Westone Wholesale Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE PATTEN,Mr Justice Patten |
| Judgment Date | 26 November 2007 |
| Neutral Citation | [2007] EWHC 3676 (Ch),[2007] EWHC 2676 (Ch) |
| Docket Number | Case No: CH/2007/APP/277 |
| Court | Chancery Division |
| Date | 26 November 2007 |
[2007] EWHC 2676 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Patten
Case No: CH/2007/APP/277
Mr Michael Patchett-Joyce (instructed by Ernst & Young LLP) for the Appellant
Mr James Puzey (instructed by HMRC Solicitors Office) for the Respondent
Hearing dates: 31 October, 1 November 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an appeal by Westone Wholesale Limited (“Westone”) from a decision of the VAT and Duties Tribunal released on 19 March 2007. It concerns a preliminary issue raised by Westone in two consolidated appeals (MAN/04/0799 and MAN/05/0497) as to the validity of an assessment to VAT for the accounting periods 12/02 and 03/03 to 08/03 inclusive in the total amount of £1,067,787.36 which was notified to Westone by the Commissioners on 5 July 2005.
The Appellant company carries on business as a wholesaler of confectionery, tobacco and soft drinks from premises in Telford, Shropshire. Its case is that in 2003 it purchased goods in the course of its business from a trader in Glasgow, Mr Kamran Ahmed (trading as International Trading) with a view to their onward sale and despatch to a customer in Spain, Icespana SL.
With the exception of one consignment of razor blades the goods were never handled or received by Westone but were delivered directly by International Trading to a transport company in St Helens, Trialout Limited, for shipment to Spain.
Icespana paid for the goods before shipment and Westone only paid its supplier, International Trading, once it had received payment from Icespana.
In its VAT returns for the relevant periods Westone claimed credit under ss. 25(2) and 26 of the VAT Act 1994 (“the 1994 Act”) for input tax on the supplies of goods from International Trading on the basis that they were all to be sold on to Icespana in the course of its business. It also sought to zero-rate the supplies of the goods to Icespana. The Commissioners accept that if the goods were purchased from International Trading and exported to Spain as claimed this would be the correct tax treatment of these transactions.
However, during investigations in 2004 by officers of HMRC evidence was obtained from Trialout Limited to the effect that the movement records for the goods alleged to have been delivered to Icespana known as CMRs (Convention Marchandises Routiers) had not been issued by Trialout and that none of the consignments had been delivered to Spain by that company.
On the basis of this and other evidence, the Commissioners rejected Westone's claim to zero-rate the supplies to Icespana and on 25 November 2004 they issued and notified assessments under s.73 (1) of the 1994 Act for the accounting periods 04/03 to 09/03 in respect of unpaid tax totalling £892,141 (“the 2004 assessments”).
Westone lodged an appeal against these assessments on 21 December 2004 which was assigned tribunal reference MAN/2004/0799. The grounds of appeal are that the goods were sold to Icespana as claimed and that the documents evidencing their despatch were verified by customs officers. This is apparently a reference to an occasion in February 2003 when Westone arranged for officers from HMRC to visit their premises with a view to satisfying themselves that the company was complying with the relevant VAT requirements in relation to the supply of goods to Spain and that HMRC had no reservations about Westone continuing to trade with Icespana.
During 2005 further enquiries were made including of the hauliers referred to in the CMRs and the evidence was reviewed. I am told that Mr Ahmed operated from an accommodation address in Glasgow with no warehouse premises and that he has gone missing owing VAT to the Commissioners. On the basis of this and the other evidence I have referred to, the Commissioners reached the conclusion in 2005 that the transactions were fraudulent and that apart from the one consignment of razor blades I have mentioned, none of the goods had been purchased by or supplied to Westone by International Trading. They therefore disallowed the company's claim to recover input tax on the supplies of goods from International Trading and issued the notice of assessment dated 5 July 2005 (“the 2005 assessments”) under s.73 (2) of the 1994 Act for the six accounting periods in the total sum of £1,067,787.36. At the same time they re-notified to Westone the amount of the 2004 assessments.
