DECISION
1. This
is an appeal against a Notice of Assessment issued pursuant to Section 73A of
the Value Added Tax Act 1994 ("the Act") in the sum of £215,754, plus
interest, in respect of the VAT periods 06/05 and 12/05 to 09/06 (inclusive).
Summary of Facts
2. Kenco
Spares Limited ("the Appellant") at the operative time, traded as a
wholesaler of batteries and pharmaceutical products (mostly razor blades)
operating from premises at 47 Earlswood Road, Belfast, BT4 3EA, premises at
Castlereagh Street and at commercial premises at Dargan Crescent, all Belfast.
3. The
Appellant has been registered for VAT since the 1 July 1999 under registration
number 740 1051 88.
4. On
13 September 2006 Officers from HMRC visited the Appellant to inspect its
records.
5. From
those records it was apparent that the Appellant had treated a large number of
supplies to a Spanish company Enkay Marketing SL ("Enkay") as zero
rated.
6. In
support of that treatment the Appellant produced the following information:
(1)
faxed purchase orders from Enkay;
(2)
CMR transportation documents purporting to show the transportation of
the goods;
(3)
shipping release notes purporting to be from P&O Irish Sea Ferries
(to be read in conjunction with the CMRs)
7. The
visiting Officers were told that Alan Brown, a director of Enkay, had contacted
the Appellant following meetings at a trade show in Birmingham and placed the
orders by fax.
8. The
Appellant's director, Mr. Kenneth Kinnear, had carried out credit checks on
Enkay through his bank, HSBC, and, in relation to the initial transaction, had
ensured that the purchase money was transferred by telegraphic transfer into
the Appellant's bank account prior to the goods being released. Enkay had then
(and on each subsequent occasion) organised the collection and transportation
of the goods from the Appellant's warehouse in Dargan Crescent.
9. HMRC
carried out an inspection, through their Officer Miss. G. Jackson on 14
February 2006. The sales to Enkay were noted and a repayment return
authorised.
10. HMRC carried out
a subsequent visit on 13 September 2006. On that occasion the visiting
Officers informed the Appellant's representative that they did not consider
that the evidence then available was sufficient to support zero rating, and
invited the Appellant to provide further documentation.
11. Over the
following period, further checks were made by HMRC which revealed the
following:
(1)
neither Enkay, nor its director Alan Brown, could be traced, and it subsequently
transpired that Enkay was de-registered in Spain in October 2006;
(2)
the documentation from P&O could not be relied upon. There were a
number of defects with it:
(a)
in the first place, the release notes, relating as they did to the Dover
to Calais sailings, would not have been issued by P&O Irish Sea Ferries;
(b)
the sailing times were incompatible with the actual schedule of sailings
operated by P&O on the Channel route;
(c)
the references on the release notes did not accord with the P&O
internal accounting systems;
(3)
the Appellant had indicated that it would seek further information from
P&O but, in the circumstances no additional information was available.
12. HMRC, therefore,
concluded that the Appellant could not rely upon the zero rating provisions
relating to intra-community trade, and issued the assessment which is under
appeal.
13. In due course
further additional enquiries in relation to the suppliers to the Appellant were
carried out. Those enquiries also resulted in a number of inconsistencies:
(1)
a supplier (Aqua Wholesale Limited) had asked to be paid for goods
supplied to the First Curacao International Bank in the Dutch Antilles. It
only had an accommodation address, subsequently went missing, and was
compulsorily de-registered;
(2)
Glenarvan Limited and Food Line Limited, two other suppliers, had been
implicated in missing trader fraud;
(3)
a further supplier, Yib Limited, was de-registered in February 2006;
(4)
Pre-Glaze Limited, yet another supplier, could not be contacted its
address being an accommodation address with telephones being directed through
to a telephone answering service.
14. It would appear that
this series of investigations had led HMRC to the view that the Appellant was
implicated in a wider series of fraud. It is important to say at the outset
that that allegation was not brought forward by HMRC during the conduct of the
case and that at no stage in the Appeal was it suggested other than that the
Appellant was an innocent victim in relation to a wider series of fraudulent
endeavour carried out by third parties.
15. Mr. Kinnear, subsequent
to the September visit, and now having been appraised of HMRC's position,
travelled to Spain in an unsuccessful attempt to contact Mr. Brown and obtain
additional evidence of the transportation