TC02745: First Class Communications Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 May 2013 |
| Neutral Citation | [2013] UKFTT 342 (TC) |
| Date | 09 May 2013 |
| Court | First-tier Tribunal (Tax Chamber) |
[2013] UKFTT 342 (TC)
Judge Barbara Mosedale.
Mr I Bridge, Counsel, instructed by Field Fisher Waterhouse LLP, appeared for the Appellant
Mr J Kinnear QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Procedure - whether two appeals to be consolidated - whether evidence from "invoice" appeal to be admitted into "Kittel" appeal - whether procedural prejudice to appellant - no - applications allowed
[1]The appellant has two appeals lodged with this Tribunal. The first in time is LON/2007/1103 which is an appeal against HMRC's refusal dated 8 June 2007 to repay input tax of £369,136.25 shown on three invoices issued by a company called Future Communications Ltd to the appellant in the VAT period 03/06. The grounds of HMRC's refusal are (in summary) that the invoices were for the purchase of Samsung Serene mobile telephones and the goods were not correctly stated in the invoice contrary to regulation 14(1)(g) because, alleges HMRC, the mobile phones which were the subject of the invoices did not exist. I will refer to this as the "invoice appeal" to distinguish it from the second appeal.
[2]That second and later appeal (TC/2010/3995) is against a decision of HMRC refusing to repay input tax of £332,056.11 incurred in 56 transactions in the period 06/06 to 09/06 on the grounds that these transactions were connected with the fraudulent evasion of VAT (specifically MTIC fraud) and that the appellant knew or ought to have known this. I will refer to this as the "Kittel appeal" although this is merely shorthand and does not prejudge the issue of whether HMRC can make out a connection to MTIC fraud in that appeal.
[3]It is relevant to note that Future Communications Ltd, the supplier of the 3 deals at issue in the invoice appeal, was the supplier to the appellant in 5 out of 56 of the deals at issue in the Kittel appeal.
[4]On 13 February 2013, HMRC made an application for three directions:
(a) for the two appeals to be consolidated;
(b) or, in the alternative, for evidence served in the LON/2007/1103 invoice appeal to be served in the TC/2010/3995 Kittel appeal;
(c) and in any event, for leave to serve further evidence in the invoice appeal.
[5]The third of these applications is by far the easiest to deal with as it is unopposed. HMRC wish to serve an updating witness statement dated 13 February 2013 by an HMRC officer, Mrs Judith Clifford, in the invoice appeal. This application is allowed by consent.
[6]Another matter, which arose during the course of the hearing, was a direction requested by Mr Bridge and not opposed by Mr Kinnear, and so for the record, I make it here in both appeals:
[7]It is directed that a failure at the hearing by either party to cross examine the other party's witnesses of fact as to an opinion given by that witness in a witness statement is not to be taken as acceptance by that party of that opinion.
[8]This direction is made to save time, and in particular to avoid it being seen as necessary to challenge opinions given by witnesses of fact, although the direction might be technically superfluous as a Tribunal should not rely on opinions stated by witnesses of fact in forming its own conclusions.
[9]Both HMRC's first and second applications are opposed: the parties did not even agree on the order in which I should consider them. HMRC thought I should consider consolidation first and only if that was refused to consider whether evidence from one appeal should be admitted in the other.
[10]I agree with Mr Bridge that I should first consider whether the evidence from the invoice appeal should be admitted in the Kittel appeal: unless I know whether the evidence from the invoice appeal would be relevant to and admitted in the Kittel appeal, I could not take an informed decision on whether it would be right to consolidate the appeals.
[11]HMRC wishes to admit 7 new statements into the Kittel appeal. All bar one of these date to 2008 or 2009 and these statements with their exhibits have long been admitted into evidence in the invoice appeal. Therefore they do not amount to new evidence to the appellant or its advisers. They have had possession of these statements for some 4 to 5 years.
