First-tier Tribunal (Tax)

][2010] UKFTT 351 (TC)

TC00633

Appeal number:MAN/08/0907

VAT - disallowance of claim for repayment of VAT – missing traders – source of goods not known – fraudulent failure of missing trader in chain to account for VAT – participation by claimant in fraudulent scheme to recover VAT – Kittel and Mobilx applied – appeal dismissed.

FIRST-TIER TRIBUNAL

TAX

                                              HAN ALI LIMITED                             Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                             REVENUE AND CUSTOMS (VAT)         Respondents

                        TRIBUNAL: ELSIE GILLILAND (TRIBUNAL JUDGE)                                                                       GILIAN PRATT (MEMBER)                                 

Sitting in public at Alexandra House, Parsonage Gardens Manchester M3 on Monday 24 May, Tuesday 25 May and Wednesday 26 May 2010.

Nathan Banks, counsel instructed by Barber & Co. solicitors Preston, for the Appellant

Joshua Shields, counsel, instructed by Howes Percival solicitors Norwich for the  Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       The appeal is by Han Ali Limited (the Appellant) against the decision of the Respondents (the Revenue) contained in a letter to the Appellant dated 19 June 2008 refusing the Appellant the right to deduct input tax in the sum of £62,535.35 claimed by the Appellant in its value added tax return for the 3 month period ending 31 March 2007. The basis of the Revenue’s decision was that the transaction in which the Appellant had been engaged and which had given rise to the claim to deduct input tax formed part of a scheme to defraud the public revenue and in accordance with the Community law doctrine of abuse did not give rise to a right of deduction.

2.            In Axel Kittel v Belgium; Recolta Recycling v Belgium Joined Cases C-439/04 and C-440/04 [2006]ECR 1-6161 the European Court of Justice ruled at paragraphs 56 to 61 inclusive of its judgment as follows:

     “56. In the same way a taxable person who knew or should have known that by his purchase, he was taking part in a transaction connected with the fraudulent evasion of VAT must, for the purposes of the Sixth Directive, be regarded as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods.  

      57. That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice.

      58. In addition, such an interpretation, by making it more difficult to carry out fraudulent transactions, is apt to prevent them.

      59. Therefore it is for the referring court to refuse entitlement to the right to deduct where it is ascertained, having regard to objective factors, that the taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with the fraudulent evasion of VAT, and to do so even where the transaction in question meets the objective criteria  which form the basis of the concepts of “supply of goods effected by a taxable person acting as such” and “economic activity”.     

      60. It follows from the foregoing that the answers to the questions  must be that where a recipient of a supply of goods is a taxable person  who did not and could not know that the transaction concerned was connected with a fraud committed the seller, art.17 of the Sixth Directive must be interpreted as meaning that it precludes a rule of national law under which the fact that the contract of sale is void - by reason of a civil law provision which renders that contract incurably void as contrary to public policy for unlawful basis of the contract attributable to the seller - causes that taxable person to lose the right to deduct the VAT he has paid. It is irrelevant in this respect whether the fact that the contract is void is due to fraudulent evasion of VAT or to other fraud.

      61. By contrast, where it is ascertained, having regard to objective factors, that the supply is to a taxable person who knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, it is for the national court to refuse that taxable person entitlement to the right to deduct.”

3.  In Mobilx Ltd. (in Administration) (and others) v the Commissioners for Her Majesty’s Revenue and Customs [2010] EWCA Civ 517 the Court of Appeal considered what the European Court had meant in paragraphs 59 and 61 of its judgment in Kittel when it referred to “should have known” and also whether it was sufficient that the taxpayer knew or should have known that it was more likely than not that his purchase was connected to fraud or whether it must be established that he knew or should have known that the transactions in which he was involved were connected to fraud. The Court of Appeal first held at paragraphs 51 and 52 of its judgment that the phrase knew or should have known meant knowing or having the means of knowing and that “if a taxpayer has the means at his disposal of knowing that by his purchase he is participating in a transaction connected with fraudulent evasion of VAT he loses his right to deduct, not as a penalty for negligence, but because the objective criteria for the scope of that right are not met. It profits nothing to contend that in domestic law complicity in fraud denotes a more culpable state of mind than carelessness, in the light of the principle in Kittel. A trader who fails to deploy means of knowledge available to him does not satisfy the objective criteria which must be met before his right to deduct arises”. The Court of Appeal secondly held that it was necessary that it was shown that the transaction was connected to fraud and that it was not sufficient that it was shown that the transaction was on the balance of probabilities connected with fraud.

4.    It is clear in our view that if input tax is to be disallowed, the Revenue must prove first that the transaction into which the Appellant entered was connected to an overall scheme to defraud the public revenue and secondly that the Appellant knew or ought to known within the meaning of that phrase in Kittel that it was participating in a transaction connected with the fraudulent evasion of VAT.

5.    The relevant transaction in the present case concerns the purchase by the Appellant of a consignment of fashion fabric from a company called Clue-Don Ltd. (Clue-Don). Clue-Don was a UK company. The Appellant resold the fabric on the same day to a Spanish company Bee-Zee Multi-Commercio S.I. (Bee-Zee). Bee-Zee’s address is given on its purchase order as being in San Roque, Cadiz. The evidence is that the goods were at the time of the sale in the possession of a forwarding agent, Casa Freight & Removals Limited (Casa) at its premises in Newcastle under Lyme. The documentation produced in relation to the purchase and resale of the fashion fabric shows that Bee-Zee placed 2 separate purchase orders each dated 29 March 2007 and respectively numbered 29-3-07/001 and 29-3-07/002. The first order was for 72 rolls of viscose crink fabric in rolls of 17.90 metres, 121 rolls of dual purpose chenille in rolls of 12 metres,135 rolls of dual purpose chenille in rolls of 12 metres, a further 135 rolls of dual purpose chenille  in 12 metre rolls, another 180 rolls of dual purpose chenille in rolls of 12 metres , and another 745 rolls of dual purpose chenille in 12 metre rolls, a further 80 rolls of viscose crink fabric in 17.90 metre rolls and finally 35 rolls of blue fashion fabric in 18 metre rolls. Although the order referred to 2 lots of viscose crink fabric and 4 lots of dual purpose chenille, the prices for the 2 lots of viscose crink chenille were the same at £18.56 per metre and those for the 4 lots of dual purpose chenille were also the same at £27.45 per metre. The total purchase price of the first order was £228,321.85. No VAT was charged since the sale was a zero rated export sale to another member country of the European Union. The second order placed by Bee-Zee followed a similar pattern with orders for 2 lots of viscose twill fabric in 37 and 64 rolls at £15.90 per metre , 1 lot of devour fabric at £9.57 per metre and 5 lots of mixed fashion fabric in rolls of 56,40, 43,56 and 27 rolls. The first 56 rolls and the 40 and 43 rolls were priced at £18.56 per metre. The second 56 rolls and the 27 rolls were priced at £18.46 per metre. All the mixed fashion fabric was described as being in rolls of 20 metres. The total price was £137,434.33.

