The Commissioners for HM Revenue and Customs (Petitioners/Appellants) v Changtel Solutions UK Ltd (formerly Enta Technologies Ltd)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Vos,Lord Justice Patten,Lord Justice Longmore |
| Judgment Date | 28 January 2015 |
| Neutral Citation | [2015] EWCA Civ 29 |
| Docket Number | Case No: A2/2014/1191 |
| Court | Court of Appeal (Civil Division) |
| Date | 28 January 2015 |
[2015] EWCA Civ 29
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR DAVID DONALDSON QC SITTING AS A DEPUTY JUDGE OF THE HIGH COURT
No. 4093 of 2013
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Longmore
Lord Justice Patten
and
Lord Justice Vos
Case No: A2/2014/1191
Ms Sarah Harman (instructed by the Solicitor to HMRC) for HMRC
Ms Tina Kyriakides (instructed by Dass Solicitors) for the Respondent
Hearing date: 16 th December 2014
This appeal raises a simple but important point, which is of particular significance to the Commissioners for Her Majesty's Revenue and Customs ("HMRC"), since they frequently seek to enforce tax assessments by using the winding-up procedure. The point is whether, when there is both (i) an appeal against a VAT assessment pending in the tax tribunal, and (ii) a winding-up petition pending in the Companies court, the tax tribunal or the Companies court is the appropriate forum to determine whether the petition debt is disputed in good faith on substantial grounds, or, in other words, whether the appeal has a real as opposed to a fanciful or frivolous prospect of success. The judge relied upon the introduction in April 2009 of Rule 8(3)(c) of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009/273 ("rule 8(3)(c)") which gives the tax tribunal an express power to strike out an appeal where "the Tribunal considers that there is no reasonable prospect of the appellant's case, or part of it, succeeding". On the basis of rule 8(3)(c), he decided that the Companies court should defer to the tax tribunal to decide whether the petition debt was disputed in good faith on substantial grounds.
This question arises in the context of a petition presented by HMRC against Enta Technologies Limited (which has recently changed its name to Changtel Solutions UK Limited ("Enta" or the "company")) in respect of 15 VAT assessments relating to some £15.5 million including interest. HMRC issued a total of 36 VAT assessments against the company between 4 th February 2010 and 11 th March 2013, all but two of which are unpaid and under appeal to the First-tier Tribunal (Tax and Chancery Chamber) (the "FTT" or the "tax tribunal").
If the judge was wrong to defer to the tax tribunal, the question arises as to whether he was right to conclude that "in common with the tribunal judge [who allowed an application to extend time for appealing the VAT assessments] I did not form the view that any of the non-MTIC appeals had no real prospect of success". The judge referred to "non-MTIC" appeals, because it was accepted for the purposes of the hearing before him that the company had a reasonable prospect of success in relation to its ongoing appeals against the 24 VAT assessments that related to an alleged Missing Trader Intra-Community ("MTIC") fraud of which the company is said to have known (7 of which were included in the petition).
This appeal has focussed on 6 VAT assessments that were comprised in the petition in respect of sums totalling £2,537,172. These 6 assessments related to a similar set of factual circumstances as the MTIC assessments, but were put by HMRC on a different basis. HMRC raised these assessments for each of the six months between July and December 2012 on the basis that certain goods allegedly exported by the company had not in fact left the UK as had been claimed by the company. I shall refer to these 6 assessments as the "dispatch assessments". It was common ground for the purposes of this appeal that HMRC could only succeed if it could show that its petition was well-founded in respect of the dispatch assessments.
In essence, HMRC contend that the company has engaged in a pattern of activity since 2006 whereby it has purportedly entered into a small number of extraordinary high value export transactions each month just sufficient to reduce to a minimal level what would otherwise have been a substantial VAT liability to HMRC arising from its normal trading. In reality, however, HMRC contends that these export transactions never took place, and were the essential element in a fraud perpetrated by the company on HMRC. HMRC submits that this fraud was obvious on the material already available to the Companies court and should have resulted in the company being wound up notwithstanding the pending appeals in the tax tribunal against the dispatch assessments.
