England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		3rd June 2009

MR JUSTICE ARNOLD:

Introduction

1. This is an appeal from a decision of the VAT & Duties Tribunal dated 12^th December 2008, BAILII: [2008] UKVAT V20895 In its decision, the Tribunal dismissed an appeal by N2J Limited against the Commissioners' decision by letter dated 21^st March 2006 to amend N2J's VAT return for the period 01/06 so as to reject N2J's claim to zero-rate certain supplies of mobile phones.

The law

2. The legal framework was set out by the Tribunal in its decision as follows:

"11. The conditions which must be satisfied if supplies of goods from a trader in one member State of the European Union to a taxable person in another member State may be zero-rated are to be found in article 28c(A) of the Sixth VAT Directive (77/388/EEC)—the European legislation in force at the time, since replaced by article 131 of Directive 2006/112. So far as material, that article read:

'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 … dispatched or transported by or on behalf of the vendor or the person acquiring the goods out of [that Member State] 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…'

12. That provision is implemented in the United Kingdom's legislation by section 30(8) of the Value Added Tax Act 1994 and regulation 134 of the Value Added Tax Regulations 1995 (SI 1995/2518)… Regulation 134 authorises the Commissioners to impose the conditions envisaged by article 28c(A). The terms of the conditions imposed by the Commissioners are set out at what is now paragraph 4.3 of Public Notice 725. They were formerly set out, in identical words, in an earlier version of the Notice, as follows:

When can a supply of goods be zero-rated?

The text in this box has the force of law

A supply from the UK to a customer in another EC Member State is liable to the zero rate where:

• you obtain and show on your VAT sales invoice your customer's EC VAT registration number, including the 2-letter country prefix code; and

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

• you obtain and keep valid commercial evidence that the goods have been removed from the UK within the time limits set out at paragraph 4.4."

3. There is no challenge to the accuracy of that statement of the legal framework, nor is it disputed by N2J that the burden was upon it to satisfy the Commissioners, and then the Tribunal, as to each of the three conditions set out in the Notice.
4. The Tribunal also referred in its decision and purported to apply the judgment of the Third Chamber of the Court of Justice of the European Communities in Case C-409/04 R (on the application of Teleos plc & Others) v The Commissioners of Customs & Excise [2007] ECR I-7797. The facts of that case were summarised by the ECJ follows:

"14. In 2002, Teleos and Others sold mobile telephones to a Spanish company, Total Telecom España SA/Ercosys Mobil SA ('TT'). According to the sales contracts, the goods' destination was, in general, in France and, in certain cases, in Spain. In nearly every case, the contracts were concluded on the basis of one of the international commercial terms (known as 'Incoterms 2000') established by the International Chamber of Commerce, namely 'ex-works' or 'EXW', which means that Teleos and Others were required only to place the goods at TT's disposal at a warehouse in the United Kingdom, TT being responsible for arranging their transport to the specified Member State. The warehouse belonged to Euro-Cellars Ltd, a bonded warehousing and distribution company.

15. For each transaction, Teleos and Others received from TT, a few days after the sale, the stamped and signed original of the CMR consignment note (dispatch note drawn up on the basis of the Convention on the Contract for the International Carriage of Goods by Road, signed at Geneva on 19 May 1956, as amended by the Protocol of 5 July 1978), describing the goods and stating the delivery address, the carrier's name and the vehicle's registration number. Such note, which was signed by TT, afforded evidence that the mobile telephones had reached the specified destination.

16. Initially, the Commissioners accepted those documents as evidence that the goods had been exported from the United Kingdom, so that those supplies were exempt from VAT, by virtue of the zero-rating, and Teleos and Others were entitled to be refunded the input tax paid. However, on subsequent checks, the Commissioners discovered that, in certain cases, the destination stated on the CMR notes was false, that the carriers mentioned therein did not exist or did not transport mobile telephones, or that the registration numbers given were of non-existent vehicles or of vehicles which were unsuitable for transporting such goods. The Commissioners concluded that the mobile telephones had never left the United Kingdom and therefore assessed Teleos and Others to VAT on those supplies, in an amount of several million GBP, whilst fully acknowledging that they were in no way involved in any fraud.

