First-tier Tribunal (Tax)

[2011] UKFTT 352 (TC)

TC01212

Appeal number TC/2010/03778

VALUE ADDED TAX – Application for permission to appeal out of time – Applicant not aware of the decisions sought to be appealed until over a year after they were made – Applicant going into liquidation - further delay caused by insufficiency of funds to appeal – further delay caused by the Applicant’s director’s reluctance to assist the liquidator in the prosecution of the appeal – HMRC accepting that the Applicant had a prima facie case – whether refusal to extend time would cause the Applicant measurable loss – yes – whether an extension of time to appeal would cause prejudice to HMRC in terms of the public interest in good administration and legal certainty – yes – whether Applicant to blame for the delay – yes, in respect of the last 21 months of the period of delay – balancing exercise undertaken in relation to the Tribunal’s exercise of its power to extend time – In the result time not extended and the Application refused and the Appeal struck out

FIRST-TIER TRIBUNAL

TAX CHAMBER

CORPORATE SYNERGY INTERNATIONAL (In Liquidation) Applicant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (Value Added Tax) Respondents

TRIBUNAL: JOHN WALTERS QC

Sitting in public in London on 14 January and 8 February 2011

James Rickards, Counsel, instructed by The Khan Partnership, for the Appellant

Jamie Sharma, Counsel, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.     Corporate Synergy International Limited, now in liquidation, (“the Applicant”) lodged a Notice of Appeal dated 29 March 2010 against decisions dated 12 December 2006 by which the Respondent Commissioners (“HMRC”), by Officer Mrs. J. Gayler, refused to pay claims for repayment of input tax in respect of VAT periods 01/06 (£1,671,801.25) and 02/06 (£1,859,480.00) on the ground that no original evidence had been provided to support the zero-rating of goods (entirely consisting of mobile phones) said to have been sold to EC customers.

2.     The latest time by which the appeal ought to have been made was 9 January 2007.  Accordingly the Notice of Appeal was lodged over 3 years out of time.  The Applicant applied for the necessary extension of time to bring the appeal and, by a Notice of Objection dated 17 June 2010, HMRC objected to the application.  The matter came before Judge Gort on 22 July 2010 and was adjourned by her.  It came before me afresh on 14 January 2011 (Judge Gort not being available).  After a hearing I adjourned the matter to enable oral evidence from Mr. Matthew Skelton to be received.  The adjourned hearing took place on 8 February 2011, when I reserved my decision.

Facts

3.      Two bundles of documents, respectively provided by the Applicant and HMRC, were before me.  I also received two witness statements from each of Matthew Skelton and Stephen Grant, and one witness statement from Andrew Dunn. I record the relevant evidence, which I accept except to the extent appearing in the part of this Decision headed “Discussion and Decision” below.

4.     The decision letters dated 12 December 2006 were addressed to (and posted to) the Applicant at its address at Samman House, Bowlalley Lane, Hull. Mr. Skelton’s evidence was that the Applicant never received these letters and had no knowledge of HMRC’s decision to refuse to pay the claims for repayment of input tax until they were exhibited to John Bradshaw’s witness statement dated 3 June 2008.  This witness statement was made by Mr. Bradshaw, an associate solicitor in the firm of Howes Pecival LLP, on behalf of HMRC, in proceedings in the High Court (Companies Court) brought by the present Applicant and Hassan Khan & Co. (then a creditor of the present Applicant and now, as The Khan Partnership, solicitors acting for the Applicant) for an order to rescind the Winding-Up Order made against the present Applicant on 30 April 2008 (“the Rescission Proceedings”).

5.      The Winding-Up Order had been made on the uncontested petition of HMRC.  The petition debt was some £6,600 relating to unpaid VAT including penalties and surcharges, liability for which was not admitted by the Applicant.

