describing the goods and stating the delivery address, the carrier's name and the vehicle's registration number. Such note, which was signed by TT, afforded evidence that the mobile telephones had reached the specified destination.
16. Initially, the Commissioners accepted those documents as evidence that the goods had been exported from the United Kingdom, so that those supplies were exempt from VAT, by virtue of the zero-rating, and Teleos and Others were entitled to be refunded the input tax paid. However, on subsequent checks, the Commissioners discovered that, in certain cases, the destination stated on the CMR notes was false, that the carriers mentioned therein did not exist or did not transport mobile telephones, or that the registration numbers given were of non-existent vehicles or of vehicles which were unsuitable for transporting such goods. The Commissioners concluded that the mobile telephones had never left the United Kingdom and therefore assessed Teleos and Others to VAT on those supplies, in an amount of several million GBP, whilst fully acknowledging that they were in no way involved in any fraud.
17. The order for reference states that there was evidence that TT had made tax returns to the competent Spanish authorities relating to the intra-Community acquisition of mobile telephones. TT had also declared the onward supply of the goods as exempt intra-Community supplies and claimed refunds of input VAT.
18. The national court considers it proven that there was no reason for Teleos and Others to doubt the information contained in the CMR consignment notes or their authenticity, and that those companies were not party to any fraud and were unaware that the mobile phones had not left the United Kingdom. It also concluded that, after Teleos and Others had made serious and detailed inquiries as regards both TT and Euro-Cellars Ltd to establish the legitimacy of the purchaser, they had no other real means of establishing the falsity of the statements contained in those notes. Moreover, no additional evidence, other than the CMR notes, could reasonably have been obtained, having regard to the nature of the trade in question.
19. Teleos and Others brought proceedings before the referring court against the Commissioners' decisions assessing them to the VAT, on the ground that there was no basis for them under the Sixth Directive.”
The Administrative Court referred four questions to the ECJ. It is not necessary for present purposes to refer to the first, second or fourth questions. The ECJ paraphrased the third question as follows at paragraph 43:
“By its third question, the national court is asking, in essence, whether the first subparagraph of Article 28c(A)(a) of the Sixth Directive is to be interpreted as precluding the competent authorities of the Member State of supply from requiring a supplier, who acted in good faith and submitted evidence establishing, at first sight, his right to the exemption of an intra-Community supply of goods, subsequently to account for VAT on those goods where that evidence is found to be false, without, however, the supplier's involvement in the tax evasion being established.”
The ECJ went on to make a number of points and to consider certain principles of Community law, in particular the principle of legal certainty, the principle of proportionality, the principle of fiscal neutrality and the principle of free movement of goods. So far as the last of these principles is concerned the Court said this:
“61. As regards, fourthly, Teleos and Others' argument that the measures adopted by the United Kingdom authorities interfere with the free movement of goods, first, it is clear from the Court's case-law that preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive (see Joined Cases C'487/01 and C-7/02 Gemeente Leusden and Holin Groep [2004] ECR I'5337, paragraph 76, and Kittel and Recolta Recycling, paragraph 54), which can, in certain circumstances, justify restrictions on the free movement of goods.
62. Secondly, it is also important to ensure, as the Commission correctly submits, that the position of economic operators should not be less favourable than it was prior to the abolition of frontier checks between the Member States, because such a result would run counter to the purposes of the internal market which is intended to facilitate trade between them.
63. Since it is no longer possible for taxable persons to rely on documents issued by the customs authorities, evidence of intra-Community supplies and acquisitions must be provided by other means. Whilst it is true that the regime governing intra-Community trade has become more open to fraud, the fact remains that the requirements for proof established by the Member States must comply with the fundamental freedoms established by the EC Treaty, such as, in particular, the free movement of goods.
64. In that regard,...
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