Universal Enterprises (EU) Limited v The Commissioners for HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Henderson,Judge Gammie |
| Neutral Citation | [2015] UKUT 0311 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,5 June 2015 |
| Date | 05 June 2015 |
| Published date | 01 December 2016 |
[2015] UKUT 0311 (TCC)
Appeal number: FTC/21/2013
VALUE ADDED TAX – denial of repayment of input tax due to MTIC
fraud – FTT concluding that the taxpayer knew that its transactions were
connected with fraud – whether extension to contra-trading transactions
compatible with the right to deduct under EU law – whether case should be
referred to the Court of Justice to consider the issue – whether HMRC
bound to plead fraud or conspiracy to succeed
UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
UNIVERSAL ENTERPRISES (EU) LIMITED Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS Respondents
TRIBUNAL: MR JUSTICE HENDERSON
JUDGE MALCOLM GAMMIE CBE QC
Sitting in public at the Rolls Building in London on 10 and 11 February 2014
Michael Patchett-Joyce, Counsel, instructed by CTM Litigation and Tax Services, for
the Appellant
James Puzey, Counsel, instructed by the General Counsel and Solicitor to HM Revenue
and Customs, for the Respondents
© CROWN COPYRIGHT 2015
2
DECISION
Introduction
1. Universal Enterprises (EU) Limited (“Universal”) appeals from the decision of 5 the First-tier Tribunal (Judge Richard Barlow and Robert Barraclough)
dismissing Universal’s appeal against the refusal of the Respondent
Commissioners (“HMRC”) to allow Universal’s claims for input tax credit for
the monthly periods 04/06, 05/06 and 06/06. The total sum involved is
£4,054,818.30. 10
2. HMRC refused to repay Universal the input tax it had claimed because it took
the view that the tax arose from transactions that were connected with the
fraudulent evasion of VAT arising from missing trader intra-community
(“MTIC”) trading. 15
3. As those familiar with MTIC fraud and its case law will be aware, it is a field
that has developed a terminology of its own. Given the number and variety of
other decisions dealing with transactions of this nature we do not propose to
provide a glossary or explanation of the various terms employed. We 20 summarise the principal features of the various transactions into which
Universal entered in the paragraphs that follow and record the conclusions
reached by the First-tier Tribunal (“FTT”) based on the evidence. We refer to
those transactions and that evidence in more detail later in this decision in so
far as it is necessary to do so having regard to Universal’s grounds of appeal. 25
The transactions in outline
4. In the April 2006 period (04/06) Universal entered into a series of transactions
for the purchase and sale of mobile telephones and computer ink cartridges. 30 58 of the transactions that Universal entered into were said to be traced
directly to a fraudulent tax loss in the chain of supply of which Universal was
part (a “dirty chain”). In respect of those transactions Universal accepted that
HMRC had accurately described the transactions in their evidence and that the
failure by previous traders in the chain of transactions to account for VAT had 35 been fraudulent. The only issue for the FTT to resolve, therefore, was whether
Universal knew or should have known that its transactions in those dirty
chains were connected with fraud (FTT§20).
5. Six further transactions in the 04/06 period and all the transactions in the May 40 2006 (15 in number) and June 2006 (4 in number) periods (05/06 and 06/06)
were part of a ‘clean’ transaction chain. In other words, they comprised chains
of transactions that, considered alone, involved no dishonest default.
Nevertheless, HMRC claimed to be entitled to deny Universal the repayment
of input tax in respect of its transactions in those clean chains on the basis that 45 those chains were connected with fraud by being appropriately associated with
‘dirty’ chains (the ‘contra-trading’ construct).
3
6. In respect of the clean chains of transactions Universal also accepted that
HMRC had accurately described the transactions in their evidence. In the
FTT, however, Universal put HMRC to proof that the contra-trader’s clean
chains and Universal’s transactions in those chains were connected with the 5 frauds in the contra-traders’ dirty chains. Universal also put HMRC to proof
that the contra-trader was dishonest in respect of the clean chains (FTT§24).
7. Having considered the evidence the FTT concluded that Mr Ebrahim Sodha
(“Mr Sodha”) was Universal’s directing mind and that he knew that the clean 10 and dirty chain transactions were connected with fraud (FTT§§102 and 107).
Mr Sodha had put himself forward as the person who was the principal person
concerned in the actual running of the company and the transaction of its
business at the relevant times. Having heard Mr Sodha’s evidence and that of
his daughter, Ms Fariyal Sodha, the FTT concluded that both of them were 15 unreliable and untruthful witnesses (FTT§113).
Universal’s grounds of appeal
8. Undeterred by the FTT’s conclusions and by a substantial body of opinion in 20 this Tribunal and by Court of Appeal authority to the contrary, Mr Patchett-
Joyce on behalf of Universal sought to persuade us, first, that the FTT had
erred on a number of grounds and, second, that before reaching our decision
we should refer the case to the Court of Justice of the European Union
(“CJEU”) for its opinion on certain matters. 25
9. The six grounds of appeal that he advanced can be summarised as follows:
a. Ground 1: There was no legal basis on which HMRC were entitled to
deny Universal the right of deduction and therefore repayment; 30
b. Ground 2: There was no sufficient connection between Universal’s
transactions and the frauds of the alleged defaulters in the contra-
trading transactions;
35 c. Ground 3: The FTT failed to have proper regard to the absence of any
pleaded case in conspiracy where it was alleged that Universal had
been involved in ‘clean’ chains that formed part of HMRC’s contra-
trading construct;
40 d. Ground 4: The FTT failed to have proper regard to the absence of any
pleaded case in fraud against Universal;
e. Ground 5: The FTT was wrong to find a connection between
Universal’s being a party to transactions in ‘clean’ chains and the 45 contra-traders’ ‘dirty’ chains in the contra-trading construct; and
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