Pacific Computers Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 January 2015 |
| Date | 20 January 2015 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Adrian Shipwright, Suss Mrs Susan Lousada
Alistair Webster QC appeared for the Appellant instructed by Litigaid Law
Christopher Foulkes, Counsel and Howard Watkinson, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Value added tax – Denial of input tax recovery as said to be connected with fraud – Whether properly denied – On facts neither, actual knowledge of fraud or only reasonable explanation of taxpayer's transactions shown by HMRC who had onus – Appeal allowed.
[1] This decision concerns an appeal by Pacific Computers Limited (“the Taxpayer”) against the denial of VAT input tax recovery to the Taxpayer by the Respondents (“HMRC”) for the period 09/06.
[2] This decision was notified by letter dated 13 February 2008 (“the Decision Letter”). The denial of input tax deduction, according to the Decision Letter, was because HMRC were “… satisfied that the transactions … formed part of an overall scheme to defraud the Revenue” and the Taxpayer knew or should have known of this.
[3] The amount of input tax denied deduction was £428,525.74. It related to the input VAT for the Period 09/06. It is the denial of input tax recovery for this period alone that is the issue before us. We are not concerned with the position of input tax recovery in other periods as that is not the subject of the appeal before us.
[4] The Parties wished to make their closing submissions in writing. We agreed to this.
[5] HMRC asked for a period of six weeks to do this. This was, in part, we were told because of Court commitments. The Taxpayer did not object in the circumstances and we set out a timetable with which the Parties agreed.
[6] This provided that HMRC's written closing submissions were to be provided by March 11 2014. The Taxpayer's closing submissions were to be provided by 19 March 2014. The Taxpayer's submissions were received on time.
[7] The underlying rationale to this was that as it was the Taxpayer's appeal the Taxpayer should also have the last word1.
[4] I think that is something where normally the
[5] appellant would have the last word, and that is why one
[6] would start off here by saying that you make your
[7] closing submissions and the appellant replies to them.
[8] If you want to make further submissions then I think
[9] that needs to be a matter for leave…
[18] JUDGE SHIPWRIGHT: No, I think we will leave it as there is
[19] leave to ask to add further submissions but you have had
[20] your chance to make submissions and the written
[21] submissions will be there…
[8] The Respondents produced a closing submission of about 116 pages. It was wide ranging and much of it did not go to the essential issue in this case namely whether the test in Mobilx Ltd (in administration) v R & C Commrs VAT[2010] BVC 638 that the only reasonable explanation for the transaction in which the taxpayer was involved was connected to fraud bearing in mind the taxpayer's knowledge at the relevant time was satisfied. Much of it related to matters which were outside HMRC's knowledge let alone the Taxpayer's knowledge at the time in question. Much of it was not of assistance to the Tribunal. The Tribunal reread the document carefully a number of times before reaching this conclusion.
[9] The Taxpayer submitted its helpful closing submissions which were to the point, of a sensible length within time.
[10] HMRC then took it upon itself to submit a further set of submissions allegedly in reply to the Taxpayer's closing submissions which had been produced and filed in accordance with what the Tribunal had directed. These further HMRC submissions were of some considerable length. HMRC did this without informing the Tribunal or seeking leave to do so notwithstanding what had been said on the last day of the hearing and the usual way of proceeding. It being the Taxpayer's appeal the Taxpayer should have the last word.
[11] The Taxpayer, unsurprisingly, objected to this course of action taken by HMRC and filed a Notice of Objection dated 16 April 2014. However, the parties later agreed the original HMRC further submissions could be admitted provided the Taxpayer could have the last word if it wished and make the final submissions. The Tribunal in order to deal with this directed that:
[1] The Respondents further submissions be admitted in the form that they were first sent to the Tribunal but with no amendments, additions or other variations.
[2] The Appellant has leave to submit such further representations, if any, in response to Respondents' submissions within 28 days of the issue of this direction.
[3] That no further submissions or applications of whatsoever nature whether relating to closing submissions or otherwise shall be made in this matter unless the prior written permission of the Tribunal (preferably as presently constituted) has been obtained.
