England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		6th May 2004

Mr Justice Moses:

Introduction

1. These applications for judicial review concern the immobility of mobile phones. The claimants all trade on the wholesale market in mobile phones. Mobile phones have become the pork bellies of the 21^st Century. They are bought and sold as commodities. Prices fluctuate daily.
2. All the claimants supplied mobile phones in 2003 to Total Telecom Espana SA/Ercosys Mobil SA ("TT"). TT is registered for VAT and is resident in Malaga, Spain. The terms of the contract specified delivery to a destination, usually in France but on one or two occasions to Spain. In nearly every case the terms of the contracts were "ex works"; the claimants were, accordingly, only responsible for delivery to a warehouse where the phones were placed at the disposal of TT. TT was responsible for removing the phones to the other specified Member State.
3. The freight forwarders, Euro-Cellars Ltd ("Euro-Cellars") were known to the claimants and owned a secure warehouse where the mobile phones were placed at the disposal of TT. On each transaction the claimants received from TT, a few days after the sale, a stamped and signed CMR note affording evidence that the mobile phones had been received at their specified destination.
4. This was vital. The supply of goods from one Member State to another is subject to VAT not in the Member State of origin, where the goods are supplied but, usually, in the Member State where the purchaser is registered for VAT, in the instant case, in Spain. Accordingly, the supplier may zero-rate the goods and claim input tax in relation to any VAT it has paid on purchasing the goods.
5. There were initial visits from customs officials who took no objection to the documents they were shown and, on occasion, allowed some of the claimants' claims for input tax stemming from the zero-rate of their supply of mobile phones to TT. However, in later investigations the Commissioners discovered that the destination shown on the CMRs was false, the carriers either did not exist or were not involved in transporting mobile phones and the registration numbers, shown on the CMRs, were either for non-existent vehicles or vehicles such as motor scooters unsuited for the transport of even such light weight-items as mobile phones. The mobile phones, say the Commissioners, have never left the United Kingdom.
6. The Commissioners, in the light of their discovery, have assessed all the claimants to VAT on the basis that the supplies by the claimants should not have been zero-rated since the mobile phones were never removed from the United Kingdom. They have assessed the claimants although they acknowledge that the claimants were in no way involved in any fraud. Nor do they contend that the claimants were aware that the mobile phones had not left the United Kingdom.
7. Of the fourteen claimants, Fonecomp Ltd is no longer pursuing this application. Five of the claimants, Teleos plc, Unique Distribution Ltd, Phones International Ltd, Bulk GSM Ltd and Rapid Marketing Services Ltd, are sample claimants. That is not to say that this is a test case but, that in relation to those claimants, more detailed evidence as to the course of their trades has been given. I should record that it has been agreed that in relation to the other claimants it is open to either side to make further detailed submissions as to the facts, although, in the view I have taken of this application, that will not be necessary until the European Court of Justice has ruled on the essential issue of interpretation.
8. The essential issue of interpretation which arises relates to the conditions for exemption for which Article 28 of Council Directive 77/388/EEC of 13^th May 1977 "the Sixth Directive" makes provision (see paragraph 14 for wording). That issue is whether Article 28 requires that the goods be removed from the Member State of supply to the Member State of destination before the supplier may zero-rate the goods.
9. A further issue, as a matter of domestic public law, arises. The claimants contend that, as traders with no involvement in the events which led to the mobile phones not being removed from the United Kingdom, they were entitled to rely upon the evidence consisting of stamped and signed CMR notes to prove that the mobile phones had been removed from the United Kingdom. The Commissioners were not entitled, as a result of their later detailed investigation, to unravel the transactions and assert that the mobile phones had not been removed.
10. There are further subsidiary issues in relation to Section 30(10) of the Value Added Tax Act 1994 ("the 1994 Act"), relating to the power of the Commissioners to impose liability on the purchaser and in relation to Section 81(3) relating to the right of the Commissioners to set-off assessed amounts against input tax lawfully due to the claimants. Finally, an issue arises as to the propriety of moving for judicial review, as opposed to adopting the statutory appeal procedure.

Legislation

Introduction

11. This case concerns circumstances in which a supply of goods in one Member State to another Member State is exempt from VAT, pursuant to Article 28c(A) of the Sixth Directive. The Commissioners contend that the exemption only applies if the goods have been physically removed from the Member State where they were supplied. Absent proof that the goods have been removed a supplier is liable for VAT in the Member State where the supply takes place. If it emerges that the goods have not been removed from that Member State then the supplier is liable to VAT whatever its intentions at the time of supply.
12. The claimants' contention is in direct contradiction to that interpretation. They contend that there is no warrant in the legislation for the requirement to prove actual removal of the goods as a condition precedent for the exemption to apply. They contend that the supplier is exempt if it enters into a contract for the dispatch of the goods from one Member State to another with the intention that they should be dispatched. Once that intention is established, the purchaser becomes liable for VAT in the Member State where it is registered. The legislation is concerned with who is accountable for VAT not with the physical location of the goods.

Legislation concerning domestic supply

13. In order to place the legislative system relating to the supply of goods from one Member State to another in context, it is necessary to outline the system for charging VAT in relation to a purely domestic supply, by which I mean a supply which takes place solely within one Member State.
14. The broad principles governing the harmonisation of turnover taxes within the Member States are expressed in the First Council Directive of the 11^th April 1967 (67/227/EEC). The preamble to the Directive records the main object of the Treaty to establish a common market within which there is healthy competition with characteristics similar to those of a domestic market (First Recital); it records the necessity to avoid distortion of competition or hindrance to the free movement of goods and services (Second Recital) and the elimination of distortion of conditions of competition (Third Recital). The principle of neutrality is recorded in the Eighth Recital. The principle of neutrality is expressed in Article 2. It involves:-

"The application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged."

The essential feature of the scheme is that the effect on each supply in the chain of paying input tax and charging output tax should be neutral. The effective payer is the ultimate consumer at the end of the chain. It is that ultimate consumer who has the burden of paying the accumulative tranches of VAT levied at each stage of the transaction. By the Sixth VAT Directive:-

"1. "The supply of goods" shall mean the transfer of the right to dispose of tangible property as owner."

By Article 8.1:-

"The place of supply of goods shall deemed to be;

(a) in the case of goods despatched or transported either by the supplier or by the person to whom they are supplied or by a third person; the place where the goods are at the time when despatch or transport to the person to whom they are supplied begins.

…………………

(b) in the case of goods not despatched or transported; the place where the goods are when the supply takes place;"

By Article 10.1:-

"(a) "chargeable event" shall mean the occurrence by virtue of which the legal conditions necessary for tax to become chargeable are fulfilled.

(b) "tax becomes chargeable" when the tax authority becomes entitled under the law at a given moment to claim the tax from the person liable to pay, notwithstanding that the time of payment may be deferred.

2. The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed.

…….

By way of derogation from the above provisions, Members States may provide that the tax should become chargeable, for certain transactions or for certain categories of taxable person, either; -

no later than the issue of the invoice or the document serving as invoice, or -

no later than receipt of the price, or -

where an invoice or document serving as invoice is not issued, or was issued late, within a specified period from the date of the chargeable event."

15. It is worth noting, at this stage, that cases where goods are despatched or transported, Article 8 and Article 10 contemplate a chain of events. The place of the taxable transaction is the location of the goods at the time when despatch begins. The chargeable event, namely the moment when the legal conditions for liability to tax are fulfilled, and the right to claim tax occur when the goods are delivered unless provision is made for chargeability on the issue of the invoice or receipt of the price.
16. The claimants draw attention to detailed provisions imposing obligations on taxable persons contained within Article 22 of the Sixth Directive. By these provisions Member States are provided with machinery to ensure the proper functioning of the common system of VAT. The system depends, so the claimants emphasise, on the VAT registration number given to each taxable person and the identification of the documentation which each taxable person is required to keep in relation to all taxable transactions.
17. Article 22 requires, amongst other things, accounts to be kept in sufficient detail for VAT to be applied and inspected by the tax authority (Article 22(2)(a)). It imposes an obligation to issue invoices in respect of supplies, containing the information specified in Article 22(3), and a requirement to submit returns by deadlines determined by each Member State (Article 22(4)(a). It confers a power on Member States to require recapitulative statements under Article 22(6)(a) and (b). In particular Article 22(6)(b) provides :-

"The recapitulative statement to be drawn up for each calendar quarter within a period in accordance with procedures to be determined by the Member States which will take the measures necessary to ensure the provisions concerning the administrative cooperation in the field of indirect taxation are complied with."

18. Article 22.8 expresses the important principle against discrimination in this context:-

"Member States may impose other obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion, subject to the requirement of equal treatment for domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected to the crossing of frontiers."

Intra-Community Trade under the transitional schemes

19. Fiscal frontiers between Member States were abolished on 1^st January 1993. Council Directive 91/680/EEC of 16^th December 1991 provided for a temporary transitional scheme amending the Sixth Directive. The essential feature of this transitional scheme is that, in contrast to the case of supplies taking place solely within one Member State where the supplier is liable to account for output tax, during the transitional period, transactions carried out between different Member States are taxed in the Member State of destination and not of origin. Although the scheme is intended to be temporary, Article 28(l) in its second paragraph requires that the transitional arrangements will be replaced by a definitive system for the taxation of trade between Member States:-

"Based in principle on the taxation in the Member State of origin of the goods or services supplied."

The third paragraph provides for automatic extension until the Council has decided on the definitive system.

20. The preamble to the amending Council Directive 91/680 identifies the shift from the principle of taxation in the Member State of origin to taxation in the Member State of destination:-

"Whereas during the transitional period intra-Community transactions carried out by taxable persons other than exempt taxable persons should be taxed in the Members States of destination, at those Member States rates under their conditions;" (10^th Recital).

21. The transitional provisions which came into force on 1^st January 1993 govern all transactions involving the supply of goods to be despatched or transported from one Member State to a taxable person in another Member State. The key provisions are contained within Article 28.
22. VAT is imposed on the supply of goods despatched or transported from one Member State to another by Article 28(a) under the heading "scope":-

"1. The following shall also be subject to Valued Added Tax:

(a) intra-community acquisitions of goods for consideration within the territory of the country by a taxable person acting as such or by a non taxable legal person where the vendor is a taxable person acting as such… ."

It should be noticed that "the country" is not identified in that provision. Identification of that country takes place at Article 28b.

23. Intra-community acquisition of goods is defined in Article 28a(3):-

"Intra-community acquisition of goods" shall mean acquisition of the right to dispose as owner of movable tangible property despatched or transported to the person acquiring the goods by or on behalf of the vendor or the person acquiring the goods to a Member State other than from which the goods are despatched or transported."

24. "The country" to which Article 28a(1)(a) refers is identified in Article 28b. Article 28b(a) provides:-

"A. Place of the inter-community acquisition of goods

1. the place of the intra-community acquisition of goods shall be deemed to the place where the goods are at the time when despatch or transport to the person requiring them ends.

2. without prejudice to paragraph 1, the place of the intra-community acquisition of goods referred to in Article 28a(1)(a) shall, however, be deemed to be in the territory of the Member State which issued the VAT identification number under which the person acquiring the goods made the acquisition, unless the person acquiring the goods establishes that that acquisition has been subject to tax in accordance with paragraph 1.

If, however, the acquisition is subject to tax in accordance with paragraph 1 in the Member of State of arrival of the despatch or transport of the goods after having been subject to tax in accordance with the first sub paragraph, the taxable amount shall be reduced accordingly in the Member Sate which issued the VAT identification number under which the person acquiring the goods made the acquisition."