6.    The Appellant placed 2 purchase orders with Clue-Don. The first order numbered PO 1001 corresponded to Bee-Zee’s second order but it was less specific in that it was for 152 rolls of viscose crink fabric with 17.9 metres in a roll at a price of £17.85 per metre, 511 rolls of dual purpose chenille in 20 metre rolls at £26.40 per metre and 35 rolls of blue fashion fabric in 18 metre rolls at £14.50 per metre. The price was £219,586.08 to which was added VAT of £38,427.56 making a total purchase price of £258,013.64. The second order placed by the Appellant was numbered PO1002 and was also less specific. It was for 88 rolls of devour fabric in rolls of 23.40 metres at £9.20 per metre, 139 rolls of mixed fashion fabric in 20 metre rolls at £17.85 per metre, 83 rolls of mixed fashion fabric in 20 metre rolls at £17.75 per metre and 101 rolls of viscose twill fabric in 22.10 metre rolls at £15.30 per metre. The price was £132,183.77 to which was added £23,132.77 VAT, making a total price of £153,315.93.

7.   It is apparent that the total purchase price payable by the Appellant to Clue-Don of £413,330.18 exceeded the total price of £ 365,756.18 payable by Bee-Zee by £47,574. This deficiency was due to the fact that VAT of £61,560.33 was payable to Clue-Don. Excluding VAT there was a small gross profit on the transaction amounting to £13,986.33 or some 3.96%. As the transaction was the first transaction which the Appellant had carried through, it did not have any reserves or trading profits out of which the VAT payable to Clue-Don could be financed until the VAT could be reclaimed from the Revenue. No difficulty arose in relation to the ex-VAT purchase price to Clue-Don since payment was to be made by Bee-Zee upon delivery and that money could then be used to pay Clue-Don for the fashion fabric.

8.   The necessary finance to pay for the VAT element in the purchase from Clue-Don was provided by Mr.Hanif Patel (Mr. Patel) who is the director of the Appellant. The documentary evidence before the tribunal shows that sums totalling £50,000 were credited to Mr. Patel’s personal account with HSBC at Fishergate in Preston. £10,000 and £15,000 were paid in on 21 March 2007.The £10,000 was paid in by Muin Cash and Carry which paid in 2 further sums of £10,000 on 26 and 27 March 2007.The balance of £5,000 was also paid in on 27 March. The evidence of Mr. Patel was that £5,000 came from his own savings and that the balance was provided by loans from members of his family. Muin Cash and Carry was we understand a business carried on by Mr. Patel’s cousin. Mr. Patel himself worked for his father’s butchery business.

9.   It was the evidence of Mr. Patel that he had been advised by the director of Clue-Don, a Mr. Mohammed Khatoria, ( Mr. Khatoria) that payment for the fabric should be made through an overseas bank account in order to enable the same day transfer of money from Bee-Zee to the Appellant and then onwards to Clue-Don. Entries on Mr. Patel’s personal bank account show that on 27 March 2007 £50,000 was debited to his account and that the money was transferred to a body by the name of Trade Alliance Financial. The precise status of that body is obscure. The evidence of the Revenue is that Trade Alliance Financial which also trades as T A Financial (TAF) is merely a trading name operating from a desk within the offices of an “offshore administrator” in Panama called Global Offshore Management Inc. but that it maintains an account with Barclays Bank (Seychelles) Ltd in Victoria in the Seychelles. UK traders arrange for their banks to transfer monies into this account. The monies paid into this account are aggregated and strictly the only bank account which appears to exist is TAF’s account with Barclays Bank (Seychelles) Limited. However TAF appears not only to keep separate records for the individual traders who have paid monies into the account but also arranges for “transfers” to be made between different traders with “accounts” with TAF. Mr. Patel has produced a copy of what purports to be a statement of an “account” with TAF apparently in the name of the Appellant which shows the receipt from him on 28 March 2007 of £49,965 which is the £50,000 debited to his account with HSBC less a transfer fee of £35.  The next entries occur on 9 May 2007 when Bee-Zee pays into the “account” the sums of £228,321.85 and £137,437.33. These payments are immediately followed on the same day by debits of £258,013.64 and £155,315.93. These payments correspond precisely with the amounts payable under the purchase and resale invoices dated 29 March 2007 for the fashion fabrics. 2 “intertransfer” charges of £20 each have also been debited on 9 May 2007 to the “account” as well as a password recovery fee of £20 on 11 May 2007 leaving a net balance to the credit of the “account” of £ 2,334.61. It was Mr. Patel’s evidence that he understood that the “account” with TAF was an internet banking account. TAF appears to have gone into voluntary dissolution in the Seychelles on 11 December 2007 with its liquidator being in Pakistan.

10.  The Appellant was incorporated on 2 December 2004. Its sole director was Mr. Patel and his father, Mr. Ibrahim Ali Patel, was company secretary. Its objects were stated to be the import and export of men’s and ladies fashionwear with wholesale of other household goods. The Appellant did not trade immediately. On 25 April 2006 the Appellant applied to register for VAT. It described its business as being that of an importer, exporter and distributor of men’s and ladies fashions and wholesale of other clothing. On the application form the Appellant stated that it expected to make taxable supplies on 15 May 2006, that it expected its taxable supplies exceeded the registration limit on 25 April 2006, that its expected turnover in the next 12 months would be £250,000, that its exports to other EU states would be £100,000 and purchases from other EU states would be £50,000. Mr. Patel made the usual declaration that the information given was true and complete. The Appellant was registered for VAT as requested from 27 March 2006 and allocated quarterly returns of March June September and December. In support of its application the Appellant provided the Revenue with 2 sales invoices to the Appellant from Lava UK Ltd (Lava) purporting to record the purchase by the Appellant on 27 March 2006 of some children’s toys at a price of £1492 to which VAT of £261 had been added and on 20 April 2006 of some further toys at a price of £2,175 plus VAT of £380. Mr. Patel also supplied a copy tenancy agreement in the name of the Appellant of the house known as 54 Holmrook Road Preston. 54 Holmrook Road was the address which the Appellant had given on its application for registration for VAT as its business address. The tenancy agreement however was an assured shorthold tenancy and contained a prohibition on the use of the premises for business purposes. The landlord named on the agreement was Mr. S. Ashraf of 10 Wren Street Preston. On the application for the incorporation of the Appellant Mr. Patel had given his address as 9 Wren Street Preston.

11.  Following its registration for VAT, the Appellant duly made quarterly VAT returns. For the periods 06/06, 09/06 and 12/06 the Appellant declared that its trading figures were nil. In the period 03/07 however the Appellant made a repayment claim for £63,062.82. This was to recover the VAT paid to Clue-Don under the invoices dated 29 March 2007 plus also the VAT on Casa’s invoice and sums for rent and company overheads. The total of these came to £1,503. The evidence shows that the Appellant never paid Casa’s invoice because as Mr. Patel said the Appellant had no money with which to do so.