6.     In the Rescission Proceedings the Applicant submitted that its only asset was the input tax repayment claims in relation to which it seeks to appeal to the Tribunal.  Mr. Skelton in the Rescission Proceedings gave evidence in his first Witness Statement in those proceedings that the Appellant’s claim for repayment of input tax (valued at approximately £6m. and including the £3.5m in issue in this application – the balance of £2.5m related to the period 03/06) remained unpaid and was, according to HMRC, subject to extended verification.  He said that a decision as to whether the reclaim would be allowed or disallowed was expected “in the near future”.  The date of Mr. Skelton’s first witness statement in the Rescission Proceedings was 7 May 2008.  In Mr. Skelton’s second witness statement in the Rescission Proceedings, dated 3 June 2008, he confirmed this evidence and added:

“Until HMRC issue a decision to disallow the claim for input tax it is an asset of the Company.  In the event that HMRC do disallow the input tax the Company intend to appeal the decision to the VAT & Duties Tribunal using third party funding.”

7.     Mr. Bradshaw, in his witness statement in the Rescission Proceedings, also dated 3 June 2008, referred to the decision letters dated 12 December 2006 having been sent to the Applicant at the Samman House address.  Mr. Bradshaw stated that the Applicant had not challenged the decisions and also that he was instructed that HMRC had received no request for a repayment of input VAT for period 03/06.  He said there was no extended verification process in relation to the repayment claims for 01/06 and 02/06.

8.     In response, in his third witness statement in the Rescission Proceedings, Mr. Skelton stated that the Applicant company had never received the decision letters dated 12 December 2006.  He went on:

“I assure the Court that the issues and amounts involved are so serious that the Company would never have ignored the decisions.  I find it incredible that HMRC sent such important letters by post only rather than registered post or special delivery.  They often correspond by fax and so I would have thought that such important letters could have also been sent by fax.

Had the letters been received the Company would have lodged an appeal against the decisions with the VAT & Duties Tribunal on the basis that there has always been evidence to support the reclaims and HMRC ought not to have denied them.

I attach … a draft Notice of Appeal to the Tribunal.  The appeal will be issued by the Company if this Court rescinds the winding-up order.”

9.     Mr. Skeleton attached to his third Witness Statement in the Rescission Proceedings about 350 pages of copy documents which he said supported the Applicant’s claim for repayment of input tax.

10.  He also stated:

“The Court will appreciate that during spring and summer 2006 almost every trader in the mobile phone and computer chip industry had their returns subject to ‘extended verification’.  As such, and because I knew that the January 2006 and February 2006 returns had not been paid, I was not surprised when the March 2006 return did not get repaid on time.  I believed it was subject to extended verification.”

11.   On 23 October 2008 the application for rescission of the Winding-Up Order was withdrawn and a Consent Order made.  On 19 December 2008 Mr. Stephen Grant of Messrs. Wilkins Kennedy was appointed as liquidator of the Applicant company, in place of the Official Receiver.

12.  In support of Mr. Skelton’s evidence that he thought, until June 2008, that the Applicant company’s claims for repayment of input tax in relation to the VAT periods 01/06 and 02/06 had not been refused and were still subject to extended verification, I was referred to a fax dated 6 August 2007 sent by Mr. Skelton to HMRC’s Debt Management Unit in which he stated that the Applicant company was awaiting ‘an assessment of outstanding VAT repayments, now subject to extended verification by HMRC’ and that the Applicant  was not actively transacting business.

13.  Mr. Skelton also said that the Applicant had received letters from HMRC dated 29 May 2007 and 8 August 2007 which in terms suggested (if they did not state) that the Appellant had VAT repayment claims which were still under consideration or being verified.  Mr. Bradshaw exhibited in his evidence in the Rescission Proceedings an attendance note recording a telephone conversation between himself and Mr. Skelton on 6 February 2008.  In it he stated:

“Mr. Skelton saying that the company was owed millions of pounds in the way of VAT reclaims over the past two years.  He said he had spoken to Customs & Revenue about this and was awaiting a response. [Mr. Bradshaw] asking whether verification had been requested in writing and Mr. Skelton confirmed that he had put it in writing and had been speaking to Mrs. Dickers at HMRC. …”

14.  Mr. Bradshaw asked Mr. Skelton to forward “paperwork”.  However this was apparently not forthcoming (although there is a suggestion in the papers that Mr. Skelton asserted that he had sent it on 18 February 2008 – although this letter may only have contained the Applicant company’s solicitor’s details). Mr. Bradshaw wrote to Mr. Skelton (as Director of the Applicant company) on 13 March 2008.  His letter included the following statement:

“In addition, our clients [HMRC] inform us that there are no sums owed to the Company and have confirmed that the Company was informed that the input tax claims were being reduced to Nil by letters dated 12 December 2006.”