25. The combined effect of Article 28a imposing tax on intra-community acquisition of goods and Article 28b(2) identifying the location of that acquisition is that the purchaser is liable to account for VAT to the Member State which issued it with its VAT identification number unless the goods have already been subject to tax. Such a shift of accountability requires a correlative exemption for the supplier. That exemption, which forms the nub of the controversy in the instant case, is contained in Article 28c(A) provides:-

"(A) Exempt supplies of goods

Without prejudice to other Community provisions and subject to conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions provided for below and preventing any evasion, avoidance or abuse, Member States shall exempt:

(a) supplies of goods, (as defined in Article 5), dispatched or transported by or on behalf of the vendor or the person acquiring the goods out of the territory referred to in Article 3 but within the Community, effected for another taxable person or a non-taxable legal person acting as such in a Member State other than that of the departure of the dispatch or transport of the goods."

26. Article 28d contains provisions as to the moment when liability arises, to be contrasted with Article 10 relating to supplies solely within one Member State. Article 28d provides:-

"1. the chargeable event shall occur when intra-community acquisition of goods is effected. The intra-community acquisition of goods shall be regarded as being effected when the supply of similar goods is regarded as being effected within the territory of the country.

2. for the intra-community acquisition of goods, tax shall become chargeable on the 15^th day of the month following that during which the chargeable event occurs.

3. by way of derogation from paragraph 2, tax shall become chargeable on the issue of the invoice or other documents serving as an invoice provided for in the first sub paragraph of Article 22(3)(a) where that invoice or document is issued to the person acquiring the goods before to 15^th day of the month following that during which taxable event occurs.

4. by way of derogation from Article 10(2) and (3), tax shall become chargeable for supplies of goods effected under the conditions laid down in Article 28c(A) on the 15^th day of the month following that during which the chargeable event occurs.

However tax shall become chargeable on the issue of the invoice provided for in the first sub paragraph of Article 22(3)(a) or other documents serving as invoice where that invoice or document is issued before the 15^th day of the month following that during which the taxable event occurs."

27. These provisions are of significance in relation to the claimants' contention that the system depends upon the documents showing the nature of the transaction and the terms of despatch rather than on the actuality of removal. They serve to emphasise the importance of being able to identify the taxable person liable to account for VAT at the time of issue of the invoice.
28. Article 28e identifies the taxable amount and rate applicable. The tax rate applicable is that which is in force at the time when tax becomes chargeable under Article 28d (see Article 28e(3)). The tax rate applicable is that which is applied to the supply of similar goods within the territory of the country (i.e. the country identified in Article 28b) (see Article 28e(4)).

United Kingdom legislation.

29. The United Kingdom domestic legislation is of importance because, so the claimants contend, it demonstrates that the United Kingdom has failed properly to implement the exemption which it is required to provide under Article 28c(A)(a). The domestic legislation, the claimants contend, fails properly to achieve the effect of Article 28c(A)(a) since it requires that the goods should actually have been removed from the United Kingdom and that the supplier must prove conclusively that the goods have actually been removed. Section 30 of the Value Added Tax Act 1994 ("the 1994 Act") provides:-

"(1) Where a taxable person supplies goods or services and the supply is zero-rated, then, whether or not VAT would be chargeable on the supply apart from this section -

(a) no VAT shall be charged of the supplies; but

(b) it shall in all other respects be treated as a taxable supply;

and accordingly the rate at which VAT is treated as charged on the supplier shall be nil.

(6) A supply of goods is zero-rated by virtue of this sub section if the Commissioners are satisfied that the person supplying the goods;

(a) has exported them to a place outside the Member States; ….

(8) Regulations may provide for the zero-rating of supplies of goods, or of such goods as may be specified in the regulations, in cases where –

(a) the Commissioners are satisfied that the goods have been or are to be exported to a place outside the Members States or that the supply in question involves both –

i the removal of the goods from the United Kingdom; and

ii their acquisition in another Member State by a person who is liable for VAT on the acquisition in accordance with the provisions of the law of that Member State corresponding, in relation to that Member State, to the provisions of section 10; and

(b) such other conditions, if any, that may be specified in the regulations or the Commissioners may impose are fulfilled."

30. Regulations have been made pursuant to the power conferred by section 30(8). Regulation 134 of the Valued Added Tax Regulations 1995 provides:-

"Where the Commissioners are satisfied that-

(a) a supply of goods by a taxable person involves their removal from the United Kingdom,

(b) the supply is to a person taxable in another Member State,

(c) the goods have been removed to another Member State, and

(d) the goods are not goods in relation to whose supply the taxable person has opted, pursuant to section 50A of the Act for VAT to be charged by reference to the profit margin on the supply, the supply, subject to such conditions as they may impose, shall be zero-rated".

31. The Commissioners have published notices which in part have the force of law pursuant to Section 30(8) of the 1994 Act and Schedule 7 paragraph 4. Notice 725 provides:-

"(a) Supplies to VAT registered customers in another EC Member State. If you supply goods to a customer who is registered for VAT in another EC Member State, you may zero-rate your supply in the UK provided -

you obtain and show on your VAT sales invoice your customer's VAT registration number with a 2-digit country code prefix (see paragraph 13.11);

the goods are sent or transported out of the UK to a destination in another Member State; and

you hold commercial documentary evidence that the goods have been removed from the United Kingdom (guidance on proof of removal of goods is given in Notice 703).

You must meet all these conditions in order to zero-rate your supply. Otherwise you must charge and account for tax on goods in the UK (unless the supply of the goods is normally zero-rated in the UK).

Remember - in order to zero-rate your supply of goods to an EC customer you must obtain within three months of the supply, and keep, valid commercial evidence which proves that the goods have been removed from the UK."

32. The conditions for zero-rating supplies to other EC Member States are further contained within paragraph 8.4 of Notice 703, which also has the force of law. It provides

"If you supply goods to a customer who is registered for VAT in another EC Member State, you may zero rate your supply in the UK, provided –

You obtain and show on your VAT sales invoice your customer's EC VAT registration number, including the two-letter country code prefix (see Appendix A(2);

The goods are sent or transported out of the UK to a destination in another EC Member State; and

Within three months of the date of supply, you obtain and keep valid commercial documentary evidence that the goods have been removed form the UK (see paragraph 8.7).

Unless you meet all these conditions you cannot zero-rate your supply and you must account for VAT on the goods in the UK in accordance with paragraph 9.4 unless the goods are zero-rated in their own right.

If your EC customer collects are arranges the collection of the goods and their removal from the UK you should-

confirm how the goods are going to be removed from the UK and confirm what proof of removal will be sent to you; and

consider taking a deposit from your customer equal to the amount of VAT you have to account for if you do not get satisfactory evidence of removal of the goods from the UK. (The deposit can be refunded when you have received evidence which proves that the goods have been removed from then UK.)"

33. Paragraph 8.7 of Notice 703 provides:-

"Routine customs controls for the majority of goods moving between EC Member States ceased at midnight on 31 December 1992. Since that date no single document has been specifically required to support the zero-rating of supplies made to VAT registered traders in other EC Member States. Instead, Customs & Excise will allow zero-rating provided that you, as the supplier, hold clear documentary evidence of that the goods have been removed from the UK.

For this purpose you may use a combination of the following provided that, when taken together, they provide clear evidence that the particular goods in question have been removed from the UK -

- commercial transport documents from the carrier responsible for removing the goods from the UK;

- customer's order;

- inter-company correspondence;

- copy sales invoice;

- advice note;

- packing list;

- details of insurance or freight charges;

- evidence of payment;

- evidence of receipt of goods abroad; and

- any other documents relevant to the removal of the goods in question which you would normally obtain in the course of your intra-EC business.

You must ensure that the documents you use provide clear evidence that the goods have been removed from the UK, not just that a sale has taken place."

34. Paragraph 8.9 of Notice 703 provides:-

"If your VAT registered EC customer is carrying the goods out of the UK, you must ascertain what evidence of removal of the goods from the UK will be provided and consider taking a deposit equivalent to the amount of VAT as advised in paragraph 8.4 in addition to the examples of acceptable documentary evidence listed at paragraph 8.7, you must also obtain from your customer -

- a written order which shows the name, address and VAT number of the acquirer and the address where the goods are to be delivered; and

- a signature for the goods and the registration number of the vehicle that is to carry the goods out of the UK (if going by road).

If the goods are removed in a container, you should also consider recording its identification number."

35. Although Section 30(8) of the 1994 Act refers to a supply which "involves" the removal of the goods from the United Kingdom, it is plain from the Regulations and Notices 725 and 703 that the United Kingdom requires removal of the goods from the United Kingdom before the exemption in respect of which provision is made in Article 28c(A) can be allowed and the supply zero-rated. The verb "involves" is construed in United Kingdom subordinate legislation as meaning "achieves". Thus the Commissioners must be satisfied that the goods have been removed to another Member State (see Regulation 134(c)). It is on that interpretation that the arguments in the instant case hinge. The claimants contend that the Sixth Directive, as amended by the transitional provisions, require no more than that supply "involves" removal. The Sixth Directive does not require that that removal be achieved before entitlement to exemption under Article 28cA.
36. I shall turn to amplify the reasons why the claimants contend that the domestic legislation and the requirement of proof of removal of the goods goes beyond the conditions for exemption warranted by Article 28cA(a).

The submissions of the claimants in relation to exemption under Article 28cA

37. The essential submission of the claimants is that liability to account for VAT on the supply of goods transfers to the person acquiring those goods where:-

(i) there is a "genuine" dispatch and

(ii) there is an intra-Community acquisition of goods, as defined in Article 28a(3).

I shall develop later what the claimants mean by a "genuine dispatch". But for the time being the importance of this submission is that it denies entitlement on the part of the Commissioners to demand proof of actual removal of the goods.

38. This interpretation of Article 28c(A) emphasises that the key elements of Article 28cA(a) are a requirement that there be a supply of goods:

(i) dispatched or transported out of the territory of a Member State (see Article 3), and

(ii) effected for another taxable person in a Member State other than that of the departure of the dispatch or transport of the goods.

The claimants draw attention to the words "departure of the dispatch or transport". They submit that it focuses on the start of the process of dispatch and not its conclusion. By way of contrast Article 28bA in its third paragraph refers to the "arrival of the dispatch or transport" of the goods. This emphasis, submit the claimants, is consistent with the other texts of the Directive, all versions of which are authentic. For example the French text refers to "depart de l'expédition" and the German text provides:-

"Die Lieferung von gegenständen . . . nach Orten . . . als dem des Beginns des Versands."

39. Thus all that is required for exemption is the start of the process of dispatch, coupled with an intra-Community acquisition of goods.
40. In order to test this contention as to the conditions under which exemption is provided, it is necessary to place the exemption provisions under Article 28cA(a) within the context of those provisions which impose liability on the person acquiring the goods. The key provision is the definition of intra-Community acquisition under Article 28a(3). The definition of intra-Community acquisition of goods in Article 28a(3) is crucial because it provides the trigger for the imposition of the tax under Article 28a(1)(a) and for the chargeable event and the right of a Member State to claim the tax under Article 28d. Article 28a(3) contains two elements. Intra-Community acquisition of goods occurs when:-

(i) the right to dispose as owner of movable tangible property is acquired, and

(ii) the movable tangible property is dispatched or transported to a Member State other than that from which the goods are dispatched or transported.

41. The first paragraph of Article 28a(3) does not refer to any particular stage in the process of dispatch or transport. It merely requires dispatch or transport "to" a Member State other than that from which the goods are dispatched or transported. In that respect Article 28c(A) is similar, in that it refers to a dispatch out of a particular territory within the Community. In contrast to the second paragraph of Article 28a(3), it does not refer to the arrival of the goods dispatched or transported. It is essential to the claimants' submissions that the words "dispatch to" a Member State do not mean removal of the goods from the supplier's Member State, but only mean that the goods have been sent off to that destination. Again, the claimants refer to parallel authentic texts which, for example, in the French text refer to:

"un bien . . . expedié ou transporté à destination de l'acquereur".