17. The order for reference states that there was evidence that TT had made tax returns to the competent Spanish authorities relating to the intra-Community acquisition of mobile telephones. TT had also declared the onward supply of the goods as exempt intra-Community supplies and claimed refunds of input VAT.

18. The national court considers it proven that there was no reason for Teleos and Others to doubt the information contained in the CMR consignment notes or their authenticity, and that those companies were not party to any fraud and were unaware that the mobile phones had not left the United Kingdom. It also concluded that, after Teleos and Others had made serious and detailed inquiries as regards both TT and Euro-Cellars Ltd to establish the legitimacy of the purchaser, they had no other real means of establishing the falsity of the statements contained in those notes. Moreover, no additional evidence, other than the CMR notes, could reasonably have been obtained, having regard to the nature of the trade in question.

19. Teleos and Others brought proceedings before the referring court against the Commissioners' decisions assessing them to the VAT, on the ground that there was no basis for them under the Sixth Directive."

5. The Administrative Court referred four questions to the ECJ. It is not necessary for present purposes to refer to the first, second or fourth questions. The ECJ paraphrased the third question as follows at paragraph 43:

"By its third question, the national court is asking, in essence, whether the first subparagraph of Article 28c(A)(a) of the Sixth Directive is to be interpreted as precluding the competent authorities of the Member State of supply from requiring a supplier, who acted in good faith and submitted evidence establishing, at first sight, his right to the exemption of an intra-Community supply of goods, subsequently to account for VAT on those goods where that evidence is found to be false, without, however, the supplier's involvement in the tax evasion being established."

6. The ECJ went on to make a number of points and to consider certain principles of Community law, in particular the principle of legal certainty, the principle of proportionality, the principle of fiscal neutrality and the principle of free movement of goods. So far as the last of these principles is concerned the Court said this:

"61. As regards, fourthly, Teleos and Others' argument that the measures adopted by the United Kingdom authorities interfere with the free movement of goods, first, it is clear from the Court's case-law that preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive (see Joined Cases C-487/01 and C-7/02 Gemeente Leusden and Holin Groep [2004] ECR I-5337, paragraph 76, and Kittel and Recolta Recycling, paragraph 54), which can, in certain circumstances, justify restrictions on the free movement of goods.

62. Secondly, it is also important to ensure, as the Commission correctly submits, that the position of economic operators should not be less favourable than it was prior to the abolition of frontier checks between the Member States, because such a result would run counter to the purposes of the internal market which is intended to facilitate trade between them.

63. Since it is no longer possible for taxable persons to rely on documents issued by the customs authorities, evidence of intra-Community supplies and acquisitions must be provided by other means. Whilst it is true that the regime governing intra-Community trade has become more open to fraud, the fact remains that the requirements for proof established by the Member States must comply with the fundamental freedoms established by the EC Treaty, such as, in particular, the free movement of goods.

64. In that regard, it is also important to point out that, under Article 22(8) of the Sixth Directive, the Member States may impose the obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion, provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.

65. Moreover, according to the Court's settled case-law, which is applicable to the main proceedings by way of analogy, it would not be contrary to Community law to require the supplier to take every step which could reasonably be required of him to satisfy himself that the transaction which he is effecting does not result in his participation in tax evasion (see, as regards 'carousel' type fraud, Federation of Technological Industries and Others, paragraph 33, and Kittel and Recolta Recycling, paragraph 51).

66. Accordingly, the fact that the supplier acted in good faith, that he took every reasonable measure in his power and that his participation in fraud is excluded are important points in deciding whether that supplier can be obliged to account for the VAT after the event.

67. By contrast, as the Commission observes, once the supplier has fulfilled his obligations relating to evidence of an intra-Community supply, where the contractual obligation to dispatch or transport the goods out of the Member State of supply has not been satisfied by the purchaser, it is the latter who should be held liable for the VAT in that Member State.

