Revenue and Customs Commissioners v Kishore
| Jurisdiction | England & Wales |
| Judgment Date | 28 October 2021 |
| Neutral Citation | [2021] EWCA Civ 1565 |
| Court | Court of Appeal (Civil Division) |
[2021] EWCA Civ 1565
Lady Justice King, Lord Justice Newey and Lord Justice Nugee
Court of Appeal (Civil Division)
Value added tax – Inaccuracy penalty under VATA 1994, s. 63 notified after appellant trader's Kittel v Belgium; Belgium v Recolta Recycling SPRL (Joined Cases C-439/04 and C-440/04) [2008] BVC 559 appeal struck out – Upper Tribunal reinstated appeal – HMRC's appeal dismissed – Cross appeal dismissed.
The Court of Appeal upheld an Upper Tribunal (UT) decision on whether the First-tier Tribunal (FTT) had been right to strike out an appeal in Kishore v R & C Commrs [2020] BVC 539, ruling that in an appeal against a misdeclaration penalty charged under the former VATA 1994, s. 63, the appellant was entitled to advance issues raised in previous appeals relating to the deduction of input tax which had been struck out.
In 2008, HMRC refused repayment of input tax claimed by Mr Kishore on his 03/06 and 06/06 VAT returns on the grounds that he either knew or should have known that the relevant transactions were connected with fraud (the Kittel principle). Mr Kishore appealed against these decisions (the Kittel appeals) but his appeal was ultimately struck out by the First-tier Tribunal (FTT) because he failed to comply with FTT directions. On the conclusion of Mr Kishore's appeal on this issue, HMRC issued an assessment for a misdeclaration penalty. The assessment was issued under the now repealed VATA 1994, s. 63.
Mr Kishore appealed against the misdeclaration penalty but the FTT ([2019] TC 06892) struck out his appeal. Mr Kishore appealed the FTT decision. The UT ([2020] BVC 539) allowed the appeal on the ground that the penalty violated Article 6 of the European Convention on Human Rights (ECHR). The UT concluded that “the FTT erred in striking out those of Mr Kishore's penalty appeal grounds which it did on the basis that there was no arguable case that Mr Kishore's Article 6 rights were breached as a result of unreasonable delay and on the basis that it was an abuse of process for Mr Kishore to advance a defence of reasonable excuse”. The UT remitted the case back to the FTT so that the substantive issues could be addressed.
HMRC appealed to the Court of Appeal, submitting that it was an abuse of process for Mr Kishore to advance issues which had arisen in previous appeals relating to the deduction of input tax which had been struck out. In a cross-appeal, Mr Kishore contended that the penalties should be set aside on the basis that HMRC had breached his art. 6 rights and had themselves acted abusively.
Lord Justice Newey, with whom Lady Justice King and Lord Justice Nugee agreed, dismissed both HMRC's appeal and Mr Kishore's cross appeal.
While issue estoppel did not apply in these circumstances, as the Kittel appeals were not the subject of a determination, with reference to the authorities on issue estoppel LJ Newey derived that:
- Where a civil claim has been the subject of an adjudication, issue estoppel will generally bar a party from re-opening in a second claim an issue determined against him in the first one if the issue was essential to that decision.
- Where a civil claim has been struck out as an abuse of process on account of intentional and contumelious conduct, want of prosecution or wholesale disregard of rules of Court or, perhaps, struck out by reason of other inexcusable procedural failure on the part of the claimant, a second claim covering the same subject matter will be struck out unless there is special reason not to do so.
- Where a civil claim has been discontinued, the claimant will need to obtain the Court's permission to bring a second one arising out of facts which are at least substantially the same if the defendant had filed a defence in the first claim.
- Where a point was not raised in a set of proceedings but could have been, it may be an abuse of process for the party to raise it in later proceedings. When deciding whether that is the case, the Court takes a broad, merits-based approach in accordance with Johnson v Gore Wood & Co [2002] 2 AC 1.
- While the point was left open in Shiner v R & C Commrs [2018] BTC 8, the weight of authority suggests that issue estoppel has, at most, a much smaller part to play in the context of tax appeals. However, it may be abusive for a party to contest a point which has been decided against him in such an appeal in later proceedings and, in that context, the Court will again make a broad, merits-based evaluation.
In this case it was correct for the UT to proceed on the basis that Johnson v Gore Wood & Co principles applied. Therefore, the question of whether Mr Kishore should be permitted to contest in the penalty appeals issues which had arisen in the Kittel appeals (i.e. whether he should have known that he was participating in transactions connected with the fraudulent evasion of VAT) was to be determined on the basis of the “broad, merits-based judgment” and not the Arbuthnot Latham Bank Ltd v Trafalgar Holdings Ltd [1998] 1 WLR 1426 line of authority, concerning whether a claimant can bring a second claim civil claim. In any event it had not been demonstrated that Mr Kishore was guilty of intentional and contumelious conduct, wholesale disregard of the rules or otherwise inexcusable conduct in the Kittel appeals.