12.  Following receipt of the repayment claim on 9 May 2007, the Revenue decided to conduct an extended verification of the application and the Appellant was notified of this by letter dated 15 June 2007. The letter referred to the large losses which it was estimated had been suffered by the public revenue as a result of Missing Trader Intra-Community (MTIC) VAT fraud and that the Revenue were targeting not only those traders believed to be involved in transaction chains associated with MTIC fraud but also other businesses involved in transaction chains. The Appellant’s claim was selected for verification because of the amount of the repayment claim.

13.    The verification officer assigned to examine the Appellant’s claim was Mr. R. I Godley (Mr. Godley). Mr. Godley has given evidence on oath to the tribunal. As a result of his evidence and that of the other witnesses for the Revenue, we are satisfied and find that there was in fact a chain of back to back transactions in relation to the fashion fabrics purchased by the Appellant from Clue-Don and that there are 2 missing traders, namely Bee-Zee and Texvale Limited (Texvale). Texvale was the company from which Clue-Don had acquired the fabrics. Texvale passed a resolution for a creditor’s voluntary liquidation on 22 August 2007 having been deregistered for VAT with effect from 13 July 2007. Texvale was dissolved on 9 August 2008 with unpaid VAT liabilities of £418,552.33. Texvale did not submit any VAT return for the period 04/07 or for its final VAT period up to deregistration and we are satisfied and find that Texvale failed to account for the VAT which it charged Clue-Don on the sale of the fabrics which were resold to the Appellant and on to Bee-Zee. The documentary evidence before the tribunal also shows that the goods sold on by the Appellant to Bee-Zee were apparently shipped by Casa by sea from Dover on 10 April 2007 via Star Shipping Limited to Spain for delivery to In Motion Logistics S.L. at Malaga. Although the stamp of In Motion Logistics S.L. appears on the copy of the shipping document exhibited by Mr. Patel as HP 17 as having received the goods, it is not known what happened to the goods after they reached In Motion Logistics S. L. in Malaga. Bee-Zee itself has proved untraceable. Inquiries made by the Revenue of the Spanish revenue authorities produced the result that Bee- Zee had been deregistered by the Spanish tax authorities as a missing trader on 25 October 2007.

14.  The Revenue have not been able to produce any direct evidence to show from where Texvale obtained the fashion fabrics. The significance of a lack of evidence to establish from where Texvale obtained the fashion fabrics is that in a typical MTIC fraud the significant loss to the public revenue arises from the fact that having purchased goods from another EU country without having to pay VAT the fraudulent trader will normally receive VAT on the resale. If he then goes missing and does not account for the VAT which he received, the whole of that VAT will be lost to the public revenue. If the goods are resold on to another trader or series of traders the last of whom then exports the goods to the EU, then unless fraud can be proved, a repayment claim will arise. If that repayment claim is denied on the basis of fraud, the public revenue is in effect recouped for the loss it has suffered by reason of the missing trader not having accounted for the VAT it received. If on the other hand Texvale had purchased the fashion fabrics within the UK, normally it will have paid VAT to the seller which it is entitled to offset against the VAT it has received and any  loss of revenue, if it then goes missing without accounting for the VAT it has received, is likely to be smaller, being the difference between the VAT which it paid to the seller and the VAT it received on the resale of the goods. The ultimate zero rated export, although it will give rise, in the absence of fraud, to a repayment claim does not mean that the whole of the VAT received by the missing trader has been lost. 

15.  There is evidence in the second witness statement of Anne Wignall, an officer of the Revenue, that Texvale did purchase goods from other EU countries which were then sold on within the UK before being exported to Spain. Her evidence is that on 5 July 2007 a visit to Texvale’s premises was made by officers Ahsan Jamil and Daksha Tanna and from documents obtained on that visit it was clear that some 47,600 units of mixed console games had been purchased from S C Bario SRO in the Czech Republic. These had then been resold by Texvale to IS Studios Limited which had resold them to Primeline Europe Limited. The consoles had then been split into 2 lots with one lot of 39,000 units being sold to Shelford Trading Co. Ltd and 8,600 units to Live Telecoms Ltd. Both lots had then been sold to New Life Trading Ltd. c/o In Motion Logistics in Malaga Spain. Texvale did not account for the VAT on the sale to IS Studios. There was also evidence, which we accept, in Anne Wignall’s first witness statement of a purchase by Texvale of copper billets in June 2007 from the Netherlands for which Texvale again did not account for the VAT on its resale of the billets. Inquiries made by officers of the Revenue showed that Texvale had engaged in numerous deals which it had not disclosed. There is evidence that Texvale engaged in deals in fashion fabrics amounting to over £3,000,000 but there is no evidence to show from where those textiles were purchased. In our view the tribunal would not be justified in inferring from the existence of the deals in copper billets and console games that on the balance of probabilities the fashion fabrics which were sold to Clue-Don and on to the Appellant had been purchased from another EU state or any other foreign country. That would in our view merely be speculation.

16.  Counsel for the Appellant (Mr. Banks) has submitted that unless the Revenue can show that the fashion fabrics came from an EU country, no fraud can be established because no loss to the public revenue has been shown. We do not accept that proposition. If a trader charges VAT to his customers for which he does not account to the Revenue, there is in our view a clear prima facie loss of revenue to the Revenue. In the present case, it is clear on the evidence that Texvale made no return of the VAT it received or should have received from Clue-Don and it has been assessed for that sum along with other sums for which it was accountable. No appeal was lodged against the assessment and that money has not been paid. That money has been lost to the public revenue. Mr. Banks for the Appellant has also taken what is in substance a pleading point and has submitted that the Revenue have pursued this case as a MTIC fraud and that accordingly the lack of evidence to show that Texvale obtained the fashion fabrics from another EU country was fatal to the Revenue’s case. Mr. Banks has pointed out, correctly, that the Revenue in their evidence have referred extensively to MTIC fraud and have also for example in the Notice of Application dated 1 August 2008 seeking an extension of time for service of their Statement of Case and List of Documents stated that the transactions purporting to give rise to the Appellant’s repayment claim were “vitiated by Missing Trader Intra Community (MTIC) Fraud”. There is in our view no dispute between counsel in the present case that if an MTIC fraud is to be established, it is necessary that it be shown that the goods in question should have been imported into the UK from another EU country. The “IC” in MTIC indicates an intra - community transaction. However a MTIC fraud is not in our view a legal term of art. It is a convenient term which appears to be used loosely when the Revenue seek to disallow a repayment claim on a zero rated export to another EU country. In the present case it is in our view perfectly clear from the Statement of Case that the Revenue have put their case as stated in Paragraph 1 of the Statement of Case on the broader basis that “the input tax was incurred by the Appellant in a transaction or transactions connected with the fraudulent evasion of VAT and that the Appellant knew or should have known of this fact”. That the Revenue were not seeking to prove that the fashion fabrics had been imported from the EU is apparent from paragraph 23.4.11 of the Statement of Case where it is stated: “There is no evidence of an end user of the goods, nor has it been possible to trace the goods back to a manufacturer”. It was also made clear by counsel for the Revenue (Mr. Shields) in opening that the Revenue were not putting their case on the basis of an import of the fabrics from the EU but on the broader ground of fraud generally. In so far as Mr. Banks has taken a “pleading point”, we reject it. We also observe that there has been no suggestion that the Appellant has been misled by the references on the documents and in the evidence to MTIC fraud into thinking that only a MTIC fraud was being alleged.