15.  Mr. Skelton appears not to have appreciated the importance of the above statement, because on 18 March 2008 he spoke on the telephone to Mr. Bradshaw, who recorded him as saying:

“Mr. Skelton said that the company was owed approximately £6 million by HMRC and this has near enough cleaned him out.”

16.  Following the withdrawal of the application for rescission of the Winding-Up Order on 23 October 2008 and the appointment of Mr. Grant as liquidator in December 2008, The Khan Partnership LLP (solicitors) was appointed by the liquidator. 

17.  The evidence of Mr. Dunn of The Khan Partnership, given in his witness statement in these proceedings before the Tribunal, was that as early as September to December 2008 he discussed with Mr. Grant the possibility of the Applicant being included as one of the four cases for the litigation funding package which The Khan Partnership was negotiating.  The main creditor of the Applicant, Associated Investments Limited, was agreeable to this proposal.  The litigation funding package was agreed and the first tranche of funds with which to pursue the cases (of which the Applicant’s appeal was one) was made available in January 2009.  Those funds were/are to be used for Tribunal proceedings and are not for the benefit of the liquidator or for use in Insolvency Act proceedings.

18.  Mr. Dunn states that once funding was secured it was necessary for the liquidator and The Khan Partnership to secure the assistance of Mr. Skelton for the benefit of the appeal and that it took until March 2010 to achieve this.

19.  Mr. Dunn states that he ‘spent approximately one year chasing Mr. Skelton, at first with weekly calls and emails, and later, less frequently but with the assistance of one of the creditors’.  Mr. Skelton said in cross-examination that he was aware that Mr. Dunn was trying to contact him and that ‘if I have any regrets it would be in relation to some of that time’.

20.  Mr. Skelton said in cross-examination that Mr. Dunn had never made him to understand that he was endangering the appeal by his reluctance to cooperate.  He thought that since the Applicant was at that time in liquidation, the liquidator ‘was in charge’.  Mr. Skelton said in cross-examination that ‘I left it too much in the hands of the liquidator’, but he pointed out that the liquidator had the original ‘deal documents’.

21.  In March 2010, Mr. Dunn met Mr. Skelton in Beverley, East Yorkshire.  Mr. Skelton told Mr. Dunn that the reason he had been reticent to help was because he was sensitive about becoming involved in litigation against HMRC because he perceived that it had the potential to affect his other business ventures.  However, in the end, Mr. Dunn states that Mr. Skelton agreed to provide all reasonable assistance and the appeal was lodged ‘without delay’ – on 29 March 2010.

22.  Mr. Grant’s evidence is that he supports the application and the potential appeal because the VAT claim is the only real asset of the Applicant and the potential appeal represents the only chance he has, as liquidator on behalf of the creditors, to recover anything from the Applicant’s insolvency.

23.  Mr. Grant lists the Applicant’s creditors as at the date of the Liquidator’s Report to Creditors (22 July 2010) as follows:

Associated Investments Limited £680,477.59

HMRC – corporation tax £129,704.10

HMRC – petition debt £6,611.81

The Khan Partnership LLP £29,328.72

MSG Freight Ltd. (in liquidation) £8,377.83

Total £854,500.05

24.  Mr. Skelton made a witness statement in these proceedings on 13 January 2011 ‘to support the fact that the goods which are the subject of the VAT claim were exported’.  In that witness statement he said that there were two main reasons for the delay in lodging an appeal from June 2008 to March 2010.  These were the delay in obtaining funding for an appeal and Mr. Skelton’s own ‘initial’ reluctance to support the claim ‘as I was conscious that it might prejudice my other business interests if I am seen to be litigating with HMRC’. He refers to the Applicant’s ‘deal documents’ which he says evidence the claim for input tax and that the goods were genuinely exported.  The deals were all ‘back-to-back’ involving a purchase by the Applicant and an immediate sale-on to its customer. The ‘deal documents’ include purchase orders raised by the Applicant to its supplier, invoices raised by the supplier to the Applicant, purchase orders raised by the Applicant’s customer to the Applicant and invoices raised by the Applicant to its customer.  There are also insurance documents, inspection documents, international consignment notes, freight invoices and receipts for transportation of the goods.