The 2005 assessments were described in the letter of notification as the Preferred Assessments and the 2004 assessments as the Alternative Assessments. Westone was informed that the two sets of assessments were mutually exclusive and that they had only to pay one amount of tax. They were advised to pay the amount of the Preferred Assessments.
In its notice of appeal dated 19 July 2005 against the 2005 assessments Westone rely on the following grounds of appeal:
“Thus, the Commissioners have issued two different assessments in relation to exactly the same goods. Indeed, the assessments purport either to demand VAT on actual supplies by the Appellant which were not despatched from the UK or in the alternative to disallow credit for input tax because the same goods were never supplied to the Appellant. The Commissioners' actions are, therefore, contradictory and the assessments reflect an impossible set of circumstances. The issuing of such assessments is entirely without precedent or statutory authority.
It is for the Commissioners to raise assessments to best judgement. However, it is clear from these contradictory assessments that the Commissioners have no factual basis for the assessments and they are simply second-guessing the first appeal. The Commissioners' actions constitute an abuse of process.”
The Commissioners accept that the two assessments are factually inconsistent with each other in the sense that if they establish that the goods were never supplied by International Trading to Westone it must follow that they were never supplied to anyone else by Westone so as to give rise to a liability to output tax. In that event the 2004 assessments will be set aside. But they wish to protect themselves against the possibility that on examining the evidence the Tribunal may decide that the goods were in fact supplied to Westone but were not exported to Spain. In these circumstances the claim to a credit for input tax will have to be allowed but a liability to standard rate output tax will arise. This will only be recoverable under the 2004 assessments.
The Commissioners' case is that whilst they believe that the more likely and correct view of the evidence is that the goods were never supplied to Westone in the first place, they are entitled to maintain the 2004 assessments in the alternative rather than to be required to discharge them as a condition of making and relying upon the 2005 assessments.
On 12 June 2006 the Tribunal directed that the appeals against both the 2004 and the 2005 assessments should be consolidated and heard together. At this hearing the Tribunal will determine the factual issues surrounding the alleged purchase and re-sale of the goods by Westone and will thereby resolve which (if either) of the two sets of assessments should be upheld. It is, of course, possible that the evidence will support a finding that the goods were both purchased and exported to Spain by Westone. But even if the Commissioners establish that the whole operation was a fraud, it is Westone's case (disputed by the Commissioners) that they were innocent parties and properly carried out their obligations to the Commissioners in terms of providing them with all the necessary documentation and other information required to comply with their obligations as taxpayers. The company will therefore seek to rely (at least in relation to the 2004 assessments) on the recent decision of the ECJ in Teleos & ors v CCE Case C – 409/04 [2007] AER 160 which established that:
“68 ….the first subparagraph of Article 28c(A)(a) of the Sixth Directive is to be interpreted as precluding the competent authorities of the Member State of supply from requiring a supplier, who acted in good faith and submitted evidence establishing, at first sight, his right to the exemption of an intra-Community supply of goods, subsequently to account for VAT on those goods where that evidence is found to be false, without, however, the supplier's involvement in the tax evasion being established, provided that the supplier took every reasonable measure in his power to ensure that the intra-Community supply he was effecting did not lead to his participation in such evasion.”
For present purposes, however, all this lies in the future. Although I have attempted to summarise the salient issues raised by both parties to these appeals I do not intend by this judgment to express any views about what is likely to be the outcome of the substantive appeals. They raise factual issues to be determined by the Tribunal on hearing the evidence. The issue on this appeal is simply whether the Commissioners had power under s.73 (2) to raise the 2005 assessments without first withdrawing the earlier assessments of 2004. On 12 June 2006 the Tribunal ordered this to be heard as a preliminary issue. In their decision of 19 March 2007 they determined the issue against the taxpayer holding that it is open to the Commissioners both on principle and authority to issue and maintain two alternative assessments which are factually inconsistent with each other....
To continue reading
Request your trial
-
Westone Wholesale Ltd
...to the High Court of Justice on 26 November 2007. Patten J upheld the tribunal's decision see Westone Wholesale Ltd v R & C CommrsUNK [2007] EWHC 2676 (Ch); [2008] BVC 132 and the matter is no longer in dispute.The Facts 3. There were 55 transactions in relation to confectionery and razor b......