R (Just Fabulous (UK) Ltd) v R & C Commissioners
| Jurisdiction | England & Wales |
| Judgment Date | 15 March 2007 |
| Date | 15 March 2007 |
| Court | Queen's Bench Division |
Queen's Bench Division (Administrative Court).
Burton J.
Michael Patchett-Joyce (instructed by Dass) for Just Fabulous and (instructed by Hassan Khan & Co) for Brayfal.
Paul Lasok QC (instructed by Irwin Mitchell) for Evolution and Greystone.
Rupert Anderson QC leading Peter de Verneuil Smith (Just Fabulous), Andrew MacNab (Evolution and Greystone) and Mario Angiolini and Alan Bates (Brayfal) (instructed by HM Revenue and Customs) for the defendants.
The following cases were referred to in the judgment:
Associazione Industrie Siderurgiche Italiane (ASSIDER) v High Authority of the European Coal and Steel CommunityECAS (Case 5/55) [1954-56] ECR 135
Bulmer v BollingerELR [1974] Ch 401
Calltell Telecom Ltd & Opto Links (Europe) Ltd (VAT Tribunal, 23 January 2007)
C & E Commrs v Federation of Technological IndustriesECAS (Case C-384/04) [2006] ECR I-4191
Dragon Futures LtdVAT No. 19,831; [2007] BVC 4,031
Elida Gibbs Ltd v C & E CommrsECASTAX (Case C-317/94) [1996] BTC 5,513; [1996] ECR I-5339
Garage Molenheide BVBA v BelgiumECASECASECASTAX (Joined Cases C-286/94, C-340/95 and C-47/96) [1998] BTC 5,088; [1997] ECR I-7281
Halifax plc v C & E CommrsECASTAX (Case C-255/02) [2006] BTC 5,308; [2006] ECR I-1609
Kittel v Belgium; Belgium v Recolta Recycling SPRLECASECAS (Joined Cases C-439/04 and C-440/04) [2006] ECR I-6161
Megantic Services Ltd v R & C CommrsUNK [2006] EWHC 3232 (Admin)
Optigen Ltd, Fulcrum Electronics Ltd & Bond House Systems Ltd v C & E CommrsECASTAX (Joined Cases C-354/03, 355/03 and 484/03) [2006] BTC 5,050; [2006] ECR I-483
R v Minister of Agriculture, Fisheries and FoodUNK [1988] 3 CMLR 661
R (on the application of UK Tradecorp Ltd) v C & E CommrsTAX [2005] BTC 5,097
Robert Bosch GmbH v Hauptzollamt HildersheimECAS (Case 135/77) [1978] ECR 855
Value added tax - Missing trader fraud - Carousel fraud - Contra-trading fraud - Overpayment - Taxpayers sought refund of VAT overpaid - Customs refused payment pending outcome of inquiry into suspected fraud - Taxpayers applied for judicial review - Whether Customs could lawfully withhold payment in respect of assumed deliberate dishonest transaction.
These were three separate applications by the taxpayers for judicial review of Customs' decisions refusing their claims for repayment of VAT overpaid.
Just Fabulous (UK) Ltd claimed repayment of VAT totalling £19.5m in respect of its VAT returns for March, April and May 2006, relating to the acquisition of mobile phones from four suppliers; Evolution Export Trading Ltd claimed repayment of VAT totalling £30.3m in VAT returns in January, February and March 2006, with regard to mobile phone transactions relating to seven suppliers including Blackstar UK Ltd; Brayfal Ltd claimed repayment of VAT in the sum of £914,000, in its March 2006 VAT return, in respect of the acquisition of mobile phones, in its case all from one supplier, Future Communications Ltd.
In missing trader intra-community (MTIC) fraud, the goods, if they existed, were the subject-matter of a series of successive transactions within the UK, being onsold, usually at a markup, with VAT returns completed by each purchaser, resulting in a small payment to the Revenue, after setting off the input tax against the output tax, until eventually the goods were acquired by an exporter. As goods when exported were no longer the subject of the VAT regime of the member state, the exporter could claim as a credit, and thus prima facie was entitled to receive from the Revenue, the total sum of VAT due and purportedly paid in respect of the goods exported. That kind of MTIC fraud was called a "carousel fraud" because it could be repeated as often as required, because the goods were "returned" to a destination outside the UK which might well be the same country or even the same, or an associated, source as the original supplier, ready to be sent round again. The individual transactions did not need to take long, perhaps a matter of moments, and the goods might not in fact have moved from a warehouse or freight forwarder either on the occasion of any one transaction or possibly at all, except that there would need to be evidence of export to support the claim for repayment of input VAT credits. The fraud was plainly committed, if the participants in such chain were dishonest, at the stage of the missing trader, although the loss might not crystallise until the Revenue had to pay out in full in respect of the return filed by the exporter.