The German text refers to "nach einem anderen Mitglietstaat . . . "

42. Consistent with that interpretation is Article 28bA(2), which deems the territory in which VAT is to be accounted for as the territory issuing the VAT identification number under which the person acquiring the goods "made the acquisition".
43. Further, the chargeable event pursuant to Article 28d(1) takes place when the intra-Community acquisition of goods is effected. It is at that stage, in other words when the legal conditions necessary for tax to become chargeable are fulfilled (see Article 10(1)(a), that the chargeable event occurs. The chargeable event must be the same both for the supplier and the acquirer. The chargeable event takes place when the right to dispose as owner of the goods is acquired and at the moment when the first stage of the dispatch takes place, not when the dispatch is completed and the goods arrive.
44. In support of that submission the claimants draw attention to the three standard Incoterm trading terms, which are ex works, fob and cif. The claimants submit that Article 28cA cannot be interpreted in a manner which in reality compels a supplier to retain control over the goods until such time as they reach their destination in another Member State.
45. As the introduction to the ICC Official Rules for the Interpretation of Trade Terms, known as Incoterms 2000, makes clear, the terms are designed to deal only with the relation between sellers and buyers under the contract of sale. They do not apply to the contract of carriage. (See paragraph 1 of the Introduction.) Most of the contracts with which the instant case is concerned were "ex works". Such a contract:-

"means that the seller delivers when he places the goods at the disposal of the buyer at the seller's premises or another named place . . . not cleared for export and not loaded on any collecting vehicle."

The term represents the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the seller's premises. The claimants submit that the term "dispatch" found in Article 28a(3) and 28cA(a) is wide enough to reflect the situation where a supplier trades on ex works terms.

46. It also, so the claimants contend, refers to sale on fob terms ("free on board"), where a seller delivers when the goods pass the ship's rail at the named port of shipment but the buyer must bear all costs and risks from that point.
47. Cif terms (cost insurance freight) also mean that the seller delivers when the goods pass the ship's rail in the port of shipment. But in addition, the seller must pay the costs and freight necessary to bring the goods to the named port of destination. Risk of loss or damage are transferred from the seller to the buyer only after delivery. The seller must procure marine insurance against the buyer's risk during carriage.
48. The claimants point out that under all three of the standard terms the right to dispose as owner of the goods is acquired while the goods are still physically in the supplier's Member State, before the ship leaves domestic waters. But the point is more graphically made in relation to ex works contracts, where that acquisition takes place before the goods have left the warehouse or premises where they have been placed at the disposal of the buyer. Moreover, the Commissioners purport to exercise the right to refuse exemption notwithstanding that the goods were delivered over the ship's rail. In such a case they would not have been removed until the ship left harbour and the domestic waters of the supplying state.
49. On the claimants' interpretation an intra-Community acquisition will take place before the goods are physically removed, or at least have left harbour, whatever the Incoterm used. That is the occasion when the chargeable event takes place. The chargeable event will inevitably take place before the goods have been removed where an invoice has been issued (see Article 28d(3) and (4)). At that stage a supplier must know whether it is he or the acquirer who is required to account for VAT. If the Commissioners are correct, and it must be proved that the goods have been removed, the supplier will not and cannot be in a position to know whether the goods have been removed at the point when the chargeable event takes place. If he trades on ex works terms he no longer has any control over the goods. So far as he is concerned the transaction is concluded. The requirement to prove that the goods have been removed is, it is contended, inconsistent with the time when an intra-Community acquisition takes place and the time when a chargeable event occurs.
50. Such an interpretation provides symmetry with the case of supply of similar goods wholly within one Member State. If an intra-Community acquisition within the meaning of Article 28a(3) takes place at the start of the dispatch or transport that is comparable with the time when a supply of goods takes place within the Member State in question. This interpretation is, thus, consistent with the second sentence of Article 28d(1), which states that:-

"The intra-Community acquisition of goods shall be regarded as being effected when the supply of similar goods is regarded as being effected within the territory of the country."

51. The claimants further submit that it is required to do no more than provide objective proof of dispatch on Incoterms for an intra-Community trade. Once that has been proved, responsibility for accounting for the VAT passes to the acquirer. There is no loss of VAT because responsibility has passed to that person, in the instant case TT, and it is to the tax authority in Spain it must account.
52. In short, in circumstances where the Directive admits of the possibility that it may be the purchaser who is responsible for transporting the goods to the destination, and where the chargeable event is likely to take place before the goods have left the Member State of the supplier, the transitional provisions do not intend that the exemption should arise only after the goods have left the Member State of the supplier.

The Arguments of the Commissioners in Relation to Exemption

53. The Commissioners contend that an intra-Community acquisition within the meaning of Article 28a(3) requires:-

(i) an acquisition of the right to dispose of goods;

(ii) that the goods are dispatched to the person acquiring the goods (whether by or on behalf of the vendor or by or on behalf of the acquirer); and

(iii) that the dispatch must be to a Member State other than that from which the goods are dispatched.

The Commissioners accept that the concept of dispatch denotes movement from one point to another, but in the context of an intra-Community transaction this means movement from the state of the supplier to a different state. That is confirmed in the provisions of the exemption, which require a dispatch "out of the territory" of the Member State of supply. The words "out of the territory" demonstrate that it is not enough to qualify for the exemption that the despatch starts. Exemption depends upon the removal of the goods from the territory from which they are supplied. The Commissioner's focus therefore, on the concept of a despatch "out of the territory".

54. In support of that central contention, the Commissioners draw attention to what they said to be an underlying difficulty in the claimants' argument. If the claimants are correct mere delivery to premises within the United Kingdom with the intention that the goods be despatched onward from those premises by the supplier is sufficient to satisfy the requirements for exemption under Article 28c. Despatch, on the claimant's argument, requires no more than a delivery to premises within the United Kingdom and, for the purposes of the exemption ends at that point. If that were correct, argue the Commissioners, Article 28b A1 would deem the place of acquisition to be the United Kingdom and tax would be chargeable in the United Kingdom in accordance with the provisions which impose the tax under Article 28a1. I doubt, however, whether that argument disposes of the claimant's contentions. The claimants accept that the concept of despatch incorporates a chain of events. Their argument is no more than that the first stage of the despatch satisfies the conditions for exemption.
55. Of more substance is the Commissioner's argument that the effect of the claimant's submissions is that the intention of the trader at the time he makes his supply within the United Kingdom is determinative of the question as to whether the supplier or the purchaser is liable to account for VAT. Chargeability, contend the Commissioners, should depend upon the objective circumstances of the transaction rather than the mere intention of the supplier or indeed the purchaser.
56. In support of that submission, the Commissioners refer to dicta of the European Court of Justice in case C/4/94 BLP v CCE [1995] ECR 1/983. In that case the issue was whether BLP was entitled to deduct input tax in respect of services supplied to it by its bank in connection with an exempt supply, namely the sale of shares it held in another company. The Court concluded that services in connection with an exempt supply could not be deducted. One of the arguments advanced by BLP was that the services in question were made not only in respect of exempt transactions namely the sale of shares but also for the purposes of taxable transactions, falling within the company's objects. The Court held that the services in question must have a direct and immediate link with taxable transactions and that the ultimate aim pursued by the taxable person was irrelevant (see paragraph 19). The Commissioners rely on paragraph 24 of the judgment:-

"Moreover, if BLP's interpretation were accepted, the authorities, when confronted with supplies which, as in the present case, are not objectably linked taxable transactions, would have to carry out inquiries to determine the intention of the taxable person. Such an obligation would be contrary to the VAT system's objectives of ensuring legal certainty and facilitating application of the tax by having regard, save in exceptional cases, to the objective character of the transaction in question"

57. The requirement that the goods be removed from the Member State from which they are supplied is an objective circumstance capable of proof. On the other hand if exemption depended upon the intention of the supplier or the purchaser that would require a legally uncertain assessment of the evidence of intention.
58. Furthermore, if exemption is triggered at the moment when the goods are placed at the disposal of a purchaser who intends to transport them from the Member State of supply, evidence, either that they have been despatched out of that territory or have not, would be irrelevant to the issue of chargeability. Nothing, on the basis of the claimants' arguments, which occurs after the time of supply in the United Kingdom would be relevant to the issue of chargeability. The exemption would apply to all traders who relinquish responsibility over goods in the United Kingdom irrespective of whether the goods are actually removed.
59. The Commissioners accept that the consequence of their argument is that an innocent trader may have taken all reasonable steps to obtain proof of removal and yet fail to benefit from the exemption if it turns out that the goods have not in fact been removed. Notwithstanding that traders have obtained evidence from the buyer that the goods have been received at the contractual destination, the Commissioners assert the right to unravel the transaction and to charge the supplier in the United Kingdom to tax. There is considerable controversy, to which I shall turn later, as to the nature and quality of that evidence but, if the Commissioners are right, such evidence may be rebutted if they later obtain other evidence that the goods have not been removed. This, the Commissioners say, is not surprising. There are analogous circumstances in relation to customs duties and certificates of origin where an innocent trader bears the consequence of non-fulfilment of a condition entitling goods to the benefit of a reduced tariff and is rendered liable to import duties. The Commissioners draw attention to R v Commissioners of Customs & Excise ex-parte Faroe Seafood Co Limited & others (cases C/153/94 & 204/94) [1997] ECR 1-2465. That case concerned an innocent trader who had produced a certificate of origin from the competent foreign authority from a third country outside the European Union in respect of goods entering the community customs area. The Court ruled that the customs authority was entitled to post-clearance recovery of import duties unless the original non collection of those duties were due to an error by the authorities and subject to other conditions of good faith (see paragraph 83). The Court held that the person liable could not entertain a legitimate expectation with regard to the validity of the certificates by virtue of the fact that they had been initially accepted by the customs authorities of a Member State. Initial acceptance did not prevent subsequent checks from being carried out (see paragraph 93). In a similar case, Pascoal et Filhos v Fazenda Publica [1997] ECR 1/4204 the Court echoed that ruling:-

"60. As the court pointed out in Faroe Seafood paragraph 114, it is the responsibility of traders to make the necessary arrangements in their contractual relations in order to guard against the risk of an action for post-clearance recovery.

61. It follows that the fact of requiring an importer who has acted in good faith to pay customs duties payable on the importation of goods in respect of which the exporter has committed an customs offence, where the importer has played no part of that offence is not contrary to the general principals of law which the law is required to uphold."

60. Those decisions establish that an innocent trader may have to bear the consequences of legislative conditions for exemption or, as in those cases, for a reduction of tariff, if it turns out, on subsequent enquiry, that the conditions have not been fulfilled. They are, as it seems to me, authority for no different principle than that which applies in the domestic law of the United Kingdom. The taxpayer has no greater legitimate expectation than that he will be taxed in accordance with the legislative provisions. The real question in this case is what those legislative provisions in relation to the exemption mean. There is a danger in seeking to derive any general principal from the specific legislative provisions relating to the entry into the community customs area of products originating from a third country outside the customs area. In such cases there is no chain of traders accountable in turn as there is within the community. In custom duty cases relating to import from outside the European Union the question is whether a single trader or importer is or is not liable.
61. Finally, the Commissioners point out that their interpretation is shared with other Member States. The Commissioners did not have the opportunity to produce the primary legislation but referred to a guide "European VAT Compliance Manual" prepared by well-known accountants, Grant Thornton and published by CCH Editions Limited. In relation to Austria the guide states that exemptions depends upon the tax authority being satisfied that the goods have been removed from Austria and that someone has become liable to pay acquisition VAT in another Member State. It warns that a supplier must have proof of export (see paragraph 70/030). In relation to Denmark the guide says that zero rating depends upon proof that the goods have been physically removed from Denmark (70/030). Similar examples were provided in relation to France, Germany, Greece, Ireland and Sweden. I shall not detail them all but it does appear that all those Member States interpret the provisions for exemption as requiring physical removal of the goods from the territory of supply to another Member State.
62. There are distinctions, however, as to the means by which such removal may be proved. In relation to Austria the guide says at 70/045:-

"In practice there is little prospect of any difficulty arising if the customer accounts for acquisition tax in the country of destination. However, the existence of evidence of export and of the customers taxable status will be important in those cases where this is not done."

