TC03616: Umaad Butt
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 May 2014 |
| Neutral Citation | [2014] UKFTT 490 (TC) |
| Date | 20 May 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 490 (TC)
Judge Jennifer Blewitt
Mr Rory Mullen leading Ms Harriet Brown, Counsel appeared for the Appellant
Mr Jeremy Benson QC leading Ms Karen Robinson, Counsel instructed by HM Revenue and Customs, appeared for the Respondents
Summary judgment - Application by appellant in respect of an appeal against a penalty issued under Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 section 61s. 61 - Whether respondent's case has no reasonable prospect of succeeding - Application refused.
[1]This is an application made by the Appellant for summary judgment against HMRC in respect of a penalty issued on 29 March 2010 under section 61section 61 Value Added Tax Act ("VATA") 1994.
[2]Prior to the hearing I was provided with the Appellant's written application dated 17 December 2013 and skeleton argument dated 6 May 2014. HMRC provided a written response to the application dated 17 January 2014 and skeleton argument received on 12 May 2014. I was also provided with 4 bundles containing, in the main, the relevant legislation and authorities.
[3]Rule 8(3)(c) provides that the Tribunal may strike out "the whole or a part of the proceedings if…the Tribunal considers there is no reasonable prospect of the appellant's case, or part of it, succeeding."
[4]Under rule 8(7) the Tribunal's powers under rule 8(3) apply to the respondent as it applies to an appellant, save that "a reference to the striking out of the proceedings must be read as a reference to the barring of the respondent from taking further part in the proceedings."
[5]Rule 8(8) provides as follows:
If a respondent has been barred from taking further part in proceedings under this rule and that bar has not been lifted, the Tribunal need not consider any response or other submissions made by that respondent, and may summarily determine any or all issues against that respondent.
[6]The Statement of Case dated 6 May 2011 sets out in detail the background to the disputed decision, the legislation applicable and issues in the case. In essence HMRC imposed a penalty on the Appellant on 29 March 2010 pursuant to section 61section 61 VATA 1994. The penalty was imposed by reference to the Appellant's conduct as a director of Waterfire Ltd ("Waterfire") which HMRC allege rendered itself liable to a penalty pursuant to section 60section 60(1) VATA 1994 on the basis that it had entered into various transactions and rendered VAT returns for the purpose of evading VAT. In particular the company made claims to input tax credit when it knew that the underlying transactions were connected with fraud, thereby seeking to evade £6,972,184 in VAT period 04/06. HMRC contend that the conduct giving rise to Waterfire's liability to a penalty was wholly, or in part attributable to the conduct of Mr Butt as a director and 50% shareholder of the company.
[7]HMRC allege that Waterfire, through Mr Butt as a director, deliberately and artificially constructed its trading in such a way as to enable what would otherwise give rise to large claims for repayment from HMRC to be offset and made by other companies acting as brokers. It is contended that Waterfire knowingly acted as a contra trader in VAT periods 04/06 and 07/06 as part of a scheme to defraud the public revenue.
[8]The issues identified by HMRC as those to be determined by the Tribunal at the substantive hearing which is listed for 16 to 27 June 2014 can be summarised as follows:
(i) Whether the transactions entered into by Waterfire in 04/06 and 07/06 were part of an overall scheme to defraud the public revenue;
(ii) Whether Waterfire, through the Appellant, knew that its transactions were connected to fraud;
(iii) Whether, by entering into its transactions in period 04/06 and making its VAT return for that period on the basis of those transactions, Waterfire was doing acts for the purpose of evading VAT;
(iv) Whether Waterfire, through the Appellant, knew that its transactions in period 04/06 were connected with fraud and its conduct was thereby dishonest;
(v) Whether, in the circumstances set out at 8 (i)-(iv) above, Waterfire was liable to a penalty pursuant to section 60section 60 VATA 1994;
(vi) Whether the VAT sought to be evaded by Waterfire was the amount of the input tax credit claimed by it in its VAT return for 04/06, namely £6,972,184;
(vii) Whether the conduct of Waterfire was wholly or in part attributable to the dishonesty of the Appellant; and
(viii) Whether the quantum of the penalty should be reduced.