The steps taken by Customs in response to the growth of MTIC and carousel frauds included the refusal to make payment to the "exporter" at the end of a suspect chain (a "defaulter chain"). Customs also believed that they needed to prevent what they saw as a new method of achieving the same fraudulent ends by "contra-trading" fraud, in which, instead of the exporter simply putting in a return and failing to persuade the Revenue to repay, it found an occasion to enter into a fresh transaction, in relation purportedly to different goods, with a different trader, for which purpose the exporter acted as a broker or contra-trader, in buying in those goods from abroad and selling them on to such new trader: in the course of such sale the exporter/broker/contra-trader was thus enabled to set off in his return the input tax against the output tax, being the VAT paid to it by the new trader, and thus recover, by reference to the VAT paid to it by the new purchaser in respect of the new goods, a VAT credit which it would not be able to obtain by straightforwardly submitting the return to the Revenue. Consequently, where Customs were able to show that the transaction, ostensibly in different goods from those in the defaulter chain, was entered into by the broker for the purposes of obtaining set off, and the contra-trader then exported those new goods and claimed in its VAT return as input tax the VAT that it had paid to the broker, such claim was refused. Unless there was some specific doubt about a service purportedly supplied in respect of those (contra-traded) goods, the denial of the output tax was simply in respect of VAT on the goods themselves.
Customs had failed to pay the very substantial sums claimed on the taxpayers' VAT returns, but asserted that they had not yet made a decision not to pay, as they were still investigating what they concluded to be the sufficiently suspicious circumstances in relation to the contra-trading and the connections between those on the defaulter chain, culminating in the broker, and the taxpayers. The taxpayers sought judicial review of the refusal of their claim for repayment and argued that even if Customs' case was established, it was unable to take the course of declining to pay the VAT on the contra-trading transactions, because the VAT claimed related to different goods from those in the defaulter chain, to which the taxpayers were not suggested to have been party.
Held, dismissing the application:
1. The question was whether, in respect of a (assumed) deliberate dishonest transaction by the taxpayers, Customs could lawfully decide to withhold payment pursuant to receipt of their VAT returns claiming repayment. If Customs could show that the transactions were what they claimed them to be, they had at least an arguable case that a trader who, knowingly or with means of knowledge, engaged in conduct designed to conceal, or avoid the consequences of discovery of, a fraud should be in no better position than the perpetrator of the fraud. Although the court had to bear in mind the importance of the sanctity of the common system of VAT, that system was much more at risk if firm steps were not taken by Customs to prevent the fraudulent abuse of it which, on the assumed facts in this case, would have taken place. Accordingly Customs could base its decision, on whether it could refuse to pay on the VAT returns, on the connection of those transactions with the transactions the subject of the defaulter chain. (Kittel v Belgium; Belgium v Recolta Recycling SPRL (Joined Cases C-439/04 and C-440/04) [2006] ECR I-6161 considered.)
2. If the taxpayers were right in their contention that Customs were only entitled to refuse to pay VAT due in respect of the goods the subject matter of the defaulter chain, then Customs would be powerless to prevent massive fraudulent claims involving multiple chains in different goods. It could not be right that Community law sanctioned sophisticated VAT fraud. It was an absurd proposition that the sixth directive permitted for instance a defaulter, contra-trader and broker to conspire to create a tax loss, offset that loss into another supplier and then deliberately and fraudulently claim an input tax refund.
3. It was not appropriate to make a reference to the European Court of Justice at this stage as there was no doubt as to the application of Kittel to the right claimed by Customs, if they could establish the facts that the taxpayers knew or should have known that they were entering into the contra-trade transactions to facilitate a fraud on the Revenue, by the recovery, for the originator of the contra-trade, of input VAT by offsetting which, emanating as they did from a defaulter chain, would have been irrecoverable by direct claim upon the Revenue.
Burton J:
[1] This has been the hearing of three applications for judicial review, in each of which the Defendants have been the Commissioners of HM Revenue and Customs ("the Revenue"). Although they were ordered to be heard consecutively, since there was one issue of law to be resolved common to all three, I directed that there be legal submissions on that issue only once; and in the event...
To continue reading
Request your trial
-
HMRC v Livewire and Another
...Petromec Inc v Petroleo Brasileiro SA PetrobusUNK [2006] 1 Ll Rep 121 R (on the application of Just Fabulous (UK) Ltd) v R & C CommrsVAT [2007] BVC 490 R (on the application of Teleos plc) v R & C CommrsECASVAT (Case C-409/04) [2008] BVC 705; [2007] ECR I-7797 Value added tax - Input tax - ......
-
Red 12 Trading Ltd v HM Revenue and Customs
...of Goldsmith) v London Borough of WandsworthUNK [2004] EWCA Civ 1170 R (on the application of Just Fabulous (UK) Ltd) v R & C CommrsVAT [2007] BVC 490 R (on the application of Teleos plc) v R & C CommrsECASVAT (Case C-409/04) [2008] BVC 705; [2007] ECR I-7797 R (on the application of UK Tra......
-
Butt
...are explained in paragraphs 9 and 10 of the judgment of Burton J in R (on the application of Just Fabulous (UK) Ltd) v R & C Commrs VAT[2007] BVC 490. Goods are sold in a chain (“the dirty chain”) through one or more buffer companies to (in the end) the broker (“Broker 1”) which exports the......
-
Eurosel Ltd
...SPRLECASECAS (Joined Cases C-439/04 and C-440/04) [2008] BVC 559R (on the application of Just Fabulous (UK) Ltd) v R & C CommrsVAT[2007] BVC 490; [2007] EWHC 521 (Admin)Calltell Telecom Ltd; Opto Telelinks (Europe) Ltd No. 20,266; [2007] BVC 2544Ecotrade SpA v Agenzia delle Entrate - Uffici......