68. The reply to the third question referred must therefore be that the first subparagraph of Article 28c(A)(a) of the Sixth Directive is to be interpreted as precluding the competent authorities of the Member State of supply from requiring a supplier, who acted in good faith and submitted evidence establishing, at first sight, his right to the exemption of an intra-Community supply of goods, subsequently to account for VAT on those goods where that evidence is found to be false, without, however, the supplier's involvement in the tax evasion being established, provided that the supplier took every reasonable measure in his power to ensure that the intra-Community supply he was effecting did not lead to his participation in such evasion."

The decision of the Tribunal

7. The Tribunal heard oral evidence from two witnesses for N2J, namely Neil Pursell and Liliana Abreu. The Tribunal described the relevant transaction in its decision as follows:

"6. N2J's first sale to Imex took place in September 2005. N2J checked Imex's VAT registration with the Redhill office, and was told that the number and other details given did not match the Commissioners' records. Despite that adverse information, N2J relied on a search it made of the Commission's web site, which indicated that the registration was valid and subsisting. The goods were transported, or purportedly transported, from the premises of the freight forwarders by whom they were held, K & L Logistics of Stoke-on-Trent, to Imex's chosen destination, Magic Transport International ('MagiC-) in Amstelveen, the Netherlands. So far as N2J knew, Mr Pursell said, the goods were indeed transported to Magic, payment for them was made and no complaint was received of shortage or defect.

7. N2J agreed to make further supplies to Imex in the latter part of October 2005. Again, its check of the Commissioners' Redhill office yielded a negative result. On this occasion N2J decided not to proceed even though, on the day following its informing Imex of its decision, a further check of the European Commission's web site revealed that Imex's VAT registration was valid. N2J had by then committed itself to the purchase of the goods but Miss Abreu managed to find another purchaser, Pro-Choice.

8. On 26 and 27 October 2005 N2J bought seven consignments of phones, of various brands and model. Five consignments were bought from Hillgrove Trading Limited, all on 26 October, and the remaining two from In2Digital.com Limited, both on 27 October. On the same dates N2J issued so-called 'pro-forma invoices' (that is, invoices which N2J did not regard as VAT invoices even though they have all the characteristics of VAT invoices) to Imex. Quite why N2J did so was not clear. In each case, exactly the same phones were sold as had been bought, and for no evident reason both the suppliers and N2J issued multiple invoices—N2J issued an invoice which matched its supplier's invoice for each parcel of phones. When Mr Pursell told her that the sales to Imex could not proceed, Miss Abreu telephoned Imex to cancel them, and then looked for another purchaser; she had, she said, several outstanding requests from other customers, including Pro-Choice, with which N2J had dealt before. Pro-Choice agreed to buy all of the phones which had been destined for Imex, and Miss Abreu arranged for fresh pro-forma invoices to be issued (again, we do not know to what purpose) followed by 'proper' invoices.

9. It is conspicuous that Pro-Choice was not only willing to buy all of the phones which N2J had intended to sell to Imex, but that it was willing to pay exactly the same price, in every single case, and to take delivery at the same place, that is MagiC's premises, or supposed premises, in the Netherlands. We mention at this point that while it is understandable that a Belgian company might require delivery in the Netherlands, it is difficult to understand why that would be an acceptable destination for a company based in Madeira. We were told that K & L Logistics had been informed of the change in the identity of the purchaser but had failed to issue the CMRs in the new name (or to correct the CMRs it had already issued) and it was for this reason that the CMRs showed Imex rather than Pro-Choice as the consignee.

10. There was one matter on which there was an—in our view significant—difference of recollection between Mr Pursell and Miss Abreu. He recalled that it had been agreed with Pro-Choice that it would pay for the phones when it had the necessary funds, and that in the meantime they would remain in storage at MagiC's premises. In the event, Pro-Choice made a large number of payments, eventually discharging the whole debt in February 2006. Miss Abreu, who by her own account had negotiated the sales, had no recollection that N2J had agreed, contrary to the indication on its invoices that immediate payment was required, to accept instalments, although she later found herself having to chase Pro-Choice for payment. Neither she nor Mr Pursell could tell us who was to pay MagiC's storage charges, what arrangements had been made for insurance of the goods, or what was to happen if Pro-Choice did not in fact pay. N2J had no direct contact with Magic at any time—all the arrangements were made for it, we were told, by K & L Logistics, selected by N2J as its freight forwarder for no better reason than that the goods were stored at its premises—and there was nothing before us to suggest that N2J had, or had even thought about, satisfying itself that MagiC's premises were suitable for the storage of the phones, worth altogether more than £7 million, for what turned out to be a period of about three months."

