TC03528: GSM Intertrade Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 April 2014 |
| Neutral Citation | [2014] UKFTT 399 (TC) |
| Date | 29 April 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 399 (TC)
Judge Guy Brannan, Ms Helen Myerscough
Hilal Jaffar, Director, appeared for the Appellant
George Rowell, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Value added tax - Whether the mobile phones allegedly acquired by and then sold and despatched abroad by appellant had existed and whether they had corresponded to the goods described in the respective invoices - Value Added Tax Regulations 1995 SI 1995/2518, reg. 14(1) - Whether reasonable for HMRC not to exercise discretion under Value Added Tax Regulations 1995, reg. 29 (2) to allow claim for input tax - Appeal dismissed.
[1]These two consolidated appeals are appeals against decisions by the respondents ("HMRC") to deny the appellant's claim for input tax in the total of £712,530. The claim for input tax relates to six disputed transactions concerning the alleged purchase of Samsung Serene mobile phones ("Serene" or "Serenes"). One disputed transaction was alleged to have occurred in the VAT period 02/06 and the other five disputed transactions were alleged to have occurred in the 05/06 period.
[2]HMRC denied the appellant's claim for input tax in respect of the above transactions on the basis that the invoices issued by the appellant's suppliers did not meet the requirements of regulation 14(1)(g) and/or (1)(h) Value Added Tax Regulations 1995 ("the Regulations"). The appellant has appealed HMRC's decisions in respect of these transactions.
[3]The issues in this appeal concern whether any mobile telephones or other goods were acquired by the appellant or, alternatively, if goods were supplied to the appellant, whether those goods were correctly described on the invoices issued by the appellant's supplier. For simplicity, in this decision we shall refer to the appellant's transactions as purchases, sales, exports, acquisitions etc. without, in every case, referring to these transactions as being "alleged" or "purported" transactions but without prejudging or having found as fact the issues as to whether these transactions took place or took place as described in the relevant invoices.
[4]In this appeal HMRC do not argue that the appellant knew or should have known that its transactions were connected with the fraudulent evasion of VAT. Accordingly, the decision of the Court of Appeal in Mobilx Ltd (in Administration) v R & C CommrsVAT[2010] BVC 638 is not directly in point in this appeal. HMRC did not accept that the appellant did not know that its transactions were so connected, but argued their case on the basis that what the appellant knew or should have known was irrelevant to the issues in this appeal. Moreover, both parties accepted that the burden of proof lay upon the appellant (unlike the usual type of MTIC appeal governed by the principles in Mobilx).
[5]The standard of proof is the usual civil standard i.e. the balance of probabilities.
[6]The following witnesses, called by HMRC, produced witness statements, gave oral evidence and were cross-examined:
(2) Timothy Reardon - an HMRC officer who carried out HMRC's investigation into the disputed invoices and who analysed payments relating to these transactions made through the First Curacao International Bank ("FCIB").
(3) Judith Clifford - an HMRC officer who gave evidence in relation to HMRC's investigations into the appellant's supplier Future Communications (UK) Ltd ("Future").
(4) Nicholas Parker - an HMRC officer who gave evidence in relation to the criminal trials involving personnel of Future and others.
(5) Jayne Holden - an HMRC officer who gave evidence in relation to HMRC's investigations into the appellant's supplier Infinity Holdings Limited ("Infinity").
(6) Thomas Hjannung - an employee of Bang & Olufsen who gave evidence in relation to the distribution of Serenes which were delivered to Bang & Olufsen. Mr Hjannung gave oral evidence by video link. In the course of Mr Hjannung's evidence the video link broke down, but the audio link remained good. With the agreement of the parties we continued to hear Mr Hjannung's evidence by this audio link.
(7) Stephen Bishop - an employee of Samsung UK who gave evidence in relation to the manufacture and distribution of Serenes by Samsung.
(8) Roderick Stone - an HMRC officer who gave evidence in relation to the general background regarding missing trader intra - Community ("MTIC") fraud.
[7]In addition, Christopher Heuston, an HMRC officer, submitted a witness statement in relation to the criminal proceedings in respect of employees of Future, Unique Distribution Ltd, A1 Logistics and Freight Ltd ("A1 Logistics") and Boston Freight ("Boston Freight"). Mr Heuston was not cross-examined.
[8]For the appellant, Mr Hilal Jaffar ("Mr Jaffar"), owner and director of the appellant, produced four witness statements, gave oral evidence in chief (by way of a statement), was cross-examined and made a further statement (in lieu of re-examination).