The company's position was that the judge was right to defer to the decision of the tax tribunal. But, even if he was wrong on that point, the judge was entitled, as a matter of discretion, to take into account that the tax tribunal had decided to extend time for the appeal from the dispatch assessments, which involved a finding that those appeals were "not hopeless". On the facts, the company submits that it has a reasonable prospect of success on the appeals, so that the winding-up court was right to decide that the debts represented by the dispatch assessments were disputed in good faith on substantial grounds.
Chronological background
The company was incorporated as MS 136 Limited on 27 th July 1990. Until the events that have led to these proceedings, the company traded as part of the Enta group of companies as a distributor of IT components and services; it had a significant business with a turnover of over £100 million per annum and some 125 employees. As will appear, that has all now changed dramatically.
On 11 th August 2012, HMRC wrote to the company in relation to its July and August 2012 VAT returns reclaiming VAT for purported export transactions, which later became the subject of the first and second of the 6 dispatch assessments. The letter queried specific aspects of the documentation that the company had provided in respect of these export transactions. HMRC contend that this letter put the company on notice that (i) they did not accept that a purported warehouse at Unit 16, Curran Building, Curran Business Park, Cardiff (the "Cardiff warehouse") from which the goods had allegedly been dispatched was a valid existing address; (ii) the Valencia address of Bodegas International Logistics International SL (to which the August 2012 export had allegedly taken place) (the "Valencia warehouse") also did not exist on information received from the Spanish tax authorities; (iii) HMRC required copies of ferry/channel tunnel tickets for the vehicles used to deliver the goods; and (iv) HMRC would not accept any subsequent CMRs including the addresses of the Cardiff or Valencia warehouses.
On 14 th August 2012, Ms Dragita Price, the stock controller of "Entatech" (a company related to Enta) emailed certain documents to HMRC, saying that "there are no ferry tickets as goods were already in Europe".
By a letter dated 17 th September 2012 (but probably sent on 17 th August 2012), the company sent HMRC a further copy of a CMR dated 3 rd August 2012 relating to the export sale in respect of which VAT was reclaimed in the company's July 2012 return. On 26 th August 2012, HMRC replied to the company reiterating what they had previously said.
On 16 th October 2012, HMRC wrote again to the company this time in relation to its VAT returns for the monthly periods between July and October 2012. HMRC reiterated that they would not accept the Valencia warehouse as a receiving address, and pointed out that that address had once more appeared in the company's evidence supporting its October 2012 return. They also pointed to a number of other discrepancies in the documentation that had been provided including that (a) the registration numbers for the vehicles supposedly making the export deliveries in fact related to cars that were too small to carry the goods; (b) the timings of the journeys across the channel did not leave enough time for the vehicles to have reached and returned from the alleged destinations, and (c) the alleged freight forwarder, BIL SARL, and its alleged director, Zavier Pascal Blanc did not exist in France. HMRC said they would not accept future transactions using these parameters.
On 25 th March 2013, HMRC wrote to the company warning that if payment were not made in respect of 15 VAT assessments and interest in the sum of £15,589,167.65 (including the 6 dispatch assessments), they would commence legal proceedings that might result in a petition to wind up the company.
On 28 th March 2013, the company issued a notice of appeal against VAT assessments including the dispatch assessments seeking an extension of time in which to lodge the appeal. This was not its first notice of appeal against VAT assessments, but the earlier ones are not directly relevant to the issues before us.
On 18 th April 2013, HMRC presented their first petition to wind up the company in respect of the debts mentioned in their letter dated 25 th March 2013 (including the dispatch assessments). As the judge recorded, section 73(9) of the Value Added Tax Act 1994 (" VATA") makes the amount of an assessment a debt due unless it is cancelled or reduced on appeal by the tax tribunal.
On 6 th June 2013, HMRC's first petition was struck out by Birss J on the grounds that its continuation was an abuse of the process of the court, since HMRC had advertised it in breach of the parties' agreement not to do so.
On 7 th June 2013, HMRC presented their second winding-up petition (the "petition") against the company in respect of...
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