17.  Mr. Banks has also, it seems to us, taken a further point in relation to the nature of the fraud which must be established for the purposes of Kittel. In substance the point as we understand it is that there must be evidence of an importation of the goods from another EU country. Thus whereas Mr. Shields has relied upon Red 12 Trading Ltd. v Commissioners for Her Majesty’s Revenue and Customs [2010] EWCA Civ 402 for the proposition that it is not necessary for the Revenue to prove that the fraudulent trader was the importer of the goods, Mr. Banks while not disputing that proposition has submitted that that decision does not mean that there does not have to be an import. Mr. Banks submitted that the statement in paragraph 7 of the judgment “whether the fraudster was the importer or someone further down the line seems to me completely irrelevant” was predicated upon the premise that the goods had been imported in the first place. We do not accept that is a correct statement of the law. It is in our view inconsistent with what was said in second sentence in Paragraph 8 where it is said: “The essence of the fraud consists of depriving the Customs and therefore the tax payer of the tax for which the supplier has to account, whilst at the same time obliging Customs to pay the input tax to one who has by virtue of his knowledge of what is going on participated in that fraud”. That language it seems to us applies to suppliers generally who fail to account for the VAT they have charged. The matter is however put beyond any real doubt in our view by Paragraph 60 of Kittel where it was made clear that the right to recover VAT is lost by participation in the fraudulent evasion of VAT. A trader who deliberately fails to account for the VAT which he has received is in our view fraudulently evading VAT. Mr. Banks it seemed to us did accept the proposition that the amount of VAT which was being evaded was irrelevant and we have already dealt with the loss of revenue point in paragraph 16 above.         

18.  Texvale was incorporated on 10 May 2006 and was dissolved on 9 August 2008. It never filed any accounts. It made a voluntary application dated 15 June 2006 to be registered for VAT and the application was signed Mr. Iqbal Camalodeen (Mr. Camalodeen), a director of the company. Its principal place of business was given as Unit 32 Unity Business Centre, Roundhay, Leeds and its current and/or intended business was stated to be “web design, software development, printing and sales”. It stated that it did not expect to receive regular repayments of VAT. The application also stated that it expected that its sales within the next 12 months would be £300,000. No exempt supplies were expected to be made nor any imports or exports to or from the EU. Texvale was duly registered for VAT with effect from 1 August 2006 which was the date it had requested. Quarterly returns were to be made for the months ending April, July, October and January. The first return for the period ending 10/06 was received on 30 November 2006. It showed zero outputs but claimed repayment of £267.68 output tax. The next return for the period ending 01/07 was not received by the due date and an assessment was raised by the Revenue. Upon receipt of the assessment Mr. Camalodeen contacted the Revenue’s inquiry centre on 28 March 2007 to ask why an assessment had been received. The record of the telephone conversation indicates that it transpired that the return had been found by Mr. Camalodeen who said he would submit it in the next few days. The return was not in fact received by the Revenue until 12 July 2007. The return showed output tax of £50,384.25 and input tax of £59,469.61 and reclaimed £85.36.  No returns were submitted for the period 04/07 or 07/07. On 1 February 2007 Mr. Camalodeen had notified the Revenue of a change in Texvale’s trade class to that of pharmaceuticals. By a letter dated 12 February Texvale was notified that security checks were being made because of the increasing number of bogus applications for registration with a view to committing fraud and that such checks were made when notification of a change of business was received.

19.  During the course of their inquiries the Revenue became aware that Texvale had purchased large quantities of copper billets and also mobile phones. This led to an unannounced visit being made on 5 July 2007 by officers Anthony Gray and Becky Jackson to Texvale’s premises at Leeds where they met Mr. Camalodeen. A record of the visit and a copy of officer Anthony Jackson’s notes are in the trial bundle at pages 2/475-486. The record and notes have not been challenged and we accept that they contain a correct record of what Mr. Camalodeen said and what was discovered during the visit. When asked what goods he had purchased, Mr. Camalodeen said that he had only purchased 10 computer monitors and some other computer peripherals in small quantities and that he had been able only to sell 2 monitors. He said he was not actively seeking to sell the other monitors because he had lost money on them and did not want it to appear that his first business transaction had been a failure. When asked how the goods had been paid for Mr. Camalodeen said that he did not have any cash and had been given credit by the suppliers. When asked about Texvale’s bank accounts, he said that there were accounts with Natwest and also Tay Financial which he said was part of Barclays. There is no doubt in our view that this was a reference to TA Financial or TAF. He said that the payments he received were paid into the TAF account and that they were then transferred to a HSBC account. When asked why he needed so many accounts, he said it was because the business could make money by taking advantage of different interest rates by transferring cash between different bank accounts. The officer’s comment was that “this was very vague and clearly something he knew very little about”. Likewise when asked if he had traded in metals he said he had become quite interested in copper as the market had been fluctuating last year but when pressed he was vague about the prices and appeared confused about the units copper was dealt in. He said Texvale had not bought or sold any metals and he specifically denied any trading in copper.

20.  After asking how Texvale had found its customers and suppliers which Mr. Camalodeen said he had  found through trading websites such as Alibaba.com and giving a full explanation about how to spot MTIC fraud, the officers went into Texvale’s office. Mr. Camalodeen produced some trading documents relating to contact lenses and Nokia N95 phones. He said the bank statements were at his home address but he did allow the officers to see the contents of Texvale’s filing cabinets. On examination, there were a large number of documents relating to sales of textiles totalling many millions of pounds. When asked what the documents were he at first denied any knowledge and said that they had just come from the fax machine. However it was clear that many of the documents had been signed by him. He was asked several times if he wanted to tell the officers anything further about the documents or if anybody else had told him to do these deals. After initially denying any knowledge, he did accept that if he had signed the documents he must have made the deals but that he had “forgotten”. The documents were taken away by the officers and a receipt for them was given to Mr. Camalodeen.           

21. Although Mr. Camalodeen had denied that Texvale had engaged in copper sales, the Revenue had documentary evidence showing that Texvale had only 3 weeks earlier purchased 24.5 tonnes of copper billets. Copies of the documents are in the trial bundle at pp. 2/630-640. On 12 July 2007officers Gray and Jackson made a further visit to Texvale’s premises with a Notice of Direction requiring Texvale to submit a VAT return for the period 1 May 2007 to 12 July 2007 no later than the following day. There was no one at the premises and a copy of the Notice of Direction was left at the premises. The officers also went to Mr. Camalodeen’s home address but again no one was there. A copy of the Notice of Direction was left there. On 15 July 2007 the officers made an unannounced visit to Texvale’s premises in order to deliver a deregistration letter, to collect the VAT return for the period 1 May to 12 July and to deliver a copy of an assessment for the copper billets. There was no one at Texvale’s premises and they were padlocked. Inquiries of the receptionist at the Business Centre showed that Mr. Camalodeen had not been seen for a few days although Texvale had not cancelled its contract at the Business Centre. A visit to Mr. Camalodeen’s home produced no answer and it looked as if no one had been there for several days since although the neighbours’ bins had been left out for emptying the bin for Mr. Camalodeen’s house had not been left out and was empty.