25.  Mr. Skelton made a second Witness Statement in these proceedings on 7 February 2011, following the adjournment on 14 January 2011, to explain ‘what I understand to be the historical movement of’ the ‘deal documents’ and to give ‘a fuller account of the reasoning behind my reluctance to become involved in the claim’. He said that when he filed the VAT returns for the periods 01/06 and 02/06 he provided copies of the ‘deal documents’ to HMRC. A further copy of the ‘deal documents’ was provided to HMRC during the Rescission Proceedings (as an exhibit to Mr. Skelton’s third witness statement). 

26.  Mr. Skelton explained in his witness statement made on 7 February 2011 that he attended the office of Mr. Craig Millar of the Insolvency Service (at Mr. Millar’s request) on 12 March 2009 and left the original ‘deal documentation’ with Mr. Millar.  He was subsequently advised that the original ‘deal documentation’ was passed to the liquidator (Mr. Grant) and placed in archive.  It had only recently (in January 2011) been ‘unearthed’ from the liquidator’s archive and made available to HMRC and the Tribunal.

27.  Following receipt of the original ‘deal documents’ before the hearing on 14 January 2011, HMRC was able to examine them and Mr. Sharma informed me at the adjourned hearing on 8 February 2011 that HMRC accepted that they established a prima facie case that the goods had been exported.

28.  Mr. Skelton also explained in his witness statement made on 7 February 2011 that the interview with Mr. Millar on 12 March 2009 had lasted approximately 4 hours and  had been under caution.  He said that it was made clear to him by Mr. Millar that if he (Mr. Skelton) were to pursue the claim he would be investigated and would run the risk of being struck off as a director.  Mr. Skelton was concerned that action might be taken against him personally and that his assets might be frozen, which would have been a commercial disaster for him.  He said he was ‘genuinely intimidated and came away from the experience very concerned’. He acknowledged that he could have supported the claim earlier and that his inaction has caused some delay.  He said that his inaction was ‘due to concerns which were in my mind as a result of the interview with Mr. Millar’.

29.  While not saying that Mr. Millar had been ‘a threat’, Mr. Skelton said that he had been direct but courteous.  He had made it clear in language that Mr. Skelton understood that HMRC would use all its resources if Mr. Skelton pursued a claim. 

30.  Mr. Skelton made the point that denying the Applicant permission to appeal at this stage ‘shall only serve to punish the creditors of the Company and they should not be prejudiced for the inaction of the Company’.

31.  Mr. Skelton said that the Applicant had been formed in 1995 and had originally traded as a provider of supply chain consultancy services to the motor industry.  Mr. Skelton had worked for the Applicant at this time for a short time, leaving in about 1996 for other work.  He had however been appointed or reappointed as a director of the Applicant in 2002 when it was a dormant company and he decided to take it into the grey and electrical goods wholesaling market, which he was aware was a growing sector. From that time he was in sole and complete control of the Applicant’s trading. The Applicant undertook back-to-back transactions, had (from 2006) a bank account with FCIB, and purchased in the UK goods in the same quantities as it immediately despatched to other EU member states.

32.   Mr. Skelton said that he was aware in 2006 of a serious problem with fraud in the sector and that one of the ways which he had mitigated the risk of the Applicant being involved in such fraud was by operating due diligence and exchanging information with customers and suppliers.  He complained that HMRC had not given specific guidance when he asked for it but had said in effect that he should be ‘very careful’.  He said that he had never himself come across anyone who he knew was involved in fraudulent activity.

33.  He did not chase HMRC after 2006 for the repayments of VAT in issue in the appeal because he thought that the process of ‘extended verification’ was taking its course and that he would be advised by HMRC of the result in due course.  As he said in his third witness statement in the Rescission Proceedings:

“For my part, I had to, and did, find other business interests after the Company cease trading in order to make a living.”

34.   In answer to the suggestion that in adopting such a passive attitude he was not fulfilling his responsibilities as a director of the Appellant, Mr. Skelton said that he trusted HMRC as a government department to do its work as efficiently as possible and that there was, anyway, no risk to the Applicant associated with the delay because it has ceased trading (after March 2006) and was not incurring any other liabilities.  He did, however, accept that:

“I placed my other interests ahead of [the Applicant’s] for that period of time.  But I did not appreciate I was putting the process in jeopardy.”