8. The Tribunal summarised the respective contentions of the parties in its decision at paragraph 13 and following. At paragraph 13 the Tribunal summarised the Commissioners' case as follows:

"The Commissioners' case is that, while N2J has complied with the first condition, the other two are not satisfied: they do not concede that the goods were, as a matter of fact, transported out of the UK, and they do not accept that the CMRs produced by N2J are "valid commercial evidence" of removal."

9. The basis for that case had been summarised previously by the Tribunal in paragraph 1 of the decision as follows:

"The Commissioners contend that the phones could not have reached the stated destination, claimed to be a warehouse, because it is in fact a domestic property without storage facilities, that the transport documents (international consignment notes generally known by their French acronym CMRs) on which N2J bases its claim that the goods arrived at their destination had been falsified, and that the person purportedly acting as the recipient of the goods has been convicted in the Netherlands of offences of participating in VAT frauds of a character from which one can properly infer that he did not receive the goods and falsified the CMRs."

10. The Tribunal summarised N2J's case in paragraphs 14 and following as follows:

"14. N2J's case is that there was good evidence that the supplies had taken place, that there was no evidence to support the contention that the goods had not left the country, and that N2J had no reason to suspect that the goods were not transported or that the CMRs could not be taken at face value. Mr Young pointed out that, as we accept, N2J had been able to produce comprehensive documentation in relation to each purchase and sale, including N2J's purchase orders, suppliers' invoices, inspection reports (supplied by the freight forwarders), Pro-Choice's purchase orders, N2J's invoices and transport documents, in addition to the CMRs in most cases, the CMRs themselves and evidence of payment. The contention that the phones had not left the country was based on an inference drawn from the supposed falsification of the CMRs, but while the record of conviction of the proprietor of Magic indicated that he had falsified some CMRs and had been involved in tax fraud, it did not indicate that every transaction in which he had been involved was in some way fraudulent, and none of the relevant transactions was identifiably referred to in the information provided by the Dutch authorities about their investigations, the prosecution and the conviction."

After citations from Teleos the Tribunal went on:

"17. Mr Young argued that the conditions described there [paragraph 68 of Teleos] were not met: N2J had evidence (the CMRs) which at first sight established its right to zero-rate the supplies; it had acted in good faith; its involvement in the evasion was not established or even suggested; and it had taken proper care, particularly by documenting its transactions thoroughly. The judgment in Teleos made it clear that it was not open to the Commissioners to require N2J to account for output tax on the sales."

11. The Tribunal expressed its conclusion on the issues before it as follows:

"19. … It is true that the documentation produced by N2J is in good order, but we do not find that a conclusive point since it is possible to create comprehensive documentation regardless of the true nature of the transaction to which it refers.

20. What is in our view most significant is that N2J took almost everything on trust: it relied on third parties (that is, K & L Logistics, who had been engaged by its own suppliers) for assurance that the goods existed, and were what they were claimed to be, undertaking no inspections of its own; it agreed to their being transported to a warehouse of which it knew nothing and with whose proprietor it had had no direct contact; it arranged no insurance of the goods; it accepted payment by instalments with no agreement on the time over which payment would be made; and it had no fall-back arrangement if Pro-Choice should default. When one adds those factors to N2J's lack of any curiosity when it found that Pro-Choice was willing to buy exactly the same goods as N2J had already agreed to sell to Imex, at exactly the same price, and that it wanted the goods delivered to the same warehouse, in a country remote from its own base, one would have thought that alarm bells would immediately start ringing. Miss Abreu was not merely vague in her recollection. It was clear to us as she gave her evidence that she felt very uncomfortable, and we came to the conclusion that she did indeed have misgivings at the time about what she was being required to do by her employers.