22.    There was no contact between the Revenue and Mr. Camalodeen after the visit on 5 July and it is clear in our view that he was deliberately avoiding contact. On 22 August 2007 however he was able to arrange for Texvale to pass a resolution for a creditors voluntary winding up and a liquidator was appointed. Subsequently 4 assessments totalling £409,407 were raised against Texvale while it was in liquidation. No appeal was made by the liquidator although he did have at least some contact with Mr. Camalodeen during the liquidation. Assessments were made for: £258,183 for undeclared deals in fabrics, Playstation 2 and CD roms; £60,440 for undeclared deals in copper cathodes and BMW gear boxes; £29,393 for further undeclared deals in copper billets (which included the deals in June 2007 already referred to) and for £61,391in respect of the sales of fashion fabrics to Clue-Don  which were resold to the Appellant. All these assessments were made following an examination of the documents which had been taken on 5 July 2007.

23.   Having considered the evidence and documents relating to Texvale’s activities and the clear attempts to mislead officers Gray and Jackson at the meeting on 5 July, Mr. Camalodeen’s denials of having engaged in transactions which it is now clear Texvale did engage in, the effective disappearance so far as the Revenue were concerned of Mr. Camalodeen after 5 July 2007, his putting Texvale into liquidation, and the failure to submit any VAT returns for the periods 04/07 and up to 12 July 2007 have led us to the clear conclusion and we are satisfied and find that Mr. Camalodeen and Texvale were engaged in a deliberate scheme to evade VAT which was properly due in respect of its trading activities. Mr. Camalodeen’s and Texvale’s actions and omissions were in our view fraudulent and Texvale, we are satisfied, never intended to account for or to pay the VAT properly chargeable on its trading activities. There is nothing to suggest that any failure on the part of Texvale to pay the substantial amount of VAT for which it has been assessed was caused by trading difficulties. The failure of Texvale to account for VAT has in our view given rise to a significant loss of revenue to the Revenue. How much that loss amounts to is unclear since Texvale’s records are incomplete but we are satisfied that the assessments made on Texvale have been properly made and that over £400,000 at least has not been accounted for.

24.  We are satisfied and find that the transaction in which the Appellant engaged was connected with the fraudulent evasion of VAT. The sales of the fashion fabrics formed a chain of transactions starting so far as the documents are concerned with a purchase order dated 29 March 2007 (B2p.333) from Clue-Don to Texvale for 152 rolls of viscose Crink fabric, 72 being black fabric and 80 maroon, 511 rolls of dual purpose chenille, 121 being brown, 315 black and 75 green, and 35 rolls of blue fashion fabric. This gave rise to an invoice from Texvale dated 29 March 2007 (B2p334) for these items. These items were then sold by Clue-Don to the Appellant and are the goods in the Appellant’s first purchase order dated 29 March 2007 (B2p.412), in the Appellant’s invoice dated 29 March 2007 (B2p.418) and in Bee- Zee’s purchase order 29-3-07/1001 (B2p.410).Although both Clue-Don’s order to Texvale and Texvale’s invoice broke the numbers of rolls down by colour of fabric neither the Appellant’s purchase order, invoice nor Bee-Zee’s order did so save in relation to the blue fashion fabric. Bee-Zee’s order did however specify the particular numbers of rolls mentioned in Clue-Don’s and Texvale’s documents and which totalled 511. The Appellant’s order to Clue-Don simply ordered 511 rolls of dual purpose chenille. There is a similar documentary chain from Texvale to Clue-Don, the Appellant and Bee-Zee in relation to the fashion fabric comprised in Bee-Zee’s second order 29-3-07/002 (B2p.408). See the trial bundle B2pp.339, 340, 414,416 and 408. Bee-Zee’s order again breaks the material into different numbers of rolls whereas the Appellant’s order does not save in relation to the price of 2 lots. The documents between Texvale and Clue-Don do however specify the colour of the devour fabric and distinguish between black and tweed viscose twill. Bee-Zee’s order while not specifying the colour of the viscose twill does split the order into 37 rolls and 64 rolls which corresponds to the numbers of tweed and black viscose twill in Clue-Don’s order to Texvale.

25.  Although we are satisfied that the Revenue have proved that the sales in which the Appellant engaged were connected with an actual fraud upon the public revenue, the question remains whether the Revenue have established that the Appellant through its director Mr. Patel either actually knew that fraud was involved or having regard to objective factors proved that the Appellant had the means of knowledge at its disposal that fraud was involved and thus should have known that fraud was involved.

26.   Mr. Patel’s evidence was that he became involved with Clue-Don through having met its director Mr. Mohammed Khatoria (Mr. Khatoria) at a family wedding in Ilford in January 2007. In the course of conversation Mr. Khatoria mentioned that he traded in fabrics. Mr. Patel said that this had interested him because he had himself “done ladies garments and therefore this was appealing to me”. It was Mr. Patels’ evidence as set out in his witness statement that he had been looking for business opportunities. He said his first venture had been buying a consignment of toys from Lava but that having bought the goods his customer had let him down and that he had been unable to sell the goods which had been left in storage. The goods had then been “confiscated” and as result of this set back he had been unable to trade for some time. However by the time he met Mr. Khatoria at the wedding, he had begun looking for other opportunities and he said that he had considered the property market and had explored markets in the UK, Spain and Morocco. In his oral evidence he said that he had also gone to Dubai. According to the witness statement, Mr. Khatoria said that he would be able to supply fabric if he was interested, that Mr. Patel should contact him and that perhaps they could do business. Mr. Patel’s evidence in Paragraph 17 of his witness statement was that he did contact Mr. Khatoria to arrange a meeting, that he travelled to Clue-Don’s premises in Surrey “to further the possibility of doing business” and that he obtained “documents to confirm identity”. These documents are a copy of Clue-Don’s certificate of incorporation, its certificate of VAT registration and apparently Casa’s bank details at Natwest in Newcastle under Lyme. Mr. Patel in his witness statement then says that the idea was left in abeyance for some time “as I was focussing on properties”. At paragraph 20 of his witness statement he says: “whilst looking at one property, I met a person named Ronald Clark. Whilst talking to Mr. Clark I said that I was looking at other opportunities in particular trading in fabrics. Mr. Clark upon hearing this mentioned Bernard Chilton (sic) who traded in commodities and might be interested”. It is not in issue that the meeting with Mr. Clark took place in Spain. Mr. Chilton’s surname however is Chilten, not Chilton.

27.   Mr. Patel then went on in the next paragraph to say: “Upon realising an opportunity I contacted Mr. Chilton (sic) and following discussions Mr. Chilton (sic) confirmed he may be interested in doing business.  I went to Spain to establish contact and to ascertain whether a deal could be done”. Mr. Patel’s evidence was that he went to Malaga on 25 March 2007, travelled to Estepona by taxi where he had arranged to meet Mr.Chilten, that they discussed fabrics and that they concluded the meeting by exchanging details for identification purposes. The details obtained by Mr. Patel were a photocopy of Mr. Chilten’s current UK passport showing his picture.

28.  In cross-examination Mr. Patel changed his evidence to say that it was after he had seen Mr. Clark and indeed after he had learnt that Mr. Chilten was interested in buying that he had gone to Clue-Don’s premises and that Paragraph 17 of his witness statement was not correct. It also transpired in cross-examination that Mr. Patel had gone to Spain to see Mr. Clark at the suggestion of a friend who had already bought a property there and that the impression given in Paragraph 20 of his witness statement that it was while looking at a property that he had met Mr. Clark was incorrect. When pressed, Mr. Patel refused to name this friend. It also became clear in cross-examination that Mr. Patel had made contact with Mr. Clark from England and that they had spoken about a property in Estepona which Mr. Clark had for sale. Mr.Patel also accepted that Paragraph 21 of his witness statement was incorrect in that the arrangement to meet Mr. Chilten had been made by Mr. Clark while they were in Spain and that he had not travelled to Spain to meet Mr. Chilten as a result of a previous contact made from England. Mr. Patel agreed that the correct position was that Mr. Clark had told him to go and see Mr. Chilten and that that was what he had done. He said in cross-examination that Mr. Clark had spoken to Mr. Chilten on his phone and that they had then gone to see Mr. Chilten.

29.  When asked what had been discussed with Mr. Chilten, Mr. Patel was unable to give any clear response. He said he had asked if Mr. Chilten was interested in buying fabrics and that he would be able to get him some fabrics. Mr. Patel did not apparently specify what precise fabrics were available. He suggested that he had mentioned ladies fabrics and curtain fabrics of silk, cotton, viscose and chenille. Quantities and prices do not seem to have been mentioned. When he was asked how he knew he could get the fabrics mentioned, Mr. Patel said that he had spoken to Mr. Khatoria about what kinds of fabric he had. This contradicted what he had said earlier in cross-examination when he had said that Mr. Khatoria has said that he dealt in fabrics - ladies fabrics and curtain fabrics and the types of material had not been mentioned. It was Mr. Patel’s evidence that at the time of the meeting with Mr. Chilten on 25 March he did not know what fabrics he could get. “I had no knowledge of fabric and I didn’t know what I was going to get, what I was going to buy, what Mr. Khatoria had” (Transcript Day 2 p.pp.163, 4).     

30.  Following the meeting with Mr. Chilten, Mr. Patel returned to England. At paragraph 27 of his witness statement Mr. Patel said that he had then contacted Mr. Khatoria who confirmed that he had some fabric for sale and Mr. Patel says he asked Mr. Khatoria to confirm the offer in writing. Mr. Patel then said that he contacted Mr. Chilten and “offered him the fabric. Fortunately he was interested in buying some fabric”. “After discussing over the telephone and negotiating I received a purchase order from Bee-Zee”. These are the orders already referred to at B2/408and 410. Mr. Patel says that after receiving these orders he then placed the orders with Clue-Don. These are the orders at B2pp.412 and 414.

31.  Mr.Patel returned to Manchester airport from Spain later on 25 March and this would place his visit to Mr. Khatoria’s premises in Surrey as having taken place on 26 or perhaps 27 March 2007. However we are wholly unpersuaded that Mr. Patel did go to see Mr. Khatoria at Clue-Don’s premises. When pressed in cross-examination for some details about the premises, Mr. Patel could give only the vaguest idea of what the premises looked like or the kind of area they were in. It also transpired that the documents which he says he obtained to confirm identity were faxed to him and not given to him on this visit as is the implication in paragraph 21 of his witness statement. The purpose of visit, he said, had been to see what fabrics were available but Mr. Patel when asked about what had been said was again very vague. Mr. Patel clearly had very little knowledge of different kinds of fabrics or what they were used for. At an interview on 17 July 2007 Mr. Patel had been unable to explain to officer David James Johnson and to Mr.Godley what chenille fabric was used for or what it looked like or what its characteristics were. He likewise could give no useful information about dual purpose crink fabric or its uses. When asked in cross-examination about what had been discussed on the visit to Clue-Don’s premises he appeared unsure whether colours had been discussed. However he did say that the prices and the numbers of rolls of various fabrics had been discussed and that he was “absolutely sure”. It was however unclear what materials he had actually seen on this visit. Although Mr. Patel said that he had been shown “loads of fabric”, he went on to say that he had only been shown samples and that Mr. Khatoria had said “I can order – I can get them for you”. Further although Mr. Patel had earlier said that Clue-Don had a warehouse, it subsequently became clear in cross-examination that Mr. Patel had not actually been shown any fabrics in the warehouse. Remarkably, Mr. Patel said that he had no idea of the quality of the fabrics the samples of which he was being shown. When asked why he had not asked Mr. Khatoria to show him the actual rolls of cloth which were for sale, Mr. Patel’s response was not, as one might have expected if only samples were available and the goods had to be ordered in, that there were not any rolls to be seen, only samples. What Mr. Patel said was: “I don’t know what I was going to buy at the time though”. When asked what was in the warehouse, he said “Fabrics, but I didn’t see the specific fabrics what you’re saying that I had to sell – that I was going to buy because I did not know what I was going to buy at the time”. (Transcript Day 3 pp.9, 10). The version of events which Mr. Patel gave in cross-examination is in our view very different from that in Paragraphs 27 and 28 of his witness statement.

32.  On 28 March 2007 Mr.Patel received a fax from Clue-Don with what is headed  “Stock Offering”. Mr. Patel in his witness statement describes the document as an “offer letter” and says that it is the confirmation in writing of what he had for sale and which he had asked Mr. Khatoria to send him. He then says that “Upon receipt of the offer, I contacted Mr. Chilten and offered him the fabric. Fortunately he was interested in buying some fabric. After discussing over the telephone and negotiating the price, I received a purchase order from Bee-Zee. After receiving the purchase order I placed an order with Clue Don”. (Paras.29, 30 and 31).

33.  The stock offering (B2/403) although it contains a description of the fabrics and the price per roll does not mention the colour of the fabrics or the numbers of rolls available. According to Mr.Patel’s evidence this document was the written confirmation of what had been discussed at the meeting with Mr. Khatoria and which he had asked Mr. Khatoria to send. This suggests that Mr. Khatoria had not mentioned the colours or the numbers of rolls available, contrary to what Mr. Patel had just said in cross-examination. When this was put to him, Mr. Patel said that the colour was not important to him and that Mr. Khatoria had not said precisely how many rolls were available. This is in our view a remarkable state of affairs for someone who is proposing to sell goods on to a purchaser because Mr. Patel was not in a position to say how much he could sell of any fabric or what the colours were. Further if he did not know the number of rolls involved, he would not know how much money would be involved or how much VAT would have to be paid to Clue-Don and or how much money would have to be found to finance the transaction until the VAT could be reclaimed. Mr. Patel said that he had telephoned Mr. Chilten while driving back to Preston from Surrey after his visit to Mr. Khatoria. That conversation cannot have been the one referred to in Paragraph 30 because at that time Mr. Patel did not have Clue-Don’s stock offering and could not say what he actually had for sale. In cross-examination Mr. Patel said that this telephone call had been made to see if Mr. Chilten was still interested in buying fabric. According to Mr.Patel, Mr. Chilten was still interested and he said he would send him a stock offering.

34.    The document which Mr. Patel sent to Mr. Chilten is in the trial bundle at 2/406. It is dated 28 March and simply sets out what was in Clue-Don’s stock offering down to the same spelling mistake of “Viscoe Twill Fabric”. The prices per roll however are higher. When he was asked how he had calculated the prices, Mr. Patel said that he had put “about 6 or 7 per cent” on Clue-Don’s prices but that when he had told Mr. Chilten the prices over the telephone Mr. Chilten had said “No, that’s too much”. Mr. Patel said that he then told Mr. Chilten he would get back to him and that there was then another telephone call in which Mr. Chilten had said the reduced prices were OK and that it was after this call that the priced stock offer at B2/406 was faxed to Bee- Zee. That however cannot be correct because with 2 exceptions all the prices on Bee- Zee’s orders are lower and Mr.Chilten cannot have said that the prices on the stock offering were OK or if he did, that he then went back on that. When the reduction in price was pointed out to Mr. Patel, he said “Yes we spoke, yes, on the phone” and that he had reduced his profit margin to 4% from the 5% in the stock offer. Although Mr. Patel said that he had worked out his prices on a percentage basis, he agreed with Mr. Shields that he had not mentioned percentages to Mr. Chilten but had quoted figures for the fabrics. He said that he had gone down by percentages however; “I was just going down by a per cent every time”. (Transcript Day 3 p. 31). We find this method of negotiating wholly improbable and unbusinesslike . On Mr. Patel’s evidence all that seems to have happened was that he kept reducing his prices until Mr. Chilten said the figure was acceptable. In reality it seems to us that Mr. Chilten decided the price the Appellant would receive for the fabrics. This perhaps is not surprising however when Mr. Patel knew virtually nothing about the fabric trade or the fabrics he was selling and had never seen them. However the absence of any bargaining and the reduction in the asking price on a straight percentage basis does not indicate any great interest in maximising any profit. The conclusion which we have reached after hearing this part of the evidence was that Mr. Patel was simply making up answers as he went along and that he was not giving an accurate description of events.     

35.  The position is the same in our view in relation to Mr. Patel’s evidence on the important issue of the numbers of rolls of the different fabrics. Mr. Patel was unable to say when he had first learnt of the number of rolls available. Although Mr. Patel at one stage suggested that he had known the numbers of rolls before sending the fax on 28 March, it is far more likely, we consider, to have been after he had sent his fax at B2/406 since that fax does not mention the numbers of rolls available. Mr. Patel accepted that Mr. Chilten had asked him how many rolls were available and that he had gone back to Mr. Khatoria who, according to Mr. Patel, had said he could have as many as he wanted. The final position of Mr. Patel was that he had then gone  back to Mr. Chilten and told him he could have as many as he wanted and that it was Bee- Zee which said the numbers of rolls it wanted. Significantly, Mr. Patel was quite clear that he had never mentioned to Mr. Chilten the colours of the fabrics and when it was put to him that the deal with Bee-Zee did not take any account of the colours of the fabric, he said “Yes”. Mr. Patel could not give any explanation why Bee-Zee’s purchase order 29-03-002 at B2/408 had 2 orders for viscose twill fabric, one for 37 rolls and one for 64 rolls both at the same price and with the same amount of cloth on a roll. Likewise he could not explain why the order had broken the mixed fashion fabric into 5 lots of varying numbers of rolls and indeed in the case of 2 lots at different prices. Mr. Patel’s evidence was that “You’ll have to ask him that”. By him Mr. Patel was referring to Mr. Chilten. According to Mr. Patel the deal was simply for a certain number of rolls of each fabric. The reason why the orders are broken down into lots is obvious when one looks at Clue-Don’s invoice dated 29 March to the Appellant at B2/220. There, the fabric is divided the numbers of rolls of different colours. The numbers of rolls are the same on Bee-Zee’s order as on Clue-Don’s invoice although Bee-Zee does not specify the colour. The position is the same in relation to Bee-Zee’s order for viscose twill fabric at B2/408 where the numbers of rolls correspond with the colours on Clue-Don’s invoice at B2/222.  When it was put to Mr. Patel that this showed that there must have been contact between Bee-Zee and Clue-Don if Mr. Patel had not mentioned that there was a difference in colour between the 2 lots, Mr. Patel said that he might have sent a fax to Bee-Zee. However no such fax has been produced and we are satisfied that there never was fax from Mr. Patel to Bee-Zee breaking the goods into lots of different colours. The suggestion that there had been such a fax was another invention on the part of Mr. Patel attempting to explain away difficulties pointed out by counsel for the Revenue.

36.  There is not the same correlation in relation to the mixed fashion fabric on Bee- Zee’s order but it can be seen that the Appellant’s order to Clue-Don precisely follows Clue-Don’s order to Texvale (B2/339) and Texvale’s invoice in that both orders specify 139 rolls and 83 rolls of mixed fashion fabric but with a difference in price. A distinction in price also appears on Bee-Zee’s order for the 2 lots of 56 and 27 rolls at B2/408 totalling 83 rolls and we have no doubt that again this is because there had been contact between Bee-Zee and Clue-Don in relation to the fabrics to be sold to the Appellant.

37.  We are satisfied and find that the whole scheme for the sale of goods to the Appellant and then on to Bee-Zee was a pre-planned arrangement in which Bee-Zee would tell the Appellant what fabrics it wanted and at what price and that the Appellant would order the goods from Clue-Don also at a pre-planned price. This in our view is the explanation for the complete failure of the Appellant to query the prices asked by Clue-Don and why there never were any genuine negotiations between the Appellant and Bee-Zee. Mr. Patel accepted that he had been sent out to Spain to meet Mr.Clark and that it was Mr. Clark who arranged for him to meet Mr. Chilten. The meeting with Mr. Clark was not a chance encounter while looking to buy a Spanish property as suggested originally by Mr. Patel.

38.  It is also clear in our view that the time scale put forward by Mr.Patel for the alleged negotiations cannot be correct because the money required to finance the VAT on the goods purchased from Clue-Don had been effected on 27 March when his account with HSBC had been debited although not credited to the TAF account until the next day. On any view the transfer of the £50,000 was arranged before Bee-Zee had said how many rolls it wanted or placed its orders. Until the number of rolls had been determined and the price per roll, it would be impossible to know what the purchase price would be or how much of the VAT would require to be financed. It is clear that monies were being raised as early as 21 March when £10,000 was paid into Mr. Patel’s account with HSBC and we have no doubt that it was known by then if not earlier that £50,000 would be required if the deal was to go ahead. Mr. Patel when this was put to him said that the money had been for the purchase of a property in Spain but that cannot be right because the idea of transferring money to TAF had come from Mr.Khatoria and had nothing to do with the purchase of a Spanish property. That the arrangement was a pre-planned arrangement also explains in our view why Mr. Patel who had next to no knowledge of the fabric trade was willing to enter into a sale and purchase of fabrics about which he knew nothing and had never seen. We are satisfied, having seen and heard Mr. Patel give his evidence and be cross-examined at some length, that as far as he was concerned, he did not need to concern himself with any of the details of the transaction. Thus he never concerned himself with the quality of the fabrics, their colours, or considered whether the goods needed to be insured while in transit to Spain. He seems to have thought that Casa would look after that side of things although he did not know Casa which had been nominated by Clue-Don. He did not think to inspect the goods personally but apparently left it to Casa to carry out what would seem to have been a perfunctory visual inspection of the packages containing the goods. Although his instructions to Casa were that they were to see that the goods were in the manufacturers’ original packaging, Mr. Patel clearly had no idea from where the goods had come and he never seems to have made any inquiries.

39.  A further point in relation to Casa is that in Mr. Patel’s evidence he did not find out that the fabrics were in the possession of Casa until after he had bought the goods from Clue-Don nor does he seem to have considered how much it would cost the Appellant to send the fabrics to Bee- Zee in Spain. Those costs if Mr. Patel is right did not come into the calculation of any profit on the deal. Likewise although he did not know until he had ordered the fabrics from Clue-Don that the goods were in the possession of Casa, nevertheless among the conditions of sale on his order to Clue-Don (B2/412) are the words: “Please release stock and advise”. Mr. Patel when asked could not say what these words were intended to mean. He said that they meant to tell the freight company to release the goods but when it was pointed out that he had said it was not until after he had ordered the goods that he had found out that the fabrics were with Casa, he then said that the words were something which his accountant had written for him. That again in our view was simply an invention. The conditions which appear on the Appellant’s order were, we have no doubt, part of the pre-arranged plan and were simply a piece of window dressing to give a more businesslike appearance to the transaction. Mr. Patel clearly had no understanding of what they were intended to deal with. Again this points in our view to a transaction which had been pre-planned from the outset. As we have already said, we do not believe that Mr. Patel actually went to Clue-Don’s premises in Surrey and his evidence in that regard was we are satisfied false. The fact that the whole scheme was a pre-arranged scheme also explains why he took so little care to check with whom he was dealing. No credit checks were made and the sale took place on 29 March before he had even checked Bee-Zee’s VAT number. That was only done on 23 April but in the event the number he quoted was incorrect. It was only later that he added the correct prefix for Spain and the sales invoice was amended. It was also perfectly clear in our view that Mr. Patel never bothered to compare Clue-Don’s invoice with Bee-Zee’s orders and that he never noticed that the breakdown of the orders mostly corresponded with differences in colour or price.

40.  Mr. Patel’s admitted knowledge of TAF was rudimentary. When he was asked at the interview on 17 July 2007 what was TAF’s address he gave an address in Anjouan in the Comoros Islands which are in the Indian Ocean. When asked where TAF was based, Mr. Patel had no idea saying first it might be Panama, then Australia before settling upon West Africa. The reference to Panama however is significant since it shows that he knew more about TAF than he was prepared to admit and on the available evidence he could only have heard of a Panamanian connection from Mr. Khatoria. In September 2007 Mr. Patel sent a fax to Mr. Godley giving an address for TAF in the Seychelles. He gave the account number as 2334212. Oddly he said that the £49,000 had been paid to Bee-Zee which clearly cannot have been correct if this had been a genuine sale of fabrics by the Appellant to Bee-Zee, although the reference to Bee-Zee may have been a mistake for Clue-Don. However the error merely confirms how little care Mr. Patel took or knowledge he had in relation to the details of the transaction. This confirms our view that this was because the arrangement had been pre-planned and Mr. Patel knew that he need not bother himself with the details of the transaction. Mr. Patel sought to explain his lack of knowledge of the whereabouts of TAF by saying that his wife had gone on to the internet and that she had made the application to open the account with TAF. That in our view was another attempt to answer a question he could not actually answer but the explanation is incredible. No reasonable businessman would fail to satisfy himself where his money was going. We have no doubt that the Appellant opened the account because that it what Mr. Patel had been told to do and that Mr. Patel was happy to do so  because he had been told that there would be a quick and risk free profit in it for him.

41.  We are satisfied and find that Mr. Patel was from the outset a willing participant in a scheme the object of which was to obtain a VAT refund in respect of the VAT element payable to Clue-Don. We are satisfied and find that Mr. Patel and through him the Appellant was well aware that that this was a pre-arranged scheme and that he was not expected to take any active part in the arrangements and that he did not do so. He was in our view a willing participant in a sale which so far as the Appellant was concerned carried no commercial risk because everything was being arranged by Bee-Zee and Clue-Don and that there was easy money to be made. However any reasonable businessman who gave a moment’s thought to the arrangements would have realised that the arrangements could not be genuine commercial arrangements and that the only object of the arrangement was to obtain a repayment of VAT from the Revenue. Significantly in cross-examination Mr.Patel agreed that both Bee-Zee and Clue-Don were fraudulent. He sought to say that this was with the benefit of hindsight and that the Appellant was the one who had been defrauded but we have no doubt that Mr. Patel realised from the outset that the arrangement was not a genuine commercial deal and that he and the Appellant were participating in a scheme to defraud the Revenue. He may not have known of the precise details but we are satisfied that he knew that the arrangement into which he was entering was dishonest and that it involved claiming the repayment of the VAT paid to Clue-Don. It was only if the VAT could be reclaimed that a profit could be made and that was the whole object and purpose of the scheme, not a genuine sale at arm’s length of fabrics. The only money which in reality was ever at risk was the £50,000 transferred from HBSC apparently to an overseas bank of which Mr. Patel had little knowledge. The scheme so far as the Appellant was concerned was essentially to replace the £50,000 paid to Clue-Don by about £62,000 to be recovered from the Commissioners. In addition there would be a risk free trading profit of about £7,500, assuming Casa were paid. The purchaser was provided for Mr. Patel by Mr. Clark and the sale prices were decided by Bee-Zee. That is not in our view the kind of arrangement which an honest businessman would enter into. So far as Clue-Don and its associates were concerned, they would receive £50,000 at no risk to themselves. Altogether the scheme was too good to be true and we have no doubt that Mr. Patel knew that was the case when he bought the fabrics from Clue-Don on 29 March 2007.

42.  We are satisfied that the Appellant was a knowing and willing participant in a fraudulent scheme to obtain a repayment of VAT and the appeal is accordingly dismissed.

43.  The Revenue have asked for an order as to costs. The case was allocated to the complex track by the Direction made on 29 October 2009 and we order pursuant to article 10(1)(c) of The Tribunal Procedure (First–tier Tribunal) (Tax Chamber) Rules 2009 that the Appellant pay the Revenue’s costs to be subject to detailed assessment if not agreed.

44.  This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

ELSIE GILLILAND

TRIBUNAL JUDGE

RELEASE DATE: 27 July 2010