35.   Against this, I record that in his third Witness Statement in the Rescission Proceedings (at paragraph 12), which was made on 24 June 2008, Mr. Skelton had said:

“I am advised by my solicitors that The Value Added Tax Tribunal Rules 1986 provide that an appeal against a decision of HMRC must be made within 30 days of the date of the disputed decision (rule 4(1)).  Clearly this is not possible in this case.  However, I am also advised by my solicitors that HMRC may agree to the time being extended (rule 4(2)). In any event, I am advised by my solicitors that the tribunal may extend the time limit for any appeal (rule 19(1) generally; see also ‘Part B iii’ of the draft Notice of Appeal.  I would have thought that the Tribunal will be receptive to a request for permission to appeal out of time on the basis that the Company has not received the letters dated 12 December 2006.”

36.  Clearly, therefore, Mr. Skelton was aware, at least as early as 24 June 2008, that the Applicant faced the task of persuading HMRC or the Tribunal to extend time for appealing in a matter where the Applicant was already about 18 months out of time.

The Tribunal’s discretion to extend time for appealing

37.   The Tribunal’s discretion to extend time for appealing is contained in the power granted by rule 5(3)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Rules”)  and is to be exercised subject to the overriding objective of the Rules, contained in rule 2, which relevantly provides that in exercising any power under the Rules the Tribunal must seek to give effect to the objective of dealing with cases fairly and justly, including avoiding delay, so far as compatible with proper consideration of the issues.

38.  The considerations to be taken into account in exercising this discretion have been relatively recently reviewed in three decisions of this Tribunal, in Indigo Global Trading Ltd. v HMRC (Judge Perez, release date: 8 March 2010), Lighthouse Technologies Limited v HMRC (Judge Berner) TC00656, release date 11 August 2010, and Former North Wiltshire District Council v HMRC (myself) TC00714, release date 22 September 2010.

39.  I find no significant inconsistencies of approach in these three decisions and conclude that the crucial balancing exercise which I must carry out in order to exercise the Tribunal’s discretion in a fair and just disposal of this application is between, on the one hand, my assessment of the Appellant’s culpability in delaying to lodge its Notice of Appeal and the prejudice to HMRC in terms of the public interest in good administration and legal certainty, and, on the other hand, the loss and injury which would be suffered to the Applicant if an extension of time is refused.  I consider that the criteria in CPR 3.9(1), which are relevant to this case, are effectively addressed in this balancing exercise (see: Former North Wiltshire District Council, supra at [68]).

Discussion and Decision

40.  I look, first, at the loss and injury which would be suffered to the Applicant if an extension of time is refused.  HMRC have accepted that the Appellant has established, by the production of the original ‘deal documents’, a prima facie case that the goods in question had been exported. The amount of tax involved is substantial.  HMRC conceded before me that the interests of the Applicant’s creditors can be taken into account, although they qualify this concession (in what way I am not sure) where the case is one where a claim for misfeasance might be made against a director of the company.  In all the circumstances I recognise that if the appeal were to go ahead, there would be prospects of success of measurable value – if that were not so, I imagine that no litigation funding package would have been agreed in relation to the appeal.  Therefore, I accept that if I refuse an extension of time the Applicant will suffer measurable loss and injury.

41.  On the other side of the balance I consider, first, the Appellant’s culpability in delaying to lodge its Notice of Appeal. The appeal ought to have been brought on or before 9 January 2007.  The Notice of Appeal was in fact lodged on 29 March 2010.  The first period of this delay, from January 2007 to June 2008 is explained by Mr. Rickards for the Applicant as caused by Mr. Skelton’s ignorance of HMRC’s decisions to refuse to repay the claimed input tax.  The second period of this delay, from June 2008 to January 2009 is explained by Mr. Rickards as caused by the liquidator not having the funds to take the necessary advice, and to bring and fight the appeal. The third period of this delay, from January 2009 to March 2010 is explained by Mr. Rickards as having been caused by Mr. Skelton’s reluctance to assist the Applicant in an appeal.