[9]Section 60 VATA 1994 provides as follows:
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(1)In any case where-
(a) for the purpose of evading VAT, a person does any act or omits to take any action, and
(b) his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability),
he shall be liable, subject to subsection (6) below, to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct.
(2)The reference in subsection (1)(a) above to evading VAT includes a reference to obtaining any of the following sums-
(a) a refund under any regulations made by virtue of section 13 subsec-or-para 5section 13(5);
(b) a VAT credit;
(c) a refund under Value Added Tax Act 1994 section 35 section 36section 35, 36 or section 4040 of this Act or section 22 of the 1983 Act; and
(d) a repayment under Value Added Tax Act 1994 section 39section 39,
in circumstances where the person concerned is not entitled to that sum.
(3)The reference in subsection (1) above to the amount of the VAT evaded or sought to be evaded by a person's conduct shall be construed-
(a) in relation to VAT itself or a VAT credit as a reference to the aggregate of the amount (if any) falsely claimed by way of credit for input tax and the amount (if any) by which output tax was falsely understated; and
(b) in relation to the sums referred to in subsection (2)(a), (c) and (e) above, as a reference to the amount falsely claimed by way of refund or repayment.
(4)Statements made or documents produced by or on behalf of a person shall not be inadmissible in any such proceedings as are mentioned in subsection (5) below by reason only that it has been drawn to his attention-
(a) that, in relation to VAT, the Commissioners may assess an amount due by way of a civil penalty instead of instituting criminal proceedings and, though no undertaking can be given as to whether the Commissioners will make such an assessment in the case of any person, it is their practice to be influenced by the fact that a person has made a full confession of any dishonest conduct to which he has been a party and has given full facilities for investigation, and
(b) that the Commissioners or, on appeal, a tribunal have power under section 70section 70 to reduce a penalty under this section,
and that he was or may have been induced thereby to make the statements or produce the documents.
(5)The proceedings mentioned in subsection (4) above are-
(a) any criminal proceedings against the person concerned in respect of any offence in connection with or in relation to VAT, and
(b) any proceedings against him for the recovery of any sum due from him in connection with or in relation to VAT.
(6)Where, by reason of conduct falling within subsection (1) above, a person is convicted of an offence (whether under this Act or otherwise), that conduct shall not also give rise to liability to a penalty under this section.
(7)On an appeal against an assessment to a penalty under this section, the burden of proof as to the matters specified in subsection (1)(a) and (b) above shall lie upon the Commissioners.
[10]Section 61 VATA 1994 provides as follows:
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(1)Where it appears to the Commissioners-
(a) that a body corporate is liable to a penalty under section 60section 60, and
(b) that the conduct giving rise to that penalty is, in whole or in part, attributable to the dishonesty of a person who is, or at the material time was, a director or managing officer of the body corporate (a "named officer"),
the Commissioners may serve a notice under this section on the body corporate and on the named officer.
(2)A notice under this section shall state-
(a) the amount of the penalty referred to in subsection (1)(a) above ("the basic penalty"), and
(b) that the Commissioners propose, in accordance with this section, to recover from the named officer such portion (which may be the whole) of the basic penalty as is specified in the notice.
(3)Where a notice is served under this section, the portion of the basic penalty specified in the notice shall be recoverable from the named officer as if he were personally liable under section 60section 60 to a penalty which corresponds to that portion; and the amount of that penalty may be assessed and notified to him accordingly under section 76section 76.
(4)Where a notice is served under this section-
(a) the amount which, under Value Added Tax Act 1994section 76, may be assessed as the amount due by way of penalty from the body corporate shall be only so much (if any) of the basic penalty as is not assessed on and notified to a named officer by virtue of subsection (3) above; and
(b) the body corporate shall be treated as discharged from liability for so much of the basic penalty as is so assessed and notified.
(5)No appeal shall lie against a notice under this section as such but-
(a) where a body corporate is assessed as mentioned in subsection (4)(a) above, the body corporate may appeal against the Commissioners' decision as to its liability to a penalty and against the amount of the basic penalty as if it were specified in the assessment; and
(b) where an assessment is made on a named officer by virtue of subsection (3) above, the named officer may appeal against the Commissioners' decision that the conduct...
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