This case will now return to the FTT for a hearing of the substantive issues.
The case concerned a misdeclaration penalty assessed under VATA 1994, s. 63 which has been repealed and replaced with the new penalty regime contained in Sch. 24 of FA 2007.
Sarabjit Singh QC and Christopher Foulkes (instructed by General Counsel and Solicitor to HM Revenue and Customs) appeared for the Appellants/Cross-Respondents
Brendan McGurk (instructed by iTax UK) appeared for the Respondent/Cross-Appellant
[1] This appeal concerns penalties to which Mr Dhalomal Kishore has been assessed by HM Revenue and Customs (“HMRC”) under the Value Added Tax Act 1994 (“the VATA”). Mr Kishore has appealed the penalties, but it is HMRC's position that it is an abuse of process for him to advance in those appeals issues which arose in previous appeals relating to the deduction of input tax which were struck out. For his part, Mr Kishore contends that the penalties should be set aside at once on the basis that HMRC have breached article 6 of the European Convention on Human Rights (“the Convention”) and themselves acted abusively.
[2] In the first half of 2006, Mr Kishore, who was registered for value added tax (“VAT”), entered into transactions by which he bought goods from UK suppliers and then exported them. He claimed input tax totalling £22,392,775.10 in his VAT returns for the periods 03/06 and 06/06 in respect of his purchases, but in decision letters dated respectively 13 July 2007 and 28 March 2008 HMRC denied that Mr Kishore was entitled to deduct input tax. HMRC maintained that Mr Kishore knew or ought to have known that the transactions were connected with VAT fraud and, hence, that the principles established in the decision of the European Court of Justice in Kittel v Belgium; Belgium v Recolta Recycling SPRL (Joined Cases C-439/04 and C-440/04) [2008] BVC 559 (“Kittel”) applied. It was held in Kittel that entitlement to the right to deduct input tax can be refused where:
it is ascertained, having regard to objective factors, that the taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT
[3] Mr Kishore appealed each of HMRC's decisions, by notices of appeal dated respectively 8 August 2007 and 24 April 2008. Protracted litigation ensued in the course of which, on 16 October 2014, the First-tier Tribunal (“the FTT”) gave what have been termed “Fairford directions” after the guidance given in R & C Commrs v Fairford Group plc (in liquidation) [2014] BVC 529. These provided that, if an appeal which HMRC were then seeking to bring on a particular evidential matter were refused or withdrawn, Mr Kishore was by no later than three months after the refusal or withdrawal:
to specify by way of written pleading [his] position on the following issues:
- Does the Appellant accept that the transaction chains as set out in the deal sheets produced by the Respondents in relation to the Appellant's purchases on which the Respondents have denied input tax recovery, accurately reflect the trading history of the goods bought and sold by the Appellant? If the Appellant does not accept the accuracy of the deal sheets, which chains does it consider to be incorrect, and why?
- Does the Appellant accept (without making any admission of knowledge or means of knowledge) that the Appellant's transactions were part of an orchestrated fraud? If not, what reasons does it advance for its position?
- Does the Appellant accept in relation to the transactions alleged to be directly connected with a fraudulent VAT default, that each alleged fraudulent defaulting trader occasioned a fraudulent default of VAT? If not, what reasons does the Appellant advance for its position? Further, in relation to the witness statements served by the Respondents, and admitted by the Tribunal, for each defaulting trader what, if any, are the matters in dispute?
- In relation to the other witness statements served by the Respondents, and admitted by the Tribunal, what, if any, are the matters of fact in dispute?
[4] In a letter dated 19 March 2015, HMRC told Hill Dickinson LLP, who were acting for Mr Kishore, that, the Upper Tribunal (“the UT”) having refused HMRC permission to appeal on the evidential matter, Mr Kishore had until 17 June to provide his list of issues in accordance with the directions given in the previous October. However, on 16 June Hill Dickinson LLP informed both HMRC and the FTT that they had been unable to obtain Mr Kishore's instructions and so concluded that they were no longer...
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Dr Theodore Piepenbrock v London School of Economics and Political Science
...which this form of abuse can arise were summarised by Newey LJ in The Commissioners for Her Majesty's Revenue and Customs v Kishore [2021] EWCA Civ 1565 at paras 20 – 27 (“ Kishore”). It applies where the first action was struck out as an abuse of process and where the conduct of that firs......
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