Senergy (UK) Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 August 2006 |
| Date | 23 August 2006 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
C & E Commrs v Century Life plcVAT[2001] BVC 116
EC Commission v Holland (Case C-338/98)VAT [2003] BVC 598
Finanzamt Osnabrück-Land v LanghorstVATECAS (Case C-141/96) [1998] BVC 6
Grunwick Processing Laboratories Ltd v C & E CommrsVAT (1987) 3 BVC 29
Les Croupiers Casino Club v PattinsonTAX (HMIT) [1985] BTC 353
Marleasing SA v La Comercial Internacional de Alimentacion SAECAS (Case C-106/89) [1990] ECR I-4135
McNicholas Construction Co Ltd v C & E CommrsVAT [2000] BVC 255
Re HELR [1996] AC 563
Richmond Cars LtdVAT No. 16,942; [2001] BVC 4,070
Snook v London & West Riding InvestmentsUNK [1967] 1 All ER 518
Terra Baubedarf-Handel GmbH v Finanzamt Osterholz-ScharmbeckVATECAS (Case C-152/02). [2006] BVC 672
Input tax - Whether a genuine trade in golf clubs - Whether appellant knowingly involved in sham transactions - Whether single event unequivocally indicating fraud necessary for finding trade a sham - Invoices - Whether invoices sufficient evidence for deduction of input tax - Carousel fraud - Value Added Tax Regulations 1995 (SI 1995/2518), reg. 13, 14 and 29; EC Directive 77/388, the sixth VAT directive, art. 22(3)(b).
The issue was whether the appellant was entitled to input tax credit on the purchase of golf equipment, which the Commissioners maintained was neither received nor supplied in the course of the appellant's business.
The appellant registered for VAT in September 2003 as a supplier of specialist electrical goods but, before the end of that year, the company's shares were transferred to new owners. One of the new shareholders was a director of Interactive Sport (UK) Ltd (Interactive), a supplier of golf equipment, and another was the owner and director of Inter-Sporting Leisure SL (Inter), a company operating in Spain. In the first VAT return following the change in ownership, the appellant declared sales of £5.9m and reclaimed VAT of £963,342. In its second return, it declared sales of £7.3m and claimed input tax of £1,205,586. In both periods, the sums were attributable to golf clubs bought from Interactive and sold to Inter as zero-rated removals from the UK. The Commissioners refused to allow input tax credit of £1,197,684 claimed in the second return and the company's appeal was against this decision.
The principal contention of the Commissioners was that the transactions giving rise to the appellant's claims for input tax were a sham in that the supplies by Interactive to the appellant were not what they purported to be. Secondly, the Commissioners contended that goods of the description and/or quantity stated on the invoices from Interactive had never been received or supplied on by the appellant. As a result, the invoices did not meet the requirements of reg. 13 and 14 of the Value Added Tax Regulations 1995 (SI 1995/2518). The Commissioners submitted that the supplies described on the invoices held by the appellant were fictitious and, whilst it was accepted that large consignments of goods were sent by the appellant to Inter in Spain, these were not the high-value goods shown in the documents. The Commissioners submitted that the goods were mis-described and the transactions were part of a carousel fraud.
The appellant argued that the supplies of golf clubs shown in the invoices were genuine transactions and the transactions were not a sham. The invoices provided "a description sufficient to identify the goods supplied", as required by reg. 14(1)(g) of the 1995 Regulations. This was supported by evidence in the form of purchase orders, invoices, insurance and inspection documents and the paperwork showing the transfer of payments. The appellant submitted that there was no single event or direct piece of evidence from which a fundamental adverse reference could be drawn. In order for the Commissioners to succeed in their allegation of sham, they were required to satisfy the tribunal that fraud was being perpetrated by somebody and that the appellant knew of the fraud and was complicit in it. In the appellant's view, the Commissioners had failed to do this. With regard to the issue of whether the invoices met the technical requirements required to support a claim for deduction of input tax, the appellant pointed to the difference between the requirements of domestic law, in the form of the Value Added Tax Regulations, and Community law as in EC Directive 77/388, the sixth VAT directive. The distinction was between a requirement that the "nature" of the goods be provided and that there be a description "sufficient to identify the goods". The appellant submitted that where there is a discrepancy between the wording of the sixth directive and the implementing legislation, the national rules must be interpreted in accordance with the wording and purpose of the directive. In the present case, the strict interpretation of the Commissioners was at odds with the directive.