In relation to Denmark it appears that the supplier can be held liable for unpaid VAT unless he proves that the transaction was made in good faith. It is instructive to note that in relation to Sweden the guide advises that the goods must be physically transported from Sweden to another country. It states that the decisive consideration is that such transport is actually carried out.

63. This guidance does not, of itself, assist as to the correct interpretation of Article 28. It does, however, serve to emphasise the importance of a ruling which will achieve uniformity within the European Union.

Difficulty of Proof

64. Both arguments expose a crucial difficulty. Notwithstanding that a supplier obtains from the purchaser evidence of receipt of the goods in another Member State, the Commissioners assert the right to require that supplier to account for tax in the United Kingdom on discovery that the goods had not in fact been removed. This is what the claimants say happened in this case. They say they provided evidence in the form of a CMR obtained from TT showing that the goods had reached their destination in another Member State. Yet the Commissioners say that, since it turns out that the CMRs contained false information, they are entitled to assess the claimants. This leads to controversy as to whether the claimants should or should not have been suspicious themselves. There followed detailed debate as to the quality of the information contained in the CMRs, some of the criticisms of which did not seem to me to be particularly relevant to the problem of missing traders and many of which would have been by no means obvious to a trader in the heat of commercial activity. Thus, the problem arises as to the extent to which apparent proof of removal can be later rebutted by evidence, which reveals, after intensive investigation, that the goods were not in fact removed.
65. The Commissioners justify their right to unravel the transaction when subsequent investigation reveals that the goods had not been removed on the basis that the risk of subsequent assessment is inherent in such trade and, that losses should fall on the traders and not on the public at large. Exemption should not be afforded to suppliers who relinquish control over the goods in the United Kingdom, even if those suppliers intend the goods to be removed since that would merely aggravate the abuse of the system and throw the burden of the costs of any fraud onto the Community itself.
66. The claimants counter that argument by pointing out that the Commissioners confuse the system for exemption with the problems of missing traders. The exemption system merely passes liability for VAT and responsibility to account for VAT from supplier to purchaser. VAT is not lost, because there is always a taxable person, the next person in the chain, in the instant case TT, to whom the tax authorities in the country of registration can turn to account for VAT. In the instant case it is Spain which can pursue enquiries as to the chain of supply and purchase following the purchase by TT. Abuse is the responsibility of Spain and the United Kingdom can itself seek to prevent abuse by the operation of the mutual assistance legislation.
67. This approach, argue the Claimants, does not inhibit trade since it merely requires the supplier to provide evidence of the first stage of dispatch. Once that evidence is provided the supply is exempt and responsibility to account shifts to the purchaser. It is immaterial if it is discovered that the goods were not subsequently removed: that is an issue for the country in which the purchaser was registered. The claimants' further point out that this approach is consistent with the European VAT compliance manual in respect of France, Belgium, Ireland, Italy, Luxembourg, Spain, Sweden and the United Kingdom at 70/045 (cited at paragraph 53).
68. This debate reveals that the essential issue is whether the liability of the purchaser to account and the correlative exemption of the supplier is to be judged at the date when acquisition of the right to dispose as owner takes place accompanied by the first stage of the dispatch to another Member State, or whether that liability only arises once the goods have arrived at the other Member State. In fact the claimants did obtain evidence of removal, even though they now assert that that may have been more than they required to do by Article 28. The case, thus, also gives rise to the issue whether, whatever the appropriate date for triggering liability of the purchaser and exemption of the supplier, the transaction can subsequently be unravelled should the evidence of removal prove to be false.
69. The purity of the argument in relation to these issues has been sullied by volumes of detailed evidence and oral controversy as to the attempts by the traders to obtain conclusive proof of removal. I shall have to deal with those issues later. The Commissioners contend that the claimants adopted inadequate procedures for identifying the falsity of the evidence they obtained. The claimants say that any falsity was only discovered after detailed investigation by the Commissioners which it would have been impractical for them to undertake.
70. I should comment, at the outset, that it seems a recipe for inconsistency, confusion and difficulty, if liability is to be assessed according to a qualitative judgment by the tax authorities of the efforts made by a supplier to obtain accurate proof that the goods have been removed. That seems to me to be bound to lead to inconsistency between different Member States in relation to intra-community trade. Some authorities are bound to take a more relaxed view than others. True it is that the authorities of Member States are entitled, for the purposes of article 28, to make regulations to combat fraud and abuse. But there is real difficulty in assessing innocent traders, possibly long after the event, in circumstances when there is a genuine intra-community supply and purchase and the supplier can have no control on any subsequent abuse on the part of the purchaser or those with whom that purchaser deals.

Conclusion: reference to the European Court of Justice

71. At the outset of the arguments advanced, both the claimants and the Commissioners were anxious to avoid a reference. They particularly relied upon the period of uncertainty which would ensue pending a determination by the European Court. The Commissioners, on the other hand, contended that the matter was beyond sensible argument.
72. I am persuaded that it is not merely necessary but essential that the correct interpretation of the provisions of the Sixth VAT Directive in relation to exemption in respect of intra-community acquisitions should be determined by the European Court of Justice. This case affords a primary example of the necessity for a uniform interpretation application to all Member States and all the authentic texts providing for the exemption contained in Article 28cA(a).
73. If the Commissioners are correct, if an innocent trader who obtains proof of receipt in the country designated by the purchaser, in accordance with the contract of sale, that may be insufficient. If the Commissioners are correct, they are entitled to unravel the transactions and if they discover that the goods have not been physically removed from the United Kingdom they are entitled to require the supplier to account for VAT within the United Kingdom. Whatever the efforts of the suppliers to establish proof of removal, if in fact the evidence turns out to be false, those suppliers remain liable for VAT.
74. On the other hand, if the claimants are correct, the status of the supply must be determined at the time the right to dispose as owner is acquired, provided that that acquisition is accompanied by a contractual intention to despatch the goods from the Member State of supply to another Member State. On that interpretation the status of the supply is crystallised at the time of the chargeable event. If the Commissioners are correct, the issue as to whether the supply is exempt in the country of supply may not be ascertained until long after the chargeable event, or, indeed, until long after the tax becomes chargeable, subject only to the three year time limit for making assessments (Section 77(1)(a) 1994 Act). This will, inevitably, lead to uncertainty which is not justified even though the trade of mobile phones within the Community is rife with fraud.
75. The claimants contend that the Commissioners' interpretation and application of its interpretation offend the principles of legal certainty, neutrality and proportionality. Even where serious VAT fraud is suspected, the principle of proportionality still applies (see Case C/286/94 Garage Molenheide & others v Belgian State [1997] ECR 1/7281).
76. The Commissioners' interpretation, contend the claimants, erects an impermissible barrier to the free movement of goods such as mobile phones. Such a trade can only take place on the basis of regular documentation evidencing the transactions and the intention that they be supplied from one Member State to another. There are, so it is contended, ample powers conferred on Member States under the Mutual Assistance Directive (Council Directive 77/799 EEC) which were specifically extended to cover indirect taxes by Council Directive 92/12/EEC. Such arrangements enable Members States to track the chain of transactions without erecting insuperable barriers to any such trade taking place at all. In the instant case, once TT became liable to account for VAT, the United Kingdom could have invoked Regulation 218/92 to combat fraud. It could have informed the Spanish Authorities of the supplies made to TT on the basis of TT's Spanish VAT number, and the Spanish authorities would have been able to check whether the appropriate level of VAT had been accounted for.
77. In essence the claimants accuse the Commissioners of failing properly to implement the provisions of Article 28cA(a) into domestic legislation.
78. It seems to me that all the issues as to legal certainty, proportionality and legitimate expectation turn on the correct interpretation of Article 28 of the Sixth Directive. If the Commissioners are correct then Article 28 has been correctly imported into domestic United Kingdom legislation and there can be no basis for saying that their response is disproportionate. If the claimants are correct then it seems to me that at the very least the Commissioners have misinterpreted the primary domestic legislation by translating the requirement that the supplier should "involve" the removal of goods pursuant to Section 30(viii)(a) as meaning that the supply should achieve the removal of the goods from the United Kingdom. In those circumstances the secondary legislation contained within the regulations and the notices made under those regulations are themselves ultra vires. The primary legislation must be interpreted in accordance with the true meaning of the directive under Article 28cA(a) (see in particular Marks & Spencer Plc v Commissioners for Customs & Excise [2002] EC R 1/6325 paragraphs 24-27).
79. For those reasons I am satisfied that it is necessary for the correct interpretation of the provisions of Article 28 to be referred to the European Court of Justice, only by such a reference can proper comparison of the different language versions of the Directive be made and this particular provision of Community Law be placed in its proper context and provide an interpretation for uniform application throughout the Community (see e.g. Case 283/81 Cilfit [1982] ECR 3415 at paragraphs 18-20).

Trade In Mobile Phones

80. In order to place the decision of the Commissioners to assess the claimants in context it is necessary to outline a description of the trade in mobile telephones. The global market for mobile telephone handsets in 2003 is said to be approximately 500 million pieces a year. This number is increasing. Products are designed to operate in any country. The trade in mobile phones has become similar to that in other commodities such as oil, coffee beans and pork bellies. There is a primary market in which mobile phones are supplied directly by manufacturers to distributors, which service for example retail chains.
81. There is also a secondary market described by Mr. Hewetson, director of Rapid Marketing Services Ltd, in his second statement as a "grey wholesale market". It is on that market that the claimants trade. In the primary market there may be delivery delays for up to six months for new models. This results in much speculative ordering, by retailers, distributors and networks. Retailers, distributors and networks may be left with either too few or too many mobile phones of a particular model. The grey market has developed in order to deal with over or under supply and to redistribute products wherever there is an actual retail demand. Manufacturers might also produce, as a matter of speculation, excess stock which, if another model is launched which is more attractive to consumers, will leave that manufacturer with an excess of telephones. The grey market is used also to clear older products. Those retailers or distributors who have ordered too many telephones may sell those, which are excess to their requirements, onto the grey market for immediate cash. If retailers or distributors have under-ordered, because of the delay in production it will be necessary for them to buy from the grey market.

Supply and retail demand and accordingly price, fluctuate daily. A trader may buy a batch of telephones one day, for cash, and discover that the price of telephones has fallen by as much as 20% the next day.

82. The market dictates that transactions have to be completed on the same day. Purchases are usually for cash on delivery and it is uneconomic to purchase for volumes of less than 1000 units. If a trader holds onto a product for more than 24 hours it risks losing substantially. Profit margins are low, in the region of 2 to 4 percent. Success is based on turnover. Traders only hold stock for very short periods and, usually, turn over their working capital between four to six times a week. Thus it is important that transactions are completed within the course of one working day.
83. Some warehouses are sufficiently secure for goods of small size and value. Stock is often bought and sold by telephone a number of times a day without moving from the secure warehouse. Such secured warehouses are shared by many companies which pay in proportion to their use of that warehouse.
84. International trade operates on the basis of documents. Central to this case is the International Consignment note known as the CMR. This is the export document used for all road freight consignments. It is the CMR, signed by the consignee, which afforded the evidence on which the claimants rely of removal of the mobile phones from the United Kingdom to another Member State, in the instant case usually France. The Commissioners state that the CMRs contained false particulars.