42.  Taking the period from January 2007 to June 2008 first, although Mr. Sharma, for HMRC, submitted that it was incredible that the decision letters sent to Samman House had not been received, this point was not put, at any rate with any persistence, to Mr. Skelton in evidence.  I  accept that the Applicant’s fax dated 6 August 2007 and HMRC’s correspondence dated 29 May 2007 (mentioning that the Applicant had ‘VAT repayments that are or have been subject to in-depth verification’) and 8 August 2007 (when apparently HMRC had confirmed that ‘winding-up action [had] been discontinued pending the outcome of the assessment of the Company’s VAT repayment claims’ – see: paragraph 29 of Mr. Skelton’s second Witness Statement in the Rescission Proceedings) establish on the balance of probabilities that Mr. Skelton had not seen the decision letters dated 12 December 2006 and that he was unaware of the decision to refuse repayment until receipt of Mr. Bradshaw’s letter of 13 March 2008 (see: paragraph 14 above).  I reach this conclusion despite the fact that the Applicant and Mr. Skelton had not in the interim been corresponding with HMRC with details of the due diligence undertaken, which would have been consistent with an extended verification process being ongoing in that period.

43.  I find, therefore, that Mr. Skelton, and through him the Applicant, was aware of the decisions in March 2008 and that, in relation to the delay up until that time, the Applicant is not to be blamed for the delay in lodging an appeal.

44.  The second period of delay, to January 2009 cannot in my view be justified by there having been no funds available to the liquidator to take advice, launch an appeal and be in a position to fight it.  As Judge Berner decided in Lighthouse Technologies Limited (at [20(1)]) insufficiency of financial resources to fund legal representation cannot be a valid reason for failing to appeal on time.  The procedure of lodging an appeal with the Tribunal is designedly a simple procedure in view of the Tribunal’s function of being a forum open to all, whether or not legally represented.  Mr. Rickards argued on this point that it was important to recognise that the liquidator reasonably required to be advised before launching an appeal, and also that an appeal launched before the Applicant was in a financial position to fight it risked being struck out for want of prosecution on HMRC’s application.  I reject these arguments – the importance of adhering to the applicable time-limits cannot be side-stepped by reference to them.  An appeal, once launched, could easily have been withdrawn if the liquidator had subsequently received advice that he ought not to pursue it.  Similarly, an inability for financial reasons to prosecute an appeal, once launched, could, in combination with acceptable evidence that finance was likely to be forthcoming, have been pleaded as a defence to any strike-out application, and that would have been the proper occasion to take the point.  The Tribunal is entirely capable of recognising a proper case to allow extended time for the preparation of an appeal where it is seized of jurisdiction by reference to a Notice of Appeal lodged in time.

45.  The third period of delay, from January 2009 to March 2010 cannot be justified by Mr. Skelton’s reluctance in that period to assist the Applicant in an appeal.  First of all, Mr. Skelton ought to have been giving more priority to the Applicant’s affairs – in particular, the crucial importance of lodging an already out of time appeal as quickly as possible. He accepted in cross-examination that he ‘left it too much in the hands of the liquidator’ and that he ‘was seeking clarification of the impact [of a prospective appeal] on my career and other matters’.  As Mr. Sharma, for HMRC, submitted, the evidence is clear that in this period, instead of pursuing the appeal, Mr. Skelton took the decision to pursue other business interests.  The consequence of this is that the Applicant must be regarded as responsible for this period of over 15 months’ delay.

46.  Mr. Skelton’s apprehension about the consequences of assisting an appeal, which he said derived from his meeting with Mr. Millar on 12 March 2009 cannot affect the matter.  I criticise Mr. Skelton for not mentioning this matter in any evidence before the witness statement sworn in these proceedings on 7 February 2011.  The intended appeal is the Applicant’s and the late service of its Notice of Appeal cannot be justified by an apprehension, held by Mr. Skelton, of personal disadvantage if the appeal were to be pursued.

47.  In the result, I find that the Appellant was not to blame for the delay in bringing the appeal in respect of the period between January 2007 and March 2008, but that it was to blame for the delay in respect of the period between March 2008 and March 2010.

48.  I now consider, secondly, the prejudice to HMRC in terms of the public interest in good administration and legal certainty, which would flow from a decision to allow an extension of time to enable the Applicant to bring the appeal.