[4] The Tribunal reserves to itself the issue of the costs occasioned by these further submissions and may if it considers it appropriate ask for further submissions as it sees fit but for the avoidance of doubt Direction 3 applies to this Direction 4
[12] This direction was issued in May 2014.
[13] The Taxpayer submitted a document in response to the second set of closing submissions from HMRC. As Mr. Webster QC said “… The necessity for [his further closing submissions] and the consequential costs entailed is regretted”. At eight pages these were considerably more focussed and of greater utility than the somewhat unfocused HMRC document.
[14] The Taxpayer's document was dated 10 June 2014 and was short, to the point and helpful. It is not necessary to draw any contrast with the long unfocussed documents from HMRC which even after a number of readings we found not to be of any great utility.
[15] These procedural matters have not led to the expedition of the disposal of this appeal. This is to be regretted It would have helped if HMRC had complied with the agreed normal procedure rather than trying seemingly to seek to obtain an advantage by not complying with it. The Tribunal has a duty to provide a fair trial and it is for this reason that certain norms are required to be observed. It is a pity HMRC did not assist with this.
[16] We record these matters as we feel we have to do so, so that the appeal can be seen in its proper context and full information is available to any higher tribunal or court.
[17] We have carefully considered our decision both on this point and generally to make sure that we have been fair to all the parties notwithstanding any procedural wrangles etc. We consider that we have achieved this. In all of this we have particularly borne in mind article 6 of the Human Rights Convention concerning the right to a fair trial. We have sought to achieve this in all the circumstances bearing in mind that the trial should be fair to all the parties.
[18] It was common ground between the parties that:
[18.1] The chains in the deals in question had been established;
[18.2] There was tax loss in the chains; and
[18.3] The tax loss was caused by fraud.
[19] It was not disputed that, in broad terms, the Taxpayer's officers were aware of the existence of MTIC and carousel frauds and their relevance to the VAT system. It was disputed that they knew or ought to have known of the connection to fraud in the particular circumstances under consideration here.
[20] It was not disputed that the deals were “back to back” in the sense that they were arranged to take place (in the sense of close or complete) essentially on the same day. The significance of this was a matter of dispute.
[21] It was accepted that on some occasions payment lagged release of the goods in question. Again the significance of this was a matter of dispute.
[22] In essence, the issue in this case is whether or not the input deduction was correctly denied.
[23] This requires a number of questions to be considered including the following.
[23.1] Did the Taxpayer know that the Taxpayer's transactions had been or would be connected to fraud? Was there actual knowledge of fraud on the Taxpayer's part?
[23.2] Should the Taxpayer have known that the only reasonable explanation for the transaction in which the Taxpayer was involved was that the transaction was connected to fraud? (See Mobilx [59] and Else Refining and Recycling Ltd v R & C Commrs VAT[2014] BVC 503 [20]). Was there imputed knowledge on the basis of Mobilx?
[24] In both questions the onus of proof is on HMRC (cf. Mobilx at [81]). This onus is on the civil standard of proof i.e. the balance of probabilities.
[25] HMRC considered that the transactions in the period 06/06 “… were connected with fraudulent evasion of VAT and took place as part of an orchestrated scheme to defraud the Revenue”. However, HMRC did not deny input tax recovery on those deals and that period is not in issue before us. There was no evidence before us to stand up HMRC's assertion. Accordingly, we did not consider it further.
[26] This decision is solely concerned with the denial of input tax recovery to the Taxpayer for the period 09/06. This was the subject matter of the appeal before us.
[27] The following abbreviations and references to persons are used in this decision but as ever are subject to the requirements of the context.
27.1. “Allblast” |
Allblast ApS, a Danish incorporated Company involved in the chains |
27.2. “Andrew Miles” |
Andrew Miles who was a director of the Taxpayer and is still a 30% shareholder of the Taxpayer and was and is a director of Taran – sometimes referred to as Mr Miles |
27.3. “Astontek” |
Astontek Ltd, a company incorporated in the UK involved in the chains |
27.4. “CPU” |
Computer Processing Units |
27.5. “the Decision Letter” |
the decision letter referred to in paragraph 2 |
27.6. “Doktor Ring” |
Doktor-Ring Telecom Gmbh, a German incorporated... |
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