CMRs

85. By Section 1 of the Carriage of Goods by Road Act 1965 the Convention on the Contract for the International Carriage of Goods by Road has the force of law in the United Kingdom so far as those provisions relate to the rights and liabilities of persons concerned in the carriage of goods by road under a contract to which the Convention applies. By virtue of Article 1(1), the Convention applies to:-

"Every contract for the carriage of goods by road in vehicles for reward when the place of taking over the goods and the place designated for delivery as specified in the contract, are situated in two different countries."

By Section 14 (2) of the 1965 Act the persons concerned in the carriage of goods by road are amongst others, the sender, the carrier and the consignee.

Article 4 of the Convention provides: -

" The contract of carriage shall be confirmed by the making out of a consignment note. The absence, irregularity or loss of the consignment note shall not affect the existence or the validity of the contract of carriage which shall remain subject to the provisions of this Convention."

Article 5 (1) provides: -

"The consignment note shall be made out in three original copies and signed by the sender and by the carrier… the first copy shall be handed to the sender, the second shall accompany the goods and the third shall be retained by the carrier."

Article 9 (1) provides that: -

"The consignment note shall be prima facie evidence that the making of the contract of carriage, the conditions of the contract and the receipt of the goods by the carrier."

86. It is important to observe at this stage that the CMR notes are merely evidence of the identity of the contracting parties and of the events they describe. But as a number of cases illustrate (for example Elektronska Industrija v Transped [1986] 1 Lloyds Law Reports 49), although a CMR is, as Hobhouse J described, " highly relevant evidence", it is in no way conclusive (see page 50).
87. A typical transaction is described by Mr. Hewetson in his second statement paragraph 20a. Firstly, at the start of a working day, usually before 8a.m, UK time, TT telephoned asking for prices and stock available for purchase and delivery on that day.
88. Secondly, Rapid would reply usually within 30 minutes, using TT`s Spanish telephone number offering a deal for immediate delivery to combat price volatility. Thirdly, TT would agree to buy stock from Rapid at an agreed price and volume and fax a purchase order. Fourthly, by late morning Rapid would deliver the requested stock to TT`s freight forwarder, Euro-Cellar's warehouse in Kent from London based secure warehouses. Delivery would be made by secure transport. Fifthly, within an hour of delivery, Euro-Cellars would check the stock and confirm to TT that all was in order. Sixthly, after receiving confirmation from its freight forwarders, Euro-Cellars, TT would pay Rapid by bank transfer from TT`s UK bank to Rapid`s UK bank by close of business at 3-30pm. The goods would remain in the UK to Rapid's order at Euro-Cellars' warehouse. Seventhly, once paid in full, Rapid would formally release the goods to TT by faxing release forms to Euro-Cellars. Eighthly, usually within thirty minutes of release, Euro-Cellars would prepare and fax to Rapid a CMR, which Euro-Cellars had signed. Rapid would check the CMR and enter it into a file. Ninthly, stock would be sent from Euro-Cellars by a carrier nominated by those freight forwarders to the overseas destination specified on the CMR. Finally, the original CMR would be stamped and signed in Spain by TT and returned, through DHL, to Rapid usually within 10 days. The envelopes within which the CMRs arrived, delivered by DHL had Spanish postmarks. Speed, for the reasons I have given, was essential since Rapid had to hold no stock by the end of the day because the following day the market price would have moved further. There was nothing in these transactions, so Rapid and the other claimants say, to put them on notice that anything was wrong. In particular, the original CMR showing that TT had received the goods at the designated destination were returned as originals, by DHL. There are examples of the posting of those original CMRs, signed and stamped by TT within the exhibits.
89. There were four copies of the CMR. The handling of those four copies is described by Euro-Cellars Ltd in a fax to Rapid dated 31 May 2002 (3B715). The first copy stayed with Euro-Cellars, the following three copies were given to the driver. On arrival at his destination all the copies would be stamped and receipted. The second copy would be sent back to Rapid, the third copy retained by the delivering vehicle driver and the fourth copy kept by the consignee TT. The important feature in the handling of the CMRs is that, so far as I am aware, in every case an original CMR was returned signed and stamped by the consignee, showing that the goods had arrived at a destination in a Member State other than the United Kingdom.

Pre – Trading Checks

90. All, the claimants contend that they took all reasonable steps to assure themselves of the legitimacy of Euro-Cellars business and of TT`s before agreeing to supply to TT. In order to appreciate the importance of this assertion it is important to note the high incidence of fraud in this trade. I must stress that it is not contended that any of the claimants were involved in fraud. This has been expressly disavowed by the Commissioners. Moreover, the fact that there is a considerable problem of mobile phone VAT fraud within the United Kingdom and the European Community was not the reason for which the Commissioners decided to assess these claimants to VAT. But it does explain the importance of the checks, which the claimants undertook. The prevalent fraud within the mobile phone trade sector, apart from "Carousel frauds" is described as "missing trader intra community fraud". A missing trader imports mobiles from other Member States through a number of traders. The missing trader is a VAT registered entity at the beginning of a transaction chain who purports to acquire goods zero rated from another Member State, and sells them in the United Kingdom charging VAT at the standard rate. That trader then disappears before accounting for the acquisition or sales VAT due to the Commissioners. Alternatively, the missing trader may adopt the identity of another VAT registered trader, hijacking that trader. The intermediaries or "buffers", are each VAT registered and claim VAT charged to that trader as input tax and charge VAT when they make an onward sale. The final stage of the transaction chain in the United Kingdom involves a trader, known by the commissioners as the "Broker" who dispatches the goods to another EEC Member State or exports them outside the Community and reclaims VAT which it was charged by its supplier.
91. Mr Stone who is responsible for the regional business service in the South, on behalf of the Commissioners, emphasises that although the claimants acted as innocent brokers the reason for his decision to assess was: -

"The documents relied upon by the claimants as evidence of removal from the UK was not objectively valid evidence of such removal." (See paragraph 9 of the 1^st witness statement).

92. In order to combat missing trader fraud a system was provided for enabling traders to enquire as to the validity of VAT registration details from their potential customers and suppliers. Mr Stone states that validation by the Commissioners is no guarantee of the status of supplies and purchasers. But I should record that the warning notice that:-

"this confirmation is not to be regarded as an authorisation by this Department for you to enter into commercial transaction with this trader and any input claims you make may be subject to subsequent verification."

was not enclosed with any such confirmation until after the transactions the subject matter of the instant case. Such a warning notice has been provided since November 2002.

93. Further, in order to reduce fraud a memorandum of understanding was negotiated with certain traders of mobile phones. The memorandum also provides a code of conduct. Earthshine Ltd, Teleos plc, Unique Distribution Ltd, AGM Associates Ltd, DVD Components Ltd, and Phones International Ltd, were signatories to that memorandum. But even those claimants who were not signatories undertook pre-transaction checks. Others, such as Bulk, who sought to sign, were required to wait. I attach no significance to the fact that some of the claimants were not signatories to the memorandum.
94. The memorandum of understanding is not a substitute for the notices 703 and 705. But, as Mr Lay, on behalf of Unique, says, it signified a new relationship with Customs, with business acting in partnership with the Commissioners to prevent fraud, and provided a benchmark for the trade. One of the objectives of the memorandum was to achieve high standards in accounting, reporting and record keeping, and reduce the level of fraud. The memorandum included a code of conduct applying to new customers which states:-

"The following factors should be considered before supplying stock to a new customer:

How long have they been trading and do they have a history of trade?

Does the customer have sufficient knowledge of the industry to warrant their level of anticipated business?

Have they been unable to purchase stock from their competitors – if so why?

Does the customer always want to buy no matter what the price?

Are the goods to be delivered to a country where the customer is resident or are they to be delivered to another country?

Will the country of destination of your goods be the same as the country that the customer operates in and will payment originate in that country?

Is their courier or shipper reputable – if the goods are being exported will original documents be available?

What are the arrangements for payment – do you trust the customer?

Have you met the customer – if not do you have to contact them through a third party?

What knowledge do credit search companies used by you have of the customer?

Is the customer's bank account in a different town or country to their main business address?

Do you have doubts over the customer's credibility or feel that there is a risk attached to the deal – is it good business acumen to trade with this person?

If you decide to supply the customer, obtain a copy of the customer's headed paper and VAT Certificate, notify HM Customs and Excise of impending trade, and a request confirmation from HM Customs and Excise and the validity of the VAT number. If you decide to supply the customer, obtain a copy of the customer's headed paper and VAT certificate, notify HM Customs and Excise of impending trade and request confirmation from HM Customs and Excise of the validity of the VAT number."

95. In every case, before entering into agreement, the claimants took steps to assure themselves of the legitimacy of TT's business. They obtained a copy of TT's headed paper and VAT Certificate. They contacted the Commissioners to verify the Spanish VAT registration details of TT. The Commissioners confirmed the validity of those details. As I have said, at the time of the relevant transactions no disclaimer was enclosed with the confirmation of the VAT registration data given by the Commissioners. It is unnecessary to detail the circumstances in which the claimants and, in particular the five sample claimants, were introduced to TT. But I should note that, for example, Unique met directors of TT at a trade exhibition in April 2002. Due to the large number of telephones required by TT Unique referred some of the business to Rapid. Rapid met one of TT's directors, Mr Leroy.
96. Checks were also undertaken on TT's company registration, a credit check was undertaken with Dunn and Bradstreet by Unique and bank details were checked. Other checks were also undertaken by other claimants, for example, Bulk. No criticism of these checks is made by the Commissioners. Nor, in my view, could any of those checks have revealed that TT might not ensure that the mobile phones were removed from the United Kingdom. Rapid had, in addition, visited TT in Spain, and met Mr Leroy and its chief executive Mr Broberg.
97. In every case it was intended that the mobile phones would be delivered to Euro-Cellar's premises, and that Euro-Cellars would be the freight forwarders on behalf of TT. Checks were carried out, additional to those required in the Code of Conduct, in relation to the freight forwarders. Unique visited Euro-Cellars and asked their insurance company to verify its security and status. Bulk contacted Euro-Cellars and was informed that Euro-Cellars had had regular dealings with Bulk's own freight forwarders. Bulk checked the validity of Euro-Cellars' VAT number with the Commissioners. They confirmed it. Similar checks were undertaken by Earthshine. Other traders had confirmed that they had heard of Euro-Cellars. Stardex had made inquiries into Euro-Cellars from freight forwarders with which it dealt.
98. Rapid undertook a search of Euro-Cellars at Companies House. It obtained its incorporation documents and confirmed its Certificate of VAT registration with the Commissioners. Euro-Cellars, on inquiry, told Rapid on 8 May 2002 that it was a fully bonded HM Customs and Excise warehouse. The Commissioners comment that the mobile phones were not kept in the bonded part of the warehouse, but the fact that Euro-Cellars was permitted to operate a bonded warehouse and continues to do so, demonstrates the trust which the Commissioners rest in that company. Rapid's enquiries did not stop there. They visited Euro-Cellars twice in mid-May and mid-June and instructed its VAT consultants to carry out checks. Rapid's own VAT advisors, Barnard, communicated with Euro-Cellars to ensure that the CMRs signed by Euro-Cellars met the Commissioners' approval.
99. Although the Commissioners comment that some of the checks appear to have taken place after trade with TT commenced, the decision to assess was not made on the basis of any inadequacies of pre-trade enquiries. Following those checks, Unique made 15 sales to TT between 10 April 2002 and 12 June 2002, the details of which are set out in a spread sheet. Each of these sales were made on ex work's terms. In other words, the only obligation of Unique was to deliver the phones to Euro-Cellars' premises. Ownership of the phones passed to TT at that point. TT arranged with the freight forwarder, Euro-Cellars to remove the goods to the destination specified on the CMR.
100. Rapid discussed its proposed trade with Mr Downer on behalf of the Commissioners. He had verified TT's VAT number. Mr Hewetson says in his first statement at paragraph 57A that he had told Mr Downer that the telephones were to be released to TT's freight forwarder in the UK, and Mr Downer had said that the Incoterm to use was "ex-works". Rapid entered into 90 transactions with TT between 8 May 2002 and 5^th July 2002.
101. Teleos entered into 26 transactions with TT after discussing with a Ms Degg, an officer of the Commissioners, the appropriate Incoterm to use, "ex-works". Phones International entered into eight transactions between 18 April 2002 and 7 May 2002 with TT on ex-works' terms. Bulk entered into two transactions, the first on 17 May and the second on 21 May 2002. The claimants filed VAT returns for the periods in which they had supplied TT. They zero-rated those supplies. They claimed refunds of VAT on the purchases of the mobiles which they had supplied to TT.
102. Customs Officers had taken steps to verify the returns before Mr Stone started to investigate on 18^th July 2002. The evidence as to visits by Customs officers is of importance in relation to the claimants' claim, as a matter of United Kingdom public law, that it is unfair and unreasonable for the Commissioners to assess the claimants after initial approval of the returns by their officials. I shall consider that claim later. But it is convenient, as a matter of chronology, to deal with the initial reaction of Customs officers before turning to the decision to assess the claimants.
103. All the claimants received the fourth copy of the CMR stamped and signed by TT. Accordingly, the claimants believed that the mobile phones had arrived at a designated address. As I have said, the original CMRs were delivered by DHL from Spain.
104. An officer at Customs and Excise, Mr Sparks, visited Unique on 17 May 2002, and inspected documentation in relation to 11 transactions which had taken place in April 2002. The first transaction, dated 10 April 2002, showed the delivery address as Ercosys Mobile (TT) in Marbella Spain. The remaining CMRs for April showed the delivery address as being Calais in France. Mr Sparks says at paragraph 7 of his statement:-