21. In our view it should have been perfectly plain that the transactions into which it was entering were likely to be dubious, if not more, but N2J carried on, without making any of the obvious enquiries. It is an inescapable conclusion that it did not take "every reasonable measure" to avoid becoming involved in fraudulent transactions, that the "at first sight" validity of the CMRs is displaced, and that the Commissioners were right to deny N2J the benefit of zero-rating the supplies."

The nature of an appeal from the Tribunal to this court

12. The nature of an appeal in a case such as the present was described in Mobilx Ltd v Her Majesty's Revenue & Customs [2009] EWHC 133 (Ch) by Floyd J as follows:

"13. Section 11 (1) of the Tribunals and Inquiries Act 1992 provides that an appeal lies to the High Court if a party '... is dissatisfied in point of law' with a decision of the VAT and Duties Tribunal.

14. In Georgiou v. Customs and Excise Commissioners [1996] STC 463 CA at 476, Evans LJ refers to excerpts from the speeches of Viscount Simonds and Lord Radcliffe in Edwards v. Bairstow [1956] AC 14, 14-15) and observes (at 476 f-g) that

'…it is all too easy for a so-called question of law to become no more than a disguised attack on findings of fact which must be accepted by the courts. As this case demonstrates, it is all too easy for the appeals procedure to the High Court to be abused in this way. Secondly, the nature of the factual inquiry which an appellate court can and does undertake in a proper case is essentially different from the decision-making process which is undertaken by the tribunal of fact. The question is not, has the party upon whom rests the burden of proof established on the balance of probabilities the facts upon which he relies, but was there evidence before the tribunal which was sufficient to support the finding which it made? In other words was the finding one which the tribunal was entitled to make? Clearly, if there was no evidence, or the evidence was to the contrary effect, the tribunal was not so entitled.'

15. At page 476H Evans LJ set out a four stage process for examining challenges to findings of fact:

'...the appellant must first identify the finding which is challenged; secondly, show that it is significant in relation to the conclusion; thirdly, identify the evidence, if any, which was relevant to that finding; and fourthly, show that that finding, on the basis of that evidence, was one which the tribunal was not entitled to make.'

16. Complete absence of evidence, or the evidence being to the contrary effect, are two of the grounds on which it may be said that a tribunal was not entitled to reach a conclusion of fact. It is also well settled that a tribunal is not entitled to find serious allegations established against a party who calls relevant witnesses unless those allegations are clearly formulated and put in cross examination. As Briggs J said in HMRC v Dempster [2008] EWHC 63 (Ch) (unreported)

'...it is a cardinal principle of litigation that if serious allegations, in particular allegations of dishonesty are to be made against a party who is called as a witness they must be both fairly and squarely pleaded, and fairly and squarely put to that witness in cross-examination.'

17. For a more extensive analysis of the obligation to put such allegations see Jacob LJ's summary in Zipher v Markem [2005] EWCA Civ 267 at [57] – [61]. The principle was not seriously in dispute here.

18. Subject to these very tight limitations, it is not open to the High Court to conduct a review of the evidence to see whether it would have reached the same conclusion. An appellate court is poorly placed to assess the value of oral evidence given before the Tribunal. Moreover, if the analysis of the evidence is such that reasonable judicial minds might differ on the outcome, there is no basis for saying that the decision of the tribunal of first instance is wrong."

The appeal

13. Counsel for N2J challenges the decision of the Tribunal on a number of grounds. The first ground, to quote paragraphs 5 and 30 of counsel's skeleton argument, is that:

"5. In finding that the Respondents had not taken every reasonable measure in its power to ensure that the transactions were not connected with fraud, the Tribunal lost sight of the fact that there was no evidence of fraud and addressed its mind to the wrong question. The Respondents had not even suggested fraud had occurred. The Respondents' case was that the Appellant had failed to provide valid commercial evidence that the goods had been sent or transported out of the UK to another destination."

"30. This appeal was wrongly decided by the Tribunal. The Tribunal approach the appeal as though it was a 'means of knowledge case' when in fact there was no evidence of any fraud on the part of the Appellant. Insofar as the penultimate paragraph refers to fraudulent transactions, the phrase has no basis in reason. The Respondents had not alleged fraud. The introduction of the question concerning reasonable measures was erroneous. The Appellant was entitled to rely upon CMR evidence in the same way as Teleos. In the circumstances, the appeal should be allowed with costs."