[12]One of the statements is new, but not the contents of it. This is the statement of Mrs Clifford. The statement Mrs Clifford served in the invoice appeal in 2008 was very long: the new one is merely a cut down version of it. I was told this was because HMRC considered that, in the light of developments since the original statement was given and in particular the convictions of various persons associated with the supplier, Future Communications Ltd, it was no longer necessary for Mrs Clifford's evidence to be so detailed. HMRC would be relying on the convictions as evidence of fraud committed by those persons.
[13]The evidence is not particularly voluminous at least in the context of an appeal in which connection to & knowledge of MTIC fraud is alleged: the statements and some 61 exhibits amount to one lever arch file.
[14]HMRC submits the collective effect of those 7 witness statements potentially is a conclusion that the tribunal hearing the Kittel appeal might reach that the appellant or the appellant's officers are not credible, that they knew that those transactions in 03/06 involved goods that did not exist, and that that is relevant to the appellant's state of knowledge on the deals in periods 06/06-09/06.
[15]It is Mr El Homsi's (chief witness for the appellant) case that the phones existed and (according to his witness statement) that they were not counterfeit and that he saw at least some of them and that they were inspected (paragraphs 47, 49, 58, 59, 63, 72). Mr Wald's (HMRC officer) evidence challenges matters such as the quality of the appellant's due diligence.
[16]The appellant's case is that the evidence is not relevant: it relates to a different time and different transactions. It also says HMRC is being selective in seeking to draw comparisons between trading in March 06 and trading in June-September 06. They are, says Mr Bridge, seeking to blacken the appellant by selectively picking on a notorious criminal case merely because the appellant had just happened to have traded with a company the owners of which were later convicted of fraud.
[17]I agree with HMRC that it would certainly affect the credibility of the appellant's witnesses if it was shown that they had knowingly caused the appellant to trade in goods which did not exist or which they should have known did not exist: if the tribunal reached that conclusion on the evidence it heard, it might well consider it relevant to questions of what the appellant knew or ought to have known in respect of the transactions, some of which were with the same supplier, which took place only three to six months later. And it has always been open to the appellant to give evidence of its trading practices outside the periods 06/06-09/06 if it considers that that helps its case with respect to what happened in that period.
[18]I am satisfied that if it is part of HMRC's case in the Kittel appeal that the appellant had, three months before the transactions in issue, and with one of the suppliers who supplied them in the disputed transactions, traded in goods which it knew did not exist or which it should have known did not exist then (a) the allegation would be relevant to HMRC's case in the Kittel appeal and (b) that the evidence now sought to be introduced would be relevant to that allegation and therefore to the Kittel appeal.
[19]However, I find that this is an entirely new allegation by HMRC. It is agreed, and indeed obvious from the statement of case, that HMRC do not state as part of their case in the invoice appeal that the appellant knew or ought to have known that the Samsung Serene phones did not exist; nor do they seek to add such an allegation now.
[20]In the Kittel appeal, it is part of HMRC's case that the appellant knew or ought to have known that 56 of its deals were connected to MTIC fraud. So far it has not been part of HMRC's stated case that the fraud to which it alleges the appellant's transactions to be connected is evidenced because one of the suppliers (Future Communications Ltd) was also the supplier of the three deals at issue in the invoice appeal in which (it is HMRC's case) that the goods did not exist; nor is it currently part of their case that the appellant's knowledge or means of knowledge of the alleged fraud is evidenced because the appellant had three months earlier traded in goods which it knew did not exist or which it ought to have known did not exist.
[21]HMRC have not sought to amend their statement of case in either appeal. As I understand it, nevertheless, they do wish to make this new allegation in the Kittel appeal, which is that the appellants knew or ought to have known in 03/06 that they were trading in goods which did not exist. It seems to me however, the evidence could not be admitted unless HMRC made clear to the appellant what the new allegation is: without an allegation in the Kittel appeal that (a) the goods did not exist and (b) the appellant knew or ought to have known the goods did not exist, the evidence has no relevance.
[22]While technically I consider HMRC ought to have coupled their application to admit the new evidence with an application to amend their statement of case, to dismiss the application on this technicality is likely to simply result in later re-hearing of this application coupled with an application now to amend the statement of case. As I can conveniently deal with it now, it saves everyone's time and any further delay in the appeal's progress and I will do...
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