"Whilst there was no address of the carrier on the CMRs, it had been stamped by Ercosys as having received the goods, and this, along with the purchase order, a sales invoice and the evidence of payment did not give me cause at this stage to request supplementary documentation. Apart from the documentation supplied by Unique Distribution Limited, I had no other information relating to Total Telecom in their business activities and, at the time of my visit, had no grounds for suspecting that any of the shipments had, in fact, not been duly exported, nor did I suspect that any of the details on the CMRs were false. Accordingly, I recommended repayment of the claimed input tax on that occasion."

Mr Sparks visited again on 28 June 2002 and inspected documentation in relation to one transaction. He had no grounds, he says, for suspecting that the shipment particulars were false.

105. His third visit was on 24 July 2002 in relation to the final transactions. On his return to the office he learnt that Mr Stone had commenced enquiries into transactions with TT. Payment was then withheld. As I have already indicated, Rapid had retained the services of Barnard. It was advised by Frazer Holmes, a former senior fraud officer of the Commissioners. He made monthly visits to Rapid's premises starting in May 2002. At the inspections he examined the documents and confirmed they were good evidence of removal. He approved the documents as being satisfactory, and consequently Rapid received repayments in respect of its monthly claims in May, June and July 2002. Mr Ameet Wadhwani, on behalf of Bulk, says that Mr Ross, a custom's official, examined paperwork concerning Bulk's first six month's trading. He says that Mr Ross assured him that Bulk's paperwork was in order and that all three Incoterms used were acceptable. He says that Bulk had been assured on many occasions that the CMR stamped by Euro-Cellars confirming that the telephones left the United Kingdom was sufficient to demonstrate that they had. It does not however appear that there had been any express acceptance of paperwork relating to the two transactions with TT.
106. I have outlined the pre-assessment comments of Customs officials in relation to the five example claims but there may be other details in relation to other claimants with which I have not as yet been furnished.

THE DECISION TO ASSESS THE CLAIMANTS

107. Mr Stone's investigations began on 18 July 2002 when he authorised officers to visit Earthshine Limited. He examined the CMR document in relation to a single transaction in June 2002. He noted that there was no address shown for the carrier, Transport Carpentier and that the designated address was in Calais. He attempted to confirm the registered owner of the vehicle, the registration number of which was shown. The vehicle was not known. He conducted further enquiries into Earthshine and Total Telecom leading to a visit to Euro-Cellars in July 2002 and August 2002, and obtained copies of all CMRs raised by Euro-Cellars.
108. In respect of the one hundred and twenty seven CMRs raised by Euro-Cellars on behalf of the claimants and other suppliers three showed a delivery address in Spain, and one hundred and twenty four one of two delivery addresses in Calais France. None of the CMRs relied upon by the claimants, which showed Wilkinson Transport or Transport Carpentier as carriers, provided an address.
109. Mr Stone's investigations revealed that TT had on the same day purchased the mobiles from the claimants and supplied them to one of three UK VAT registered traders. Those traders had sold the mobile phones to five other UK VAT registered traders who themselves had supplied them to five different UK VAT registered traders. Those five traders had sold them on, on the same day to six further UK VAT registered traders which paid TT for the phones.
110. Mr Stone discovered that destination of the consignments purportedly carried by Transport Carpentier in Calais did not exist. Both the company and address shown were false.
111. The consignments purportedly carried by Wilkinson Transport, contained a real address but the company shown, Longville SARL did not exist.
112. Mr Stone further states that he received from solicitors representing TT a document purporting to be from Wilkinson Transport with its details. It provided an address and VAT registration number. The address and VAT number provided were, in fact, in respect of a hardware store in Kings Lynn. He concluded there was no carrier called Wilkinson Transporters.
113. Mr Stone made further inquiries from French authorities in relation to Transport Carpentier. He discovered from that firm that it had never transported the consignments the subject matter of this case.
114. Mr Stone also made enquiries from the Driver and Vehicle Licensing Agency in respect of the vehicle registration numbers shown in the relevant CMRs. Apart from one vehicle, the vehicles were either not known to the DVLA, or were cars, motorbikes or scooters.
115. Mr Stone, unsurprisingly, concluded that details contained in the CMR were false, and that the mobile phones had not left the United Kingdom. He has concluded that each and every CMR from Euro-Cellars in relation to these transactions contains false particulars as to the carrier, the transporting vehicle and the destination address. He says:-

"On any sensible view therefore (they the CMRs) cannot be said to be valid documents which can be considered to constitute conclusive proof that the goods to which they refer were delivered to the stated destination or indeed removed from the UK". (See paragraph 79).

116. A letter sent by the Commissioners to the traders announcing the decision to assess them to VAT is exemplified in a letter to Rapid dated 18 September 2002. It pointed out the falsity of particulars within their consignment notes. The relevant part read:-

"In view of the terms of sale it appears that the sender was actually Total Telecom SL and not yourselves.

Not only are the details of the sender on the consignment notes incorrect, but also the details of the carrier are incomplete and false in the material particular. Customs now know that two haulage companies were alleged to have taken the goods to France."

The letter then referred to Wilkinson Transport and Transport Carpentier stating that the first was a hardware retailer not involved in the transport of mobile phones and the second was a French carrier which did not collect the goods. He asserted that probably both delivery addresses in Calais did not exist, and finally referred to the fact that either the vehicle did not exist or was unsuitable to carry pallets of mobile phones. The letter concluded:-

"As a consequence I am not satisfied that the goods were sent or transported out of the UK to a destination in another EU Member State; or that you hold satisfactory commercial documentary evidence that the goods had been removed from the United Kingdom."

117. Mr Stone's conclusions are summarised at paragraph 9 of his first witness statement:-

"… Each and every CMR relevant to these claims is incomplete and contains more than one false particular which, the Commissioners say, renders it incapable of constituting objectively valid proof of removal from the UK."

118. The result is that, for example, Rapid has been assessed to £6.7m, Teleos £1.5m, Unique £780,000 and other claimants to smaller sums. The claimants say, and I accept, that this has had a devastating effect on their businesses. This is not surprising, since all profits from the trade in mobile phones would have been wiped out by these assessments.
119. There was evidence that TT made returns to the Spanish tax authorities. Those returns included as intra-community acquisitions (input tax) the purchases the subject matter of these claims and also as intra-community departure (output tax) their onward despatch.
120. I should record, at this stage, that the Commissioners also decided retrospectively to register TT for VAT with effect from 20 February 2002. The Commissioners appear to have given allowance for input VAT in the sum of over £15m, relating to the goods sold by the claimants. An assessment has also been raised against Euro-Cellars.