[9]In addition, the appellant put forward a witness statement produced on behalf of Centrum Secretaries Limited, the appellant's company secretary. HMRC objected to this witness statement on the basis that the natural person who wrote the statement was not identified. Moreover, when we read the statement it seemed to us that the statement contained submissions or complaints rather than evidence. Mr Jaffar confirmed that he was not relying on the statement and accordingly this statement was not admitted as evidence.
[10]The witness statements, exhibits, and other documentary evidence occupied 18 ring binders.
[11]The appellant was incorporated on 16 March 2001 and its registered office is in North West London. The appellant's sole director and employee at all material times was (and continues to be) Mr Jaffar. It was not in dispute that Mr Jaffar was the controlling mind of the appellant. Mr Jaffar has lived in London since 2001.
[12]The appellant was registered for VAT on 1 April 2001 with a stated business activity described as "agency for and sales of mobile phones and electronic and radio equipment." At all times material to this appeal the appellant carried on the business of a wholesale trader in mobile phones (albeit that that description is without prejudice to HMRC's contention that, in relation to the transactions under appeal, the appellant did not deal in mobile phones).
[13]The appellant claims that it purchased 200 Serenes as described in an invoice dated 20 February 2006 issued by a UK supplier, Future. This transaction is referred to as Deal 1.
[14]The Serenes were a particular type of mobile telephone. Their production was the result of a joint-venture between Bang & Olufsen and Samsung in which Bang & Olufsen designed the style of the phone and Samsung was responsible for the technology and manufactured it in South Korea.
[15]We shall describe the manufacture and distribution arrangements for the Serenes in greater detail later in this decision.
[16]The appellant claimed input tax of £47,250 in respect of its purchase of the 200 Serenes in Deal 1. This was the VAT shown on Future's invoice to the appellant.
[17]The appellant subsequently claimed to have sold and exported the 200 Serenes to a German company, Allimpex Handelsgesellschaft GmbH ("Allimpex"). We shall describe Allimpex in greater detail below.
[18]HMRC allowed the appellant to reclaim the input tax of £47,250. Subsequently, however, when HMRC had reviewed information from Bang & Olufsen and Samsung concerning the manufacture and distribution of the Serenes, HMRC concluded that the goods purchased by the appellant (if any) could not have been Serenes. Therefore, HMRC decided to disallow the claim under regulation 14(1)(g) and/or regulation 14(1)(h) of the Regulations. On 28 February 2007 HMRC notified the appellant by letter of its decision to disallow this input tax and subsequently issued an assessment dated 7 March 2007 for the £47,250 of input tax (plus interest of £3,062.83) which it had previously repaid to the appellant. The appellant appealed against this assessment by a notice of appeal dated 16 March 2007.
[19]The appellant claims that it subsequently purchased a total of 2,316 Serenes from a UK supplier, Infinity. These purchases were made under invoices dated 31 March 2006 (Deal 4), 6 April 2006 (Deal 2), 7 April 2006 (Deal 3), 12 April 2006 (Deal 5) and 13 April 2006 (Deal 6).
[20]The appellant says that it subsequently exported all these mobile phones at the zero rate of VAT. These export sales were to a French company called Elandour (Deals 3 and 5) and Allimpex (Deals 2, 4 and 6). Accordingly, the appellant claimed a repayment of the input tax it paid to Infinity in the total amount of £665,280.
[21]On the basis of the same information from Bang & Olufsen and Samsung, HMRC also disallowed the appellant's input tax credit under regulation 14(1)(g) and/or regulation 14(1)(h) of the Regulations. HMRC notified the appellant of their decision in a letter dated 10 October 2006 (in relation to the first four invoices i.e. Deals 2, 3, 4 and 5) and in a letter dated 12 October 2006 in relation to the invoice dated 13 April 2006 (Deal 6).
[22]The appellant appealed against these decisions by a notice of appeal dated 16 March 2007.
[23]Further information (including the price, quantity, dates of sales and inspections, dates of times and shipment, dates and times of payment, the input VAT, total purchase price including VAT and inspection reports etc) in relation to the six disputed alleged transactions is summarised in Schedule 1 to this decision and this Schedule forms part of our findings of fact.
[24]The appellant did not hold stock - it only bought what it could sell. The appellant did not ship "on hold." Instead, the appellant only instructed its freight forwarder to ship the goods once it had been paid and it did not...
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Infinity Distribution Ltd
...the recipient from claiming a deduction for the input tax described in the relevant invoice. Examples of this include GSM Intertrade Ltd [2014] TC 03528 (“GSM”), Devi Communications Ltd [2015] TC 04412 (“Devi”), McAndrew Utilities Ltd [2012] TC 02406 (“McAndrew”), Plazadome Ltd [2010] TC 00......