First-tier Tribunal (Tax)

[2011] UKFTT 147 (TC)

 

 

 

 

 

TC01021

 

 

 

Appeal number:  TC/2009/15509

 

VALUE ADDED TAX – Input tax disallowed – Lack of evidence of corresponding out put tax – Same issue with regard to some of periods considered previously – No evidence consideration for supply paid six months from end of relevant period – s.26A VATA considered – Appeal dismissed

 

 

FIRST-TIER TRIBUNAL

TAX CHAMBER

 

 

ENVIROENGINEERING LTD Appellant

 

 

- and -

 

 

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (VAT) Respondents

 

 

 

TRIBUNAL:  MISS J C GORT (Judge)

 MR J G ROBINSON

 

Sitting in public in London on 12 and 13 October 2010

 

Mr W N Lewis, for the Appellant

 

Mr Sarabjit Singh of counsel, instructed by the Solicitor to Her Majesty’s Revenue and Customs, for the Respondents

 

 

© CROWN COPYRIGHT 2011

DECISION

 

1. This is an appeal against a decision of the Respondents to amend the Appellant’s value added tax returns for the period 04/07, 07/07, 01/08, 04/08, 07/08, 10/08, 01/09, 04/09 and 07/09 reducing the repayment claims in respect of transactions with companies associated with the Appellant (“EE Ltd”) to nil.  EE Ltd was notified of the Respondents’ decision in a letter dated 26 October 2009. On 17 August 2010 the Tribunal had granted EE Ltd’s application dated 12 July 2010 for its challenge to the refusal of its input tax claims for the periods 10/09, 10/10 and 04/10 to be included in this appeal.

 

2. By a Notice of Appeal dated 22 October 2009 EE Ltd sets out its case as follows:

 

(a) In each and every case HMRC has stated that in their opinion, the Appellant is not trading and if repayment of the input tax claimed was made then the Appellant would be unjustly enriched ; and

(b) HMRC is of the opinion that as the input tax emanates from invoices rendered by associated companies then their veracity is in question.

 

In respect of issue (a) EE Ltd states that at the relevant time it engaged in dealing with the liquidation of a company with a large debt owing to it and it had also been forced to issue proceedings against a former director for the recovery of some £1,000 worth of plant removed from its premises without permission. In response to issue (b), EE Ltd states that in each and every case where there has been an invoice submitted by an associated company then the associated company has shown the VAT content of the invoice as output tax and paid this to HMRC.

 

The Legislation

 

3. The Value Added Tax Act 1994 provides as follows:

 

24. Input tax and Output tax

 

(1) Subject to the following provisions of this section “input tax”, in relation to a taxable person, means the following tax, that is to say –

 

(a) VAT on the supply to him of any goods or services;

(b) VAT on the acquisition by him from another Member State of any goods; and

(c) VAT paid or payable by him on the importation of any goods from a place outside the Member States,

 

being (any place) goods or services used or to be used for the purposes of any business carried on or to be carried on by him.

 

…

 

26(A)  Disallowance of input tax where consideration not paid

 

(1) Where –

 

(a) a person has become entitled to credit for any input tax, and

(b) the consideration for the supply to which that input tax relates or any part of it, is unpaid at the end of the period of six months following the relevant date,

 

he shall be taken, as from the end of that period, not to have been entitled to credit for input tax in respect of the VAT that is referable to the unpaid consideration or part.

 

4. EE Ltd was established by Mr William Lewis (“Mr Lewis”) as a private limited company in July 1997 to take over and run a small engineering business in Monmouthshire.  At that time it had one director, Mr Speechly, and a company secretary, Mr Lewis’ daughter.  It was registered for value added tax with effect from 1 October 1997 as a steel fabrication and welding business. 

 

5. Mr Lewis is a retired engineer who is director of William N Lewis Associates, the company which issued all the disputed invoices in this case other than the invoice for period 04/10.  Mr Lewis himself was engaged through a number of companies and other businesses, in high quality engineering works, in particular in connection with pipes and pipelines.  Much of this work was delivered, directly or through head contracts, to companies outside the United Kingdom.  His companies, and later EE Ltd, were involved in a major contract with the then Hong Kong water supply company.  Dr Williams (as he then was) in a decision concerning input tax claims by EE Ltd released on 6 September 2006, (Decision No.19756) stated:

 

“It was clear from the evidence in the papers and from oral evidence that there was a history of dealings, investigations, and appeals, between some of Mr Lewis’ companies and HMRC … EE Ltd’s activities started slowly in UK domestic activities only.  But by 1999 it was involved in major supplies of equipment destined for use in Hong Kong.” 

 

Dr Williams at paragraph 10 stated:

 

“… the Tribunal finds that EE Ltd was involved directly or indirectly in the production of, and work on, equipment that was exported, and that the source of the relevant part of its income was directly or indirectly from foreign customers.

 

“The Tribunal was not informed of any value added tax issues between EE Ltd and HMRC until a ‘pre-cred’ visit on 9 May 2000 to investigate the background to claims for repayment to value added tax in respect of invoices to EE Ltd for the periods 10/99 and 01/00.  It also finds that the key reason for that visit at that time was that Mr Lewis was involved in the company.” 

 

Dr Williams at paragraph 20 recorded the Tribunal’s view that some steps taken by officers of HMRC in connection with the affairs of EE Ltd suggested a hyper critical approach to the company’s value added tax actions. At paragraph 24 Dr Williams accepted that Mr Lewis, through William N Lewis Associates had been acting on behalf of EE Ltd and other companies considered in that decision, and found that there was no “strong reason why … EE Ltd should not pay Mr Lewis through one of his companies for any work he had done.”  We echo that finding which is relevant to this appeal.  The outcome of that appeal, which concerned a series of assessments raised by HMRC against EE Ltd to reduce the level of input tax deductible from various value added tax returns, was that EE Ltd succeeded in some of the appeals and not in others. 

 

6. In a subsequent appeal involving EE Ltd (TC 00117) and the other companies controlled by Mr Lewis, including William N Lewis Associates, heard by Judge Williams (as he became) in March 2009, some of the same tax periods were involved and various findings about EE Ltd were made by Judge Williams.  In particular at paragraph 27 he found: “EE Ltd is … a deadlock company in the joint control of ME Ltd [Maywood Estates Ltd], itself a deadlock company in the joint control of Mrs Lewis and APS Ltd (a company controlled by Mr Lewis).  It is directed by Mr Lewis and by a controlled subsidiary of APS Ltd.”

 

7. One of the two relevant appeals dealt with by Judge Williams is appeal TC00117.  That appeal is stated at paragraph 57 to be in respect of HMRC’s decision to withhold repayment of VAT for the tax period 4/07 in the sum of £927.50.  EE Ltd’s appeal against that assessment was dismissed by Judge Williams for reasons given at paragraph 107 of the decision, namely that “the evidence put to the tribunal simply does not establish that EE Ltd paid its invoice within the time limit imposed by section 26A or at all.  Indeed it is Mr Lewis’ own evidence that shows that the time limit was not met.  That is sufficient to decide the appeal.”  The appeal in the present case concerns two sums of £315 and £612.50, which total £927.50, in respect of reclaimed input tax by EE Ltd in respect of invoices issued by William N Lewis Associates in February 2007 and March 2007.  This amount was reclaimed in the period 04/07 and in our view the two amounts now being claimed in this appeal are the same as those that were made in the earlier hearing and which were rejected by Dr Williams, and, having heard no further evidence that those sums were paid by EEC, therefore, we also reject the appeal in respect of period 04/07. 

 

8. With regard to the claim for the period 01/08, EE Ltd relied on the same invoice as was produced in the hearing before Judge Williams which was dismissed by the tribunal in its decision of 3 July 2009.  EE Ltd’s appeal against that decision having been dismissed, it is not open to it without more, to appeal the very same input tax claim in this appeal.   Mr Lewis accepted that this was the case, and, in the course of the hearing withdrew the appeal in respect of period 01/08.

 

9. We heard evidence from Mr Ross White, an officer of HMRC, and also from Mr Lewis.  Mr Lewis, on behalf of EE Ltd based his appeal broadly on the issue of whether or not EE Ltd was trading or not at the relevant time.  Mr Lewis’ evidence was that EE Ltd retained a large amount of equipment in two 40ft containers on premises at Trellech Grange in Wales and it also had an office in Monmouth.  An amount of equipment which belonged to EE Ltd had in the past been taken by a Mr Speechly of Enviropower, a former colleague of Mr Lewis.  Some of that equipment was forty years old.  Mr Lewis put a value on it of £76,000 new, £30,000 used, but he had accepted £10,000 from Mr Speechly for it because he believed he would never get the equipment back.  The circumstances of this acceptance were that there had been an earlier arbitration between EE Ltd and Enviropower Ltd, also involving a company called APS Centriline (another company associated with Mr Lewis) which was adjourned and at which it was agreed that Enviropower would pay EE Ltd £10,000.  This money was never paid over and so that hearing was resumed, but as EE Ltd could not afford to pursue the matter, it had reluctantly accepted a proposal by Enviropower that Enviropower paid £10,000 to EE Ltd for the equipment which it had retained.  An invoice dated 21 November 2009 from EE Ltd to Enviropower in the sum of £10,000 showed VAT charged at 15% in the sum of £1,500. That invoice related to the purchase by Enviropower (CHP) Ltd (“Environpower”) of goods owned by EE Ltd which Enviropower had unlawfully retained but which Environpower agreed to purchase for £10,000 in the course of the case referred to above which EE Ltd commenced against them.  The sum of £1,500 had been claimed by EE Ltd in respect of period 04/10. Mr Lewis produced an itemised list of the goods the subject of the invoice.  Unfortunately, despite the issuing of the decision being delayed to give him time to produce the relevant documentation concerning the nature and terms of any court settlement(s) that there had been, no such document has been produced and we therefore have decided that we must determine this appeal without more.  Whilst we find Mr Lewis a credible witness and accept that the sum of £10,000 was agreed to be paid to EE Ltd by Enviropower, we have seen no document to show that the VAT of £1,500 was either paid to EE Ltd or accounted for by EE to HMRC.  We heard evidence from Mr Ross White of the Commissioners that, because the invoice produced by Mr Lewis from EE Ltd to Enviropower showed payment of VAT at £1,500 due from Enviropower to EE Ltd, and because that sum had not been handed over to HMRC by EE Ltd, he had deducted from EE Ltd’s claim for input tax for the relevant period, 04/10, the sums of £350, £103.10 and £150, which appeared in invoices submitted by William & Lewis Associates for the period 04/10, 07/09 and 04/09.

 

10. The other major activity of EE since 2006 has been an attempt to recover £485,000 worth of equipment from Hong Kong.  That equipment had been built by EE Ltd pursuant to a contract made with a company called Centriline Asia Ltd a company formed by a joint venture public company in Hong Kong and APS Centriline (see above) which hired the equipment from EE Ltd.  The equipment had been shipped to Hong Kong in 2000 and the contract finished in 2002, at which time it was seized by the liquidator in Hong Kong.  EE Ltd retained William N Lewis Associates to recover money and property from both Enviropower and from Centriline Asia Ltd.  The liquidator in Hong Kong had only released the equipment to EE Ltd in 2006 but it remained in Hong Kong.  Another company associated with Mr Lewis, PSIE, had bought about £40,000 worth of equipment in Hong Kong, such as fork lift trucks, which was also hired by Centriline and had been on site and had also been seized by the liquidator. That equipment too was stored in the new territories in Hong Kong and photographs of it had been shown to Mr White.  The majority of the equipment would not deteriorate and Mr Lewis still hopes to recover it although EE Ltd itself could not at present afford to seek business, and intended deregistering for VAT.

 

11. Under cross-examination Mr Lewis was taken to a bank statement of EE Ltd of 5 November 2009 which showed sums of money passing from EE Ltd to Mr Lewis’ own personal account and the same sums going back to EE Ltd.  These sums were described by Mr Lewis as being an investment in EE Ltd.

 

12. In his evidence Mr White accepted that he had not visited either the Monmouth office or the store at Trellech Grange.  However he had seen some damaged drawings of the equipment but he believed it to be worthless. 

 

13. A feature common to all the appeals connected with Mr Lewis that we have seen is that the evidence provided by both sides has been confusing.  For example, in the case of Pipeline Inc Services Ltd (“PSI”) and Amalgamated Pipeline Inc Services Ltd (“APS”) (two companies, the former of which Mr Lewis had been a director until 1998, and the latter was a company effectively under his control) (VAT Decision 17733) the tribunal at paragraph 137 said:

 

“We have found this is a very difficult case to deal with because the Respondents have produced lengthy witness statement and letters, without specifying in the witness statement the documents referred to. The evidence was extremely muddled and confusing at all times.” 

 

In the present case we were given two very large bundles of documents and at no stage were taken through the various documents and it has been very unclear to us just which are the relevant purchase orders, invoices or documents pertaining to which period.  Similar difficulties appeared to have confronted Judge Williams in case TC00117. 

 

14. In an earlier case involving EE Ltd (VAT Decision 19756), also heard by Dr Williams, also concerned, in part, a series of assessments against EE Ltd in respect of the level of input tax deductible from various VAT returns.  At paragraph 10 of that case the tribunal found that:

“One of the issues under appeal is whether EE Ltd was itself the exporter of specific equipment produced in connection with these contracts or was a British sub-contractor to the exporters.  More generally, the tribunal finds EE Ltd was involved directly or indirectly in the production of, and work on, equipment that was exported, and that the source of the relevant part of its income was directly or indirectly from foreign customers”.

 

Despite that finding, on 6 September 2006, which related to returns made by EE Ltd in 1998, 1999 and 2000, the issue of whether or not EE Ltd was engaged in economic activity was also raised before the tribunal in appeal No. TC00117, but because the appeal of EE Ltd (in relation to period 01/08) was dismissed on the basis that there was no evidence to show that EE Ltd paid the relevant invoice within the time limit imposed by section 26A of the VATA 1994, the tribunal did not make any finding of whether or not at the relevant time EE Ltd was still in the course or furtherance of business.

 

15. In the Statement of Case the issues raised by the Commissioners in the present appeal were that the VAT claimed as input tax did not relate to any ongoing economic or trading activity, that the amount claimed was not incurred on supplies made in the course or furtherance of any economic activity and that repayment would amount to unjust enrichment of EE Ltd.  Before us the Commissioners relied principally on the issue of res judicata in respect of periods 04/07 and 01/08, and the same argument which had succeeded before Judge Williams in TC/00117,  namely that EE Ltd had not complied with the time limit in s.26A of the Value Added Tax Act, in respect of all the other periods under appeal.  Mr Singh also submitted that the supplies claimed to be made by EE Ltd were ones which Mr Lewis had previously indicated had been made to PSIE Ltd (another company associated with Mr Lewis).  Mr Singh further submitted that EE Ltd would need to show that it had paid for the supplies in question in order to satisfy section 26A of the VAT Act.

 

Reasons for decision

 

16. We have been greatly hampered in this case by not having been taken to the relevant documents by either party in any great detail.  We accept the Commissioners’ argument with regard to periods 04/07 and 01/08, namely that these periods cannot be revisited by this Tribunal having been decided by Dr Williams in case TC/001117.  With regard to the period 04/10, the invoice produced to us clearly shows VAT of £1,500 been charged by EnviroEngineering Ltd to Enviropower.  We have seen no documentation other than that relating to the matter, and on the face of it EE Ltd clearly owes the Commissioners £1,500.  We therefore accept that Mr White was correct to deduct the sums of money of £350, £103.10 and £150 from the input claims made by EE Ltd in earlier periods namely 04/09 and 07/09.  In respect of all the other periods under appeal, we have simply not been taken to any documents which show us that EE Ltd paid the sums claimed within six months of the issuing of the invoice as is required by section 26A(1) of the VAT Act.  The bank statements produced show that EE Ltd paid money out to Mr Lewis, however the same amounts precisely came back from Mr Lewis to EE Ltd and therefore we do not consider that these sums are properly to be regarded as payment for the particular services claimed on the invoices supplied by William N Lewis Associates.  The money goes to Mr Lewis’ personal account, not to the company. 

 

17. Having decided this appeal as above, it is not necessary for us to determine the matter of whether or not EE Ltd was trading at the time of the various input tax claims.  However we would say that having been referred to Tolley on VAT 2010-2011, where at paragraph 8.1 it deals with the relevant business tests developed by the courts, we are inclined to think that, had EE Ltd produced the proper documentation relevant to the appropriate time, we would have been inclined to find that it was acting in the course of business on the basis of paragraph (d) set out in Tolley as follows:

 

“Anything done in connection with determination or intended determination of a business is treated as being done in the course or furtherance of that business.”

 

They also take note of paragraph (e) in the same section which state that:

 

“The disposition of a business (or, with effect from 1 September 2007, part of a business) as a going concern, or of the assets or liabilities of a business or part of the business (whether or not in connection with its reorganisation or winding up) is a supply made in the course or furtherance of the business.”

 

18. This appeal is dismissed.

 

19. 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.

 

 

 

 

MISS J C GORT

TRIBUNAL JUDGE

RELEASE DATE: 28 February 2011