THE CHALLENGE TO THE DECISION TO ASSESS IN PUBLIC LAW: SUBSTANTIAL UNFAIRNESS AND LEGITIMATE EXPECTATION

121. There has been substantial argument between the claimants and the Commissioners as to the extent to which the claimants complied with a memorandum of understanding or failed to heed signs that the transactions were suspicious. Three elements are identified by Mr Stone at paragraph 44 of his statement. Firstly, he says that the claimants should have been alerted by the fact that the goods were, in the vast majority of cases, to be delivered to a destination different to that of the customer's place of residence. All the claimants, following Mr Hewittson's evidence in his second statement, point out that it is common place for goods to be consigned to a destination different from the customer's place of residence. True it is that that is a point to which the memorandum of understanding and code of conduct refers, but I cannot see how that fact could reasonably have alerted the claimants to the fact that their mobile phones were not, after all, to be removed from the United Kingdom. It is true, as Mr Anderson QC on behalf of the Commissioners pointed out, that the memorandum of understanding and code of conduct were a result of negotiations between traders and the Commissioners, and that a different delivery destination is commonly specified in cases of fraud. But I fail to see how or why the fact that a consignment address was not Malaga in Spain, TT's residence, was suspicious or ought to have alerted the claimants. Indeed, it would have been very odd, in the context of this trade, if so many mobile phones were to be delivered to TT's address. The consignment destination was noted on the CMRs and would have been observed by, for example, Mr Sparks on behalf of Customs and Excise. It did not arouse his suspicions.
122. Secondly, Mr Stone refers to the fact that payment was to originate from a London bank account and not from an account in Spain. That, again, may be a common feature of fraudulent transactions, but there was, so far as I can see, nothing suspicious. Indeed, the existence of a London bank account could only further the efficient prosecution of the trade bearing in mind that close of business for London banks would be 3.30 p.m.
123. Thirdly, it is pointed out that the claimants had no knowledge of the carriers to be used. But the claimants did have knowledge of the freight forwarders in respect of whom they had made ample enquiries and who were to be responsible, on behalf of TT, for removing the mobile phones from the United Kingdom.
124. I cannot see how absence of knowledge of the carriers to be used on the day of sale, bearing in mind that they were specified, the registration number was shown and a driver identified, should have aroused the suspicion of the claimants.
125. I do not think that the criticisms of the claimants in relation to their failure to consider deviation from the memorandum of understanding and code of conduct is relevant to this case. After all, the Commissioners themselves assert at paragraph 75 of their written submissions that, even if the claimants had adhered to the code of conduct, the mobiles had to be removed from the United Kingdom, as required by Notice 725 and Notice 703. The basis for the decision to assess these claimants was not because of their failure to respond to features identified in the memorandum of understanding, but because the CMRs contained false particulars and the Commissioners, as a result of their investigations, have concluded that the mobile phones were never removed from the United Kingdom. In short, the Commissioners rest their case upon Clause 8.4 of Notice 703 namely that the goods had not been sent or transported out of the UK to a destination in another EC Member States. Whether the Commissioners are entitled to rely upon that fact depends upon the true interpretation of Article 28. Whatever the steps the claimants took and however reasonable or unreasonable their conduct of the trade, if it be the case that the Sixth Directive requires exemption only to be granted where the goods are removed from the United Kingdom, then the claimants were not entitled to zero-rate their supplies. They have been lawfully assessed, subject only to the Commissioners having placed themselves in a position in which public law would prevent them from making those assessments. One thing is clear: assessment under the Sixth Directive cannot depend upon some qualitative judgment of the Commissioners as to the conduct, scrupulous or otherwise, of the claimants.
126. Nevertheless it is necessary to consider, even if it is not possible as yet to reach a conclusion, the conduct of the claimants in relation to the specific defects identified by the Commissioners in the CMRs.
127. I am satisfied, on the evidence, that the Commissioners were entitled to conclude that the mobile phones had not been removed from the United Kingdom. Apart from the evidence of the CMRs signed and stamped by TT, there is no evidence that they were removed.
128. It is clear to me, that the Commissioners were entitled to conclude, that the CMRs were false in two material particulars. The destination shown in France was false. The vehicles identified by the registration number did not exist or were not suitable for carrying mobile phones. Finally, the transporter identified either did not transport the mobile phones or was not engaged in the trade of transport. But I am wholly un-persuaded that any of the claimants could have been expected to have known of those facts during the course of their trade with TT. As I have said, the claimants had properly investigated TT, so far as they were able, and had obtained confirmation from the Commissioners as to the validity of its VAT registration. They had gone further and made appropriate checks on the freight forwarders. TT was apparently trustworthy. Moreover TT is not the missing trader. The most which can be inferred is that a representative of TT diverted the goods. The freight forwarders, Euro-Cellars are apparently trustworthy and are still trusted by the Commissioners to operate a bonded warehouse. Euro-Cellars filled in the CMRs and were responsible for sub-contracting the carriers. There was nothing in the transactions to arouse the suspicion of the claimants. The Commissioners criticise the claimants for not observing that the CMRs referred to the individual claimants as the senders rather than Euro-Cellars. Although, strictly, under the Convention, it is Euro-Cellars which ought to have been identified pursuant to Article 5, I fail to see that that has anything to do with this case. I cannot see how that should have alerted the claimants to the possibility that the goods were not to be removed to another Member State.
129. There was nothing in the names of the drivers identified to arouse suspicion, even though one is referred to as a Mr Diddle and another as V Hugo (either a genuine name or a sophisticated fraudster). I take the view that there was nothing to put a prudent trader on notice, particularly having regard to the attitude of customs officials such as Mr Sparks.
130. The facts establish that the claimants were entitled to use ex works terms of sale and custom officers were aware that they were being used. It should be noted in particular, that VAT information sheet 2/00 at paragraph 2.1 specifically admits of the possibility of ex works exports for removals which it describes as "indirect", just as in Grant Thornton's manual. The information sheet requires goods to be removed within a period of three months whether they are direct or indirect removals (see paragraph 2.1).
131. Before trading, the claimants made all reasonable enquiries to satisfy themselves that TT was a legitimate buyer and that Euro-Cellars were legitimate and trustworthy freight forwarders.
132. The claimants were at all times entitled to rely upon CMRs, once signed and stamped by TT and returned from Spain, as evidence that the mobile phones had been removed. The claimants reasonably and honestly believed that the mobile phones had left the United Kingdom. Apart from the immaterial reference to the claimants as being senders they contained all the information required by the code of practice and by Notices 725 and 703. They described the goods, the address for delivery, the name of the driver and the registered number of the vehicle and showed receipt on the original signed by TT. In my view no additional evidence could reasonably have been obtained, having regard to the nature of the trade and in particular the speed with which it had to be conducted.
133. Notice 703 does advise taking a deposit. But the claimant's failure to do so is irrelevant. The advice is given to protect traders. A deposit might be some indication of the genuineness of the purchaser's intentions. But it would have had to be returned once TT sent the signed and stamped CMR. It made no commercial sense whatever to ask for one, as the claimant's evidence demonstrates. Failure to obtain the deposit had nothing to do with the decision to assess.
134. The consequence of using ex works terms was that the claimants had no control over the mobile phones once they had been sold. Evidence of removal depended on documents obtained through Euro-Cellars and TT. I conclude that there was nothing within the CMRs to put a prudent trader on notice.

Were the Commissioners entitled to assess the claimants? The claimants' argument

135. Nevertheless, there remains the question as to whether the Commissioners were, in spite of those facts, entitled to assess the claimants. The decision was for them not for the court and the decision can only be challenged on conventional public law grounds. If the Sixth Directive, properly interpreted, does not exempt the supplies because the mobile phones have not been removed from the United Kingdom that is a powerful factor against any court in this country debarring the Commissioners from pursuing the assessments. Until the correct interpretation has been considered by the European Court of Justice, it is not wise to reach any concluded view. But consideration by the European Court of Justice must be made in the context of the essential issue in this case, namely whether, no matter how careful or innocent the claimants may have been, the Commissioners are entitled to assess them to VAT once they discover that the goods have not in fact been removed. My findings on the facts therefore are designed, at this stage, to place that question in context rather than to reach any concluded view as to the Commissioners' entitlement to assess. My conclusion must wait until the correct interpretation of the Directive has emerged.
136. The claimants' submission that the Commissioners are not entitled to assess them to VAT rests on the principle that to do so would be substantially unfair. Mr Pleming QC relies upon the principles expressed by the Court of Appeal in R v. Inland Revenue Commissioners ex parte Unilever PLC [1996] STC 681. The Commissioners have a duty to act fairly in accordance with the highest public standards. The categories of fairness are not closed, in particular there is no warrant for restricting challenges to those cases where express assurances have been given. The issue turns on substantive unfairness and not an adaptation of the law of contract or estoppel (see Sir Thomas Bingham MR at 690F and Simon Browne LJ at 694H to 695J). It should be noted that in that case on thirty occasions over a period of more than twenty years the Revenue had accepted late claims to loss relief. Without warning they changed their settled practice. That amounted to so grave a lapse from the highest public standards as to amount to an abuse of power. Richards J in R v. National Lottery Commission ex parte Camelot Group PLC [2001] EMLR 43 at 69 identified abuse of power as a unifying principle underlying conventional Wednesbury and CCSU categories.
137. The claimants rely on acceptance by officers of Customs and Excise that ex works contracts were an appropriate way of trading. Once an ex works contract had been entered into, the trader had no possibility of control over the mobile phones once ownership had passed to TT. They also rely upon acceptance by Customs officials that normal commercial documents associated with export including, in particular, a completed CMR, was good and adequate evidence of removal. Not one officer who saw the documents prior to accepting them took the view that the CMRs were inadequate, incomplete or wrongly filled in. The legitimate trade in mobile telephones was conducted in circumstances where great speed was required.
138. The Commissioners decision to assess the claimants amounts to an assertion of a right to rely upon the later discovery of any information casting doubt on whether zero rated goods had in fact left the United Kingdom, no matter how careful or innocent the trader had been. To do so amounted to an abuse of power because it contradicted a clear indication or assurance given by officers to the traders that if they produced CMRs as evidence of removal where the purchaser held a valid VAT registration the traders could safely zero rate the mobile phones.

PRELIMINARY CONCLUSIONS IN RELATION TO ABUSE OF POWER

139. At the outset, I should observe that it is not possible to identify any specific assurance by the Commissioners that production of a CMR obtained from the purchaser affording evidence of the removal of the mobiles and arrival at the specified destination could not be rebutted by other evidence that the CMRs were false and that the mobiles had not been removed. No such assurance is contained within the memorandum of understanding. Nor, as I have said, does the memorandum displace Notices 725 or 703. Notice 725 specifies as a condition for zero rating a supply that the goods are sent or transported out of the United Kingdom as well as a requirement to hold commercial documentary evidence of removal. The Notice, accordingly, draws a distinction between the fact of removal and the retention of records of that removal. This is more clearly explained in Notice 703 at paragraph 8.4 which again provides that a condition of zero rating is not only the retention of documents but the fact that the goods:-

"Are sent or transported out of the UK".

140. Domestic legislation coupled with the notices do not, therefore, provide any express assurance that obtaining a CMR from the supplier, providing evidence of removal, itself assures the right to zero rate.
141. That is not enough to rebut a submission of substantial unfairness. Substantial unfairness or abuse of power may exist despite the fact that no express promise was given, as Unilever teaches. None of the Notices contain any warning that the Commissioners might subsequently require the traders to account for VAT should the Commissioners discover that the mobiles had not, in fact, been removed from the United Kingdom. Moreover, those traders whose returns zero rating their suppliers were accepted and were repaid in full (for example Unique on 17 May 2002 in respect of the April 2002 return and May return accepted on 28 June 2002) might reasonably have expected similar transactions undertaken in exactly the same way also to be accepted. I do not, however accept, that confirmation by the Commissioners of the VAT registration of TT itself amounts to any assurance.
142. The Commissioners do, indeed, assert the right to unravel the transactions and require the traders to account for VAT on discovery of evidence, in contradiction to the CMRs, that the mobiles were not removed. In other words, the Commissioners assert the right to assess the traders even if they had done all they reasonably could to ensure that the goods had been removed and, for example, they had only discovered that they had not been removed from an informant. They draw attention to Notice 989 of April 2002 in relation to visits by Customs and Excise officers. At paragraph 1.3, in answer to the question "What am I responsible for?", the Notice continues:-

"During a visit the officer will not normally have time to look at all of your records and may not detect every error contained in your accounts. So you must not assume at the end of any visit that you are accounting for VAT and duties correctly."

143. It does not seem to me possible to say, at this stage, that the decision of the Commissioners to assess these claimants amounted to an abuse of power or such unfairness as to require this court to intervene. Notices 703 and 725, which expressly state that the goods:-

"Are sent or transported out of the UK to a destination in another Member State."

may preclude any such conclusion.

144. All the claimants appear to have entered into transactions on the basis that they must obtain evidence of removal. This is not to say that the submissions as to Article 28 may not be correct, but rather that they did not dispute the Commissioners' interpretation of those provisions at the time. I accept that they might reasonably have expected that the evidence within the CMRs obtained from the apparently respectable purchasers, TT and filled in by a respectable freight forwarder would be accepted as evidence of removal. But that, in my view, is not to say that the Commissioners in the exercise of the highest standards to be expected of them, are prevented from acting on fresh evidence which establishes that the evidence contained in the CMRs is inaccurate.
145. I express my conclusions in a tentative and preliminary form because it seems to me that a concluded view can only be reached in the context of the correct interpretation of Article 28. The starting point must be that the claimants' only legitimate expectation is to be held liable to tax which the legislation requires him to pay (see e.g. Crown v. AG ex parte ICI [1986] 60 TC 1). Unilever demonstrates that that is not a complete answer and there may be circumstances where a revenue collecting authority will be guilty of an abuse of power notwithstanding the strict letter of the law. But it seems to me impossible to reach any final view as to the Commissioners' conduct without knowing whether they were correctly applying the law. If the claimants are correct in their submissions as to the interpretation of Article 28 no question of abuse of power arises. The Commissioners were not entitled to raise these assessments. If, on the other hand, the Commissioners are correct then the Notices 725 and 703 do form a basis of a conclusion that the traders could not rely on evidence within the CMRs as providing conclusive evidence of removal, should subsequent evidence emerge demonstrating that the particulars in the CMRs were false.
146. In those circumstances I am not prepared to reach any concluded view as to whether the Commissioners were guilty of an abuse of power until the European Court of Justice has given its ruling.
147. I should, however, re-iterate those elements of my judgment on which I have reached a concluded opinion. Liability of the claimants cannot depend upon the Commissioners' views as to how scrupulously they conducted the transactions in question. It is correct that they did not act entirely in accordance with the memorandum of understanding. But as I have said, the fact that the TT's bank was within the United Kingdom could not have alerted them to the false particulars within the CMR. Nor could the fact that the destination of the mobile phones was a different country. It may well be that those factors are typical of features of transactions in which missing traders are involved. But in the circumstances of the instant case those features could not possibly have alerted a reasonable trader. There is nothing in the memorandum of understanding which precludes a trade where those features exist.
148. Moreover, the basis upon which the assessments were raised was not because of the Commissioners' views as to the extent which the traders have complied with the memorandum of understanding, but because the particulars in the CMR were false. In that respect, the debate has been somewhat marred by references to the "validity" of the CMR. Thus Mr Stone at paragraph 9 refers to the fact that the CMR:-

"Contains more than one false particular which, the Commissioners say, renders it incapable of constituting objectively valid proof of removal from the UK".