Held,
1. There were many contradictions and inconsistencies in the evidence of the appellant's directors, who were not considered by the tribunal to be reliable witnesses.
2. Whilst the appellant was correct in submitting that there was no single event which was unequivocally an indicator of fraud from which a fundamental adverse reference could be drawn, there was no authority stating that it was a legal requirement for there to be one.
3. In the judgment of the tribunal, the supplies between Interactive and the appellant were, to the appellant's knowledge, not what they purported to be. In the event that the tribunal was wrong on this, it found that the appellant was willfully turning a blind eye to the possibility that the transactions were a sham.
4. On the balance of probabilities, the burden of proof being on the appellant, none of the invoices held to support the company's claim to input tax were valid VAT invoices. They did not give "a description sufficient to identify the goods supplied" and/or the quantity of the goods, and the quantities specified on the invoices had not been shown to match the actual quantities as evidenced by the weight of the consignments.
5. Article 22(3)(b) of the sixth VAT directive required that invoices should contain details of the "quantity and nature of the goods supplied". In addition to the discrepancies in descriptions and weights of the consignments, the numbers of golf clubs said to have been supplied were not credible. Accordingly, neither the requirements of domestic nor Community law were met.
6. On all counts, the company's appeal was dismissed with reasonable costs awarded to the Commissioners.
1. This is an appeal against a decision of the Commissioners of HM Revenue & Customs ("HMRC") contained in a letter dated 7 January 2005 not to pay input tax claimed in the VAT return for the period 03/04 in the amount of £1,197,684.15. In a statement of case dated 21 April 2005 it was stated that the claim for input tax was refused on the grounds that there were no supplies made by the Appellant ("Senergy") and as such, the input tax did not come within the definition of input tax in s. 24(1)(a) of VATA 1994. Furthermore, the purported sales made by Senergy were not supplies made in the course of its business and as such, no entitlement to input tax attributable to making such supplies arises under s. 26 VATA.
2. Further to a direction of the Tribunal of 6 September 2005 an amended statement of case dated October 2005 was served. Subsequently a draft re-amended statement of case dated March 2006 was served in which it was stated that:
The claim for input tax credit was refused on the grounds that the Commissioners were not satisfied that the Appellant had either received or traded on the supplies described on the relevant VAT invoices.
3. The appeal was against only £536,656.65 of the total amount claimed as input tax. This was because the input tax was originally claimed in respect of six consignments of golf equipment, but subsequently three of those consignments were not sold on and therefore the claim for input tax in respect of those consignments was not pursued.
4. The principal ground of appeal is that the relevant goods were exported, and that all obligations in terms of VAT were met. It was further claimed that the reasons adduced by HMRC for not paying the input tax were insupportable, having no, or a quite insufficient, evidential basis. It was also alleged that HMRC had conducted their enquiry in an unfair and disproportionate manner.
5. Senergy was incorporated on 25 March 2003 and was registered for VAT with effect from 1 September 2003. Its intended business activity on its application for registration was "the sale of specialist electrical goods - e.g. radio controlled planes - toys and niche products including giftware."
6. Senergy was set up by a Mr James Isaacs who was the majority shareholder. James Isaacs resigned as a director on 31 March 2004, having, in December 2003, transferred the majority of his shareholding to a Mr Laurence Flynn, Mr Phillip Clark and Phillip Clark's son. Laurence Flynn and Phillip Clark thereby became majority shareholders and, as the evidence set out below will show, effectively controlled Senergy from December 2003.
7. Laurence Flynn was a director and shareholder of a company called Interactive Sport UK Ltd ("Interactive"), a company which bought and sold golf equipment. Phillip Clark was the owner and a director of a company called Inter-Sporting Leisure SL ("Inter-Sporting"), which operated in Spain.
8. A Mr Peter McAughey was the company secretary for Senergy and had been so since December 2003. He was also the company's financial controller but was not a director of the company.
9. Senergy's first VAT return was for the period 10/03 and was a nil return. In its second return, for the period 01/04, Senergy declared a turnover of £5.9m and reclaimed VAT of £963,342. This return...
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