14. In my judgment, that objection to the Tribunal's decision is misconceived. It is quite correct that the Commissioners had not made any allegation of fraud against N2J. That is immaterial, however. The question before the Tribunal was whether N2J had satisfied it that the goods in question had been removed from the United Kingdom. If N2J failed to demonstrate that the goods had been removed from the United Kingdom, the only conceivable explanation for the non-removal of the goods from the United Kingdom was that there had been fraud on the part of someone. That someone might well have been the purchaser. It might also have been one of the other parties involved in the series of transactions. The Tribunal did not make any finding that N2J had committed or participated in any such fraud. Accordingly, it did not address its mind to the wrong question.
15. Furthermore, it is important to appreciate that this is not a case concerning input tax, like some of the recent cases that have come before this court, such as Commissioners for HMRC v Livewire Telecom Ltd [2009] EWHC 15 (Ch), Calltel Telecom Ltd v Commissioners for HMRC [2009] EWHC 1081 (Ch), and Bluesphere Global Ltd v Commissioners for HMRC [2009] EWHC 1150 (Ch), to which I was referred. Accordingly, the question that was before the Tribunal is not whether the Commissioners were able to discharge the burden of proving that the taxpayer had knowledge or should have known of a fraudulent transaction, but whether the taxpayer was able to prove that it had satisfied the conditions set out in the Public Notice, or, alternatively, whether it was in a position to zero-rate the goods despite having failed to establish that those conditions were satisfied.
16. I would add in this connection that it is immaterial, as I see it, that the Commissioners did not allege that there had been any irregularity in N2J's supply chain or any tax loss as a result. The tax loss with which the Commissioners were concerned was the loss of revenue that would result if the goods were zero-rated in circumstances where the exemption for zero-rating was not applicable.
17. The second ground upon which counsel for N2J challenges the Tribunal's decision is that he submits that the Tribunal made no finding of fact on the key factual issue before it, namely whether the goods were removed from the United Kingdom or not. He further submits that, had the Tribunal squarely addressed that question of fact and the evidence relating to it in its decision, it would have been bound to conclude that the goods were in fact removed from the United Kingdom. This submission is justified, at least to this extent: one can search the Tribunal's decision in vain for an explicit conclusion on this issue of fact.
18. Counsel for the Commissioners accepted, as he was bound to do in those circumstances, that the decision could have been more clearly expressed. Nevertheless, he submitted that, read as a whole, it was reasonably clear that what the Tribunal had decided was that N2J had not discharged the burden of proving that the second and third conditions were satisfied and, furthermore, that N2J were not entitled to escape from the consequences of that failure by virtue of the decision of the ECJ in Teleos.. In support of that submission, counsel for the Commissioners relied, first, upon the structure of the decision as a whole; secondly, the clear statement by the Tribunal of the parties' respective contentions; and, thirdly, the terms of paragraph 21 of the decision and, in particular, the concluding words "…the Commissioners were right to deny N2J the benefit of zero-rating the supplies."
19. In my view, it is unfortunate that the Tribunal's decision with regard to the question of fact as to whether it was satisfied that the goods had been removed from the United Kingdom or not was not more clearly expressed. Nevertheless, having carefully considered the decision as a whole, I have come to the conclusion that counsel for the Commissioners is correct to say that it is reasonably clear that the Tribunal concluded that N2J had not established that the phones were removed from the United Kingdom. As I read the decision, the Tribunal appears to have proceeded on the basis that the answer to the question "Has N2J established that the second and third conditions were satisfied?" was clear, and that the real issue before it, and the issue upon which it concentrated in its decision, was whether N2J could escape from the consequences of that failure by virtue of the decision in Teleos. I am unable to say that there was any error of law in that approach.
20. The third ground upon which counsel for N2J challenged the Tribunal's decision was that it had erred in law with regard to the effect of obtaining and presenting CMRs. He submitted that, where a trader in the position of N2J had received CMRs apparently evidencing transport of the goods to a destination outside the United Kingdom, then, unless there was something on the face of the CMRs which obviously was illegitimate or necessitated further enquiry, then the trader was entitled to rely upon those CMRs in order to claim zero-rating. In essence, he contended that, unless there was an obvious defect in the CMRs on their face, they were conclusive.