But, as I have said, the CMRs were not "invalid"; the evidence contained in them has merely proved, on subsequent enquiry, to be false.

149. But there was no practical or realistic means whereby the claimants could discover the falsity of the particulars. It is absurd to have expected them to make enquiries of the DVLA, even if it is assumed, and I do not, that the DVLA would reply.
150. Nor could the claimant have reasonably been expected to discover the falsity of the destinations. No sensible means of doing so was advanced.
151. I conclude that, despite criticisms made of the conduct of the traders, they did act reasonably in entering into ex works contract and that there were no steps they could reasonably have taken to discover that the goods had not been removed, and that the entries in CMRs were false. Their initial inquiries were reasonable and thorough and they did their best to obtain evidence of removal. The claimants could not reasonably have been expected to undertake the inquiries pursued by Mr Stone.
152. The questions of interpretation of Community Law ought, therefore, to be considered in the context of those findings.

Extra-statutory concession

153. The claimants invoke extra statutory concessions 3.4. This reads:-

"3.4 VAT – misunderstanding by a VAT trader.

VAT undercharged by registered trader on account of a bona fide misunderstanding maybe remitted provided all the following conditions are fulfilled –

(a) there is no reason to believe that the tax has been knowingly evaded;

(b) there is no evidence of negligence;

(c) the misunderstanding does not concern an aspect of the tax clearly covered in general guidance published by Customs and Excise or in specific instructions to the trader concerned; and

(d) the tax due was not charged, could not now reasonably be expected to be charged to customers and will not be charged."

154. The debate concerning this extra-statutory concession centred on whether the Commissioners were entitled to reach the conclusion that the traders had been negligent. It is trite to observe that it is a matter for the Commissioners to determine the standards to be expected of a trader in the context of a particular trade, and whether a trader has fallen below that standard. In the course of oral submissions the Commissioners have advanced a number of detailed criticisms in relation to these traders. The Commissioners refer again to the fact that the claimants were referred to as the senders in the CMR and, for example, to what appeared to have been two CMRs (E11601) for the same transaction in different handwriting in the case of Phones International. They also refer to changes in the destination, and the fact that some invoices do not refer to destination addresses.
155. I shall not reach any concluded view on the detailed rival contentions for this reason. If the Commissioners are correct in their interpretation of Article 28, they were entitled to assess these claimants and it is difficult to see that there is any room for the extra statutory concession, in the context of these trades, at all. This case concerns the right of the Commissioners to assess innocent traders in circumstances where goods have not been removed. If traders were entitled to rely upon ESC No.3.4 there could be no circumstances in which the Commissioners would be entitled to assess them. I repeat, assessment in accordance with the Sixth Directive ought not to depend upon an evaluation of the extent to which an innocent trader may have made mistakes in the course of transactions, if those mistakes could not reasonably have led them to appreciate that the goods were not in fact to be removed from the United Kingdom. It seems to me to be necessary, in order to achieve harmony within the Community, for there to be bright line rules as to the circumstances in which such assessments can be raised. If the Sixth Directive require traders to be assessed in circumstances where the goods have not been removed, even though those traders could not reasonably have been expected to know of the failure to remove the goods, then to exercise the extra-statutory concession in their favour, may be contrary to the Sixth Directive. In those circumstances I am not prepared to rule upon the exercise of that extra statutory concession at this stage, prior to any determination as to its correct interpretation by the European Court of Justice.

Section 30(10) of the VAT Act 1994

156. As a subsidiary argument to the challenge on the basis that it was an abuse of power to assess them, the claimants contend that the Commissioners ought to have assessed TT and not to have raised assessments against them pursuant to Section 30(10) of the 1994 Act.
157. Section 30(10) provides:-

"Where the supply of goods has been zero rated … in pursuant to regulations made under sub-section (8) above and

(a) the goods are found in the United Kingdom after the date on which they were alleged to have been or were … removed from the United Kingdom; or

(b) any condition specified in the relevant regulations under (8) above when posed by the Commissioners is not complied with,

And the presence of goods in the United Kingdom after that date or the non observance of the condition has not been authorised for the purposes of this sub-section by the Commissioners, the goods shall be liable to forfeiture under the Management Act and the VAT that would have been chargeable on the supply but for the zero rating shall become payable forthwith by the person to whom the goods were supplied or by any person in his possession the goods were found in the United Kingdom; but the Commissioners may, if they think fit, waive payment of the whole or part of that VAT".

158. The claimants contend that the section entitles the Commissioners to charge TT as "the person to whom the goods were supplied" even though the goods have not been found and their whereabouts is unknown. They draw attention to two alternative circumstances which trigger the liability of TT to pay VAT. The second circumstance, identified at (10)(b) is alternative to the circumstance within (10)(a) that the goods have been found in the United Kingdom. The liability of the "person to whom the goods were supplied" is independent of the liability of the goods to forfeiture and the word "and" is, in the context, disjunctive and not conjunctive.
159. It is unwise for me to reach any concluded view on this submission. If the European Court of Justice interprets Article 28 in a way that precludes zero- rating the supply in the country of origin, then it seems to me inconsistent with such an interpretation that the Commissioners should be required to seek payment from the person to whom the goods were supplied.
160. In the alternative, if the claimants' interpretation of Article 28 is correct they have no need to rely upon their submissions in relation to Section 30(10). I might indicate, provisionally, that I have grave doubts as to whether Section 30(10) can be interpreted in the way to which the claimants contend. Section 30(10) triggers a liability to forfeiture of the goods as well as a liability to pay on the person to whom the goods were supplied or who has possession of the goods. It seems to me that the subsection, read as a whole, strongly indicates that before the liabilities to which the subsection refers are triggered the location within the United Kingdom of those goods must be known. I also have doubts as to whether, even if the claimants were right, Section 30(10) requires the Commissioners to demand payment from TT, a fruitless exercise since I was told that TT has ceased trading. I cannot, at this stage, understand why Section 30(10) precludes an assessment on the claimants and requires the Commissioners to impose liability on TT rather than the claimants. But I should emphasise again that I am not reaching any concluded view on that issue. I shall consider it again once the decision of the European Court of Justice is known, should it be necessary to do so.

Section 81(3) of the VAT Act 1994

161. The Commissioners have set-off the amounts they have assessed against input tax lawfully due to the claimants in purported pursuance of Section 81(3) of the 1994 Act. The contention raises an important point as to the proper interpretation of Section 81(3). Until the European Court of Justice has given a decision it is not possible to know whether any decision of mine as to the proper interpretation Section 81(3) is obiter or not. In those circumstances I prefer to express no view other than to record that the submission was made.

Jurisdiction

162. In the written arguments, there was considerable dispute as to whether the issues which have arisen ought to have been argued before the Tribunal on appeal rather than before this court, as a court of residual jurisdiction. It is clear that in relation to the central issue as to whether the mobile phones ought, as a matter of community law be zero-rated, the Tribunal has full appellate jurisdiction, it would have been the appropriate tribunal to refer any issue it was necessary to refer to the European Court of Justice.
163. Section 83(b) confers jurisdiction on the tribunal in relation to:-

"The VAT chargeable on the supply of any goods or services …"

And Section 83(p) confers jurisdiction in respect of an assessment:

(i) under Sections 73(1) or (2) in respect of ………for which the appellant has made a return under this Act; or

(ii) under subsections (7, (7A) or 7(B) of that section; or

(iii) under Section 75;

or the amount of such an assessment".

164. Section 84(10) enables decisions taken prior to the decision appealed against also to be the subject matter of an appeal to the Tribunal. It provides:-

"Where an appeal is against the decision of the Commissioners which depended upon a prior decision taken by them in relation to the appellant, the fact that the prior decision is not within Section 83 shall not prevent the Tribunal from allowing the appeal on the ground that it would have allowed an appeal against the prior decision".

165. In the instant case, in oral argument, Mr Anderson QC on behalf of the Commissioners accepted that judicial review was appropriate in relation to the issue concerning the extra statutory concession, the right of the Commissioners to set-off the sums assessed against sums due by way of input tax under Section 81(3) and in relation to the alleged assurances offered by the Commissioners. In those circumstances it would not have been sensible to refuse to consider the central issue in this application for judicial review. Indeed that is the most speedy and economic way of covering the matters raised and taking steps to ensure a speedy resolution as possible of those matters which I referred to the European Court of Justice. I should emphasise, however, that the mere fact that a large number of claimants are involved, all with a common interest, in seeking a resolution of the issue under Article 28 and the almost inevitable consequence of a reference does not justify a trader in seeking judicial review as opposed to following the statutory scheme for appeals to the Tribunal. The dicta of Robert Walker J in Glaxo Group Ltd and Others v Inland Revenue Commissioners [1995] STC 1075 apply with equal force to the question of whether a trader should appeal to the Tribunal as opposed to seeking relief by way of judicial review. In that case, in relation to an originating summons in the Chancery Division he said:-

"I conclude that the general principle which I have termed the exclusive jurisdiction principle is not open to doubt, subject perhaps to some erosion under the impact of judicial review. Moreover the exclusive jurisdiction principle cannot be circumvented simply by dressing up proceedings in the High Court as an application for a declaration, if the substantial effect of the declaration will be to determine a liability which ought to be determined by the Commissioners. But the principle is not to be pushed too far so as to exclude any proceedings which might conveniently and usefully be heard in the High Court "just because those questions arise between tax payer and the Crown and form a basis, even a necessary basis for an income tax assessment". (See page 1082).

166. Had the three matters which Mr Anderson identified not been advanced, the appropriate course would have been for the claimants to pursue appeals before the Tribunal.

Conclusion

1. I shall refer the issue as to the interpretation of Article 28 to the European Court of Justice;

2. I reach no concluded view as to whether the decision to assess the claimants was an abuse of power but;

3. the claimants initial enquiries in relation to TT and Euro-Cellars were reasonable and thorough; there was no practical means whereby the claimants could discover the falsity of the particulars in the CMRs and the claimants did their best to obtain evidence of removal of the mobile phones

4. the CMR notes were false in that the destinations shown were false, the vehicles described did not undertake carriage of the mobile phones and the carriers described were not involved in such carriage;

5 the issues in relation to Section 30(10) and Section 81(3) of the 1994 Act should await the correct interpretation of the Sixth Directive by the European Court of Justice;

6 these proceedings were appropriate for resolution by way of judicial review.

I thank Counsel for all sides for achieving greater dispatch in disposing of the arguments, than Euro-Cellars achieved in disposing of the mobile phones.