First-tier Tribunal (Tax)

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Cite as: [2009] UKFTT 131 (TC)

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[2009] UKFTT 131 (TC)

TC00099

ZERO RATING – proof of export – no supporting evidence – appeal dismissed

FIRST-TIER TRIBUNAL (TAX CHAMBER)

LITTLER MACHINERY LTD Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting (Judge)

Peter Whitehead (Member)

Sitting in public in Manchester on 1 June 2009

Richard Littler, managing director, for the Appellant

Julian Winkley of counsel, instructed by the General Counsel and Solicitor to Her Majesty's Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

The decision under appeal is that of the Commissioners to assess the Appellant in the sum of £3,267 plus interest for period 11/07, the assessment being dated 16 September 2008. The assessment was raised to reflect the Commissioners' view that the Appellant was not entitled to zero rate the sale of a Caterpillar earth moving machine to a customer in Poland.

On behalf of the Appellant we heard oral evidence from its managing director, Mr. Richard Littler and also from Mr. Marek Prystupa, and on behalf of the Commissioners the assessing officer Mr. Vincent D'Rozario.

We find the facts to be as follows. The Appellant company is a family owned trading company and has been for some thirty four years, having registered for VAT with effect from 1 August 1975. The company buys and sells used earth moving equipment. On 12 July 2007, the company purchased a used Caterpillar earth moving machine ("the machine"). It was purchased for stock and was advertised for sale in the trade press and on the internet. The turnover time for such stock is approximately four to six weeks. Mr. Prystupa is a bilingual (in English and Polish) import / export agent. On 2 August 2007, he was contacted by a Polish company I.E.S.C. Dominik Pudzianowski. Mr. Pudzianowski spoke no English but had seen the advertisement for the machine and was interested in purchasing it. He asked Mr. Prystupa to make some enquiries for him. Mr. Prystupa called Mr. Richard Littler and received an email back dated 2 August describing the machine and offering it for sale at £22,500. Mr. Prystupa telephoned Mr. Pudzianowski who then instructed Mr. Prystupa to proceed with the purchase. There followed a further email also dated 2 August from Mr. Prystupa to Mr. Littler asking for an invoice and for the invoice to be addressed to I.E.S.C. Dominik Pudzianowski. Copies of both emails were produced to the tribunal and the second of the two constituted the purchase order. It is the practice of the Appellant to raise a pro-forma invoice first and only a final invoice once payment has been made. In this case, on receipt of the emailed purchase order, the Appellant produced a pro-forma invoice dated 3 August. A copy was faxed to Mr. Prystupa who emailed it to the Polish company. On 3 August, the Polish company made a bank transfer into the Appellant's account, on receipt of which, the Appellant drew up a sales invoice dated 3 August. Both the pro-forma and the invoice were before the tribunal, as was confirmation from the bank that the payment had been received. The Polish company made all the arrangements for collection and the movement of the machine and phoned Mr. Prystupa to advise him of those arrangements. Mr. Prystupa telephoned the Appellant and advised them when to expect the carrier. This was the end of Mr. Prystupa's involvement. His role, he told us, had been really to facilitate negotiations as an interpreter. It is the practice of the Appellant to carry out a used equipment pre-delivery inspection on every vehicle it sells on the day of movement. The pre-delivery inspection form, which was before the tribunal, was dated 8 August 2007. The Appellant had to hire in a loader to transfer the machine onto the lorry collecting it and the invoice for this hire was also before the tribunal and was dated 9 August 2007. Evidence of the actual removal of the machine was in the form of a statement signed by three employees of the Appellant to the effect that they were all involved, with the assistance of the loader operator, in the loading of the machine onto a Polish-registered truck in their yard. Mr. Littler was not present when the machine was collected. There was no further contemporaneous evidence of the transaction before the tribunal.

Mr. Littler had checked the VAT registration of the Polish company on the Europa website and found it to be valid. Accepting therefore the bona fides of the company he zero rated the sale as a removal to a registered trader in another EU state and there the matter lay until the Commissioners carried out a verification visit on 16 May 2008. It transpired that the Polish company had been deregistered retrospectively. The decision was taken on 25 January 2008 to deregister with effect from 31 March 2007. The Polish company was not therefore effectively registered at the time of the transaction but would have displayed a valid VAT registration number on Mr. Littler's search. The Commissioners sought evidence of the removal of the goods to Poland, which would normally be done by production of the CMR but no such document could be found; nor indeed could any other evidence be found of the removal. It is to be assumed that, in accordance with normal practice, the collecting truck driver would have produced a blank CMR to be completed by the Appellant's staff who would have handed it back, retaining the Appellant's copy. Despite exhaustive enquiries, Mr. Littler was unable to find anyone who had any recollection of whether or not this was done and if it was what had happened to the Appellant's copy of the document. Exhaustive enquiries were also made by Mr. Littler and by Mr. Prystupa to try and trace the collecting vehicle but these also drew a blank and the Appellant's staff who assisted in the removal had no recollection of the identity of the vehicle. Mr. Littler tried to get a copy of the CMR from the Polish company direct but again drew a blank. The Polish company was registered by the Polish authorities as a missing trader. The Commissioners sought the assistance of their counterparts in Poland to try and trace whether or not there was any evidence of the arrival of the machine but the Polish authorities drew a blank.

The relevant legislation is as follows:

"Legislation

14. The relevant VAT legislation is VAT Act 1994 S 30(8) which states:

"Regulations may provide for the zero rating of supplies of goods… in cases where The Commissioners are satisfied that… the supply in question involves both the removal of the goods from the UK: and their acquisition in another member state by a person who is liable for VAT on the acquisition… and such other conditions if any as may be specified in their regulations or the Commissioners may impose are fulfilled."

15. Reg 134 of S.I. 1995/2518 states:

"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 States, and

d) the goods are not goods in relation to whose supply the taxable person has opted, pursuant to section 50A(a) 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."

16. The relevant conditions are imposed by paragraph 4.3 of VAT notice 725 "The Single Market" which has force of law. This states:

"When can a supply of goods be zero rated?

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

1. You obtain and show on your VAT sales invoice your customer's EC VAT registration Number, including the 2-letter contry prefix code; and

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

3. 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"

In addition to these statutory and regulatory provisions, the Commissioners also publish abundant advice to traders on how they should document the sale and removal of goods to EC customers. This includes, at the very minimum, recording details of the identity and registration number of the vehicle collecting the goods and travel documentation.

The Commissioners make no suggestion that the Appellant was involved in any form of fraud. We should make it clear that we found Mr. Littler and Mr. Prystupa to be honest and straightforward witnesses and we do not for one moment believe that they were involved in any form of deception or fraud. There was abundant evidence before us of the sale transaction itself and we find unhesitatingly that a sale was made. We also accept that on the day of the sale itself, the Polish company would have appeared to Mr. Littler to be a registered trader. This however is not enough to merit zero rating. As the legislation, carried forward by the Commissioners into their published conditions, makes clear, to be entitled to zero rate, the trader has to satisfy the Commissioners that the supply of goods is to a taxable person in another Member State and, in this case most importantly, that the goods have been removed from the UK to that other Member State. To be so satisfied, the Commissioners require documentary evidence and the problem here is that there is no such evidence. We don't doubt that Mr. Littler fully believes that the goods were destined for Poland and indeed they may well have arrived there but there is no evidence of that. The trail runs totally cold with the evidence of the employees assisting in the loading of the machine onto the Polish truck. Despite numerous enquiries by and on behalf of the Appellant they have been unable to find any further evidence of what happened to the machine after it left the Appellant's yard. It must, unfortunately for the Appellant, follow that the sale cannot be zero rated. We stress that this is not because we disbelieve the Appellant but because there is just no evidence as to the ultimate destination of the machine. There is no evidence it was removed out of the UK to another Member State and given that, zero rating cannot be allowed.

The appeal is therefore dismissed. There was no application for costs and we make no order.

MAN/2008/1288

LADY MITTING

JUDGE
Release Date: 18 June 2009