21. In my judgment, this contention is inconsistent with the judgment of the ECJ in Teleos and, in particular, paragraphs 66 and 68. As I read those paragraphs, the Court did not accept that an apparently valid CMR was to be treated as conclusive of the supplier's entitlement to zero-rate. On the contrary, in paragraph 68 the Court laid down a proviso that the supplier should have taken every reasonable measure in his power to ensure that the intra-Community supply he was effecting did not lead to his participation in tax evasion. That proviso would be redundant if the supplier were entitled to rely upon an apparently valid CMR without further ado.
22. Furthermore, the facts of the present case provide a clear demonstration of why such an analysis would not be practicable. In the present case, the reason for the Commissioners' original objection to the claim for zero-rating was that the CMRs record that the customer was Imex, whereas N2J's invoices named its customer as Pro-Choice. It is N2J's own case that the identity of the customer recorded on the CMR is not correct and that it is entitled to explain the discrepancy between the CMR and its invoices by reference to extraneous evidence. This clearly demonstrates that the CMRs cannot be viewed in a vacuum, but must be viewed and interpreted against the relevant commercial background. In the present case, the Tribunal considered that it was the commercial background to the transaction which should have put N2J on enquiry.
23. The fourth ground upon which counsel for N2J challenges the Tribunal's decision is that he submits that, even if the CMRs are not to be regarded as conclusive unless there is an obvious defect upon their face, nevertheless they are conclusive once they are accepted by the Commissioners as evidencing a valid supply. He further submits that in the present case the Commissioners did indeed accept the validity of the CMRs at first sight, because, although they originally withheld the input tax that N2J had sought to reclaim in respect of the transaction, subsequently they released the payment to N2J.
24. I do not accept either limb of this contention. So far as the factual basis for it is concerned, as counsel for the Commissioners pointed out, in the Commissioners' letter dated 18^th January 2006 in which they agreed to repay the input tax in question, the Commissioners expressly stated that this was "without prejudice to any further action which may be taken by HM Revenue & Customs." In the self-same letter they pursued various concerns which had been first raised earlier with regard to the transactions which were sought to be zero-rated and which subsequently led to the assessment in question.
25. So far as the legal basis is concerned, once again it seems to me that the submission is contrary to the judgment of the ECJ in Teleos. In that case the Commissioners had originally accepted the CMRs, but subsequently concluded that in fact the mobile telephones had never left the United Kingdom and therefore assessed Teleos and others to VAT on the supplies. The Court did not hold that the fact that the Commissioners had originally accepted the CMRs by itself precluded the Commissioners from assessing the supplies to VAT at the standard rate. On the contrary, the court held that a supplier who had acted in good faith and submitted evidence establishing at first sight his right to the exemption was only entitled to the exemption if he took every reasonable measure in his power to ensure that the intra-Community supply he was effecting did not lead to his participation in tax evasion. It necessarily follows that it is open to the competent authorities to re-open an assessment if evidence of tax evasion and a failure on the part of the supplier to take every reasonable measure in his power comes to their attention.
26. Finally, counsel for N2J made a number of criticisms regarding the Tribunal's conclusion that N2J had not taken every reasonable measure to avoid becoming involved in fraudulent transactions. In particular, he criticised what he submitted was the Tribunal's failure to ask itself what further enquiries should have been undertaken by N2J and what such further enquiries would have yielded if they had been undertaken. He submitted that N2J had taken all steps that it was reasonable for it to take.
27. In my judgment, these criticisms amount to an attack upon the Tribunal's finding of fact. Counsel did not submit, and could not have submitted, that there was no evidence before the Tribunal upon which it could have made that finding. In my judgment, the finding was one to which the Tribunal was entitled to come.
28. For all those reasons, I have concluded that this appeal must be dismissed.