49.  The position is that the decisions were to refuse to meet the input tax repayment claims because the Applicant ‘had failed to provide any original evidence to support the zero rating of goods said to have been sold to EC customers’ and that the decisions ‘will be reviewed immediately once the required documentation has been provided’.

50.  The original documentation was not provided to HMRC until January 2011.  Mr. Sharma told me that HMRC then reviewed the documentation and reached the view that it afforded a prima facie case for a repayment of input tax, but he stressed that Officer Gayler’s decisions of December 2006 had not been reviewed.  Review of the decisions would have required not only review of the documentation to determine whether they established a prima facie case for repayment of input tax, particularly having regard to the evidence of whether the goods had been exported at all, but also the wider investigation into the entitlement of the Appellant to repayment which HMRC would have undertaken if the original documentation had been provided in response to the letters of 12 December 2006.  In particular, review of the decisions would have required the determination by HMRC of whether it ought to subject the Applicant’s claims for repayment of input tax to extended verification or not, and, if so, a review would have required such extended verification to be undertaken.  Extended verification is an exercise to trace the Applicant’s purchases of goods back through the chain of supply to establish whether, and if so in what circumstances, the chain included a fraudulent loss of VAT.  Mr. Sharma submitted that the evidence of the Applicant’s business, including the fact that it undertook back-to-back transactions, had a bank account with FCIB, and purchased in the UK goods in the same quantities as it immediately despatched to other EU member states, would have required HMRC to consider seriously whether or not to subject the Applicant’s claim to extended verification.  Mr. Sharma submits, and I accept, that HMRC would find it far harder to undertake an extended verification exercise into the Applicant’s purchases as a result of the disclosure of documentation in 2011, than it would have done if the documentation had been disclosed in 2006 or early 2007 and that this factor is relevant when I consider the implications in terms of legal certainty of allowing an extension of time to appeal.

51.   Mr. Rickards submitted that HMRC was, or ought to have been, aware that the Applicant was always intending to litigate any decision to deny repayment of its input tax claims, stressing that this had been made clear in the evidence in the Rescission Proceedings.  I accept that, but point out that from mid-2008 onwards the Applicant’s failure to bring the appeal that had been foreshadowed in the Rescission Proceedings would have justified HMRC in concluding that, after all, there would be no attempt to bring an appeal out of time.  I refer again to paragraph 12 of Mr. Skelton’s third Witness Statement in the Rescission Proceedings in which he acknowledged that any appeal would be out of time and that HMRC, or the Tribunal, would have to agree to an extension of time for appealing.

52.  I conclude therefore that the requirement for legal certainty (and the public interest in good administration which requires HMRC to be able to ‘close its books’ – R. (oao Cook) v General Commissioners of Income Tax [2009] EWHC 590 (Admin)) would not be respected if I were to extend time for appealing beyond mid-2008 at the latest.

53.  I balance my conclusions on the Applicant’s culpability for the delay in lodging the Notice of Appeal and the prejudice to HMRC in terms of the public interest in good administration and legal certainty, which would flow from a decision to allow an extension of time to enable the Applicant to bring the appeal, against the measurable loss and injury which I accept would be suffered by the Applicant from a refusal to extend time.

54.  Even if I were to assume that the Applicant’s putative appeal was unanswerable on the merits, that of itself could not be decisive in shifting the balance – R. (oao Cook) (ibid. at [24]).

55.  I do not make that assumption.  I accept that the original documentation now provided has enabled the Applicant to mount a prima facie case, but I conclude that the Applicant’s culpability for the delay from mid-2008 to March 2010 in lodging a Notice of Appeal and the prejudice to HMRC in terms of the public interest in good administration and legal certainty were an extension of time for appealing to be granted far outweigh the measurable loss and injury to be suffered by the Applicant from my refusal to extend time.

56.  My decision therefore is to refuse to extend time for appealing in this case and therefore I must refuse the Applicant’s application and strike out the Applicant’s appeal pursuant to rule 8(2)(a) of the Rules.  I direct accordingly.  HMRC having indicated that they will not apply for their costs of these proceedings, there will be no costs direction.

 Right to apply for permission to appeal

57. 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.

JOHN WALTERS QC

JUDGE OF THE FIRST-TIER TRIBUNAL

RELEASE DATE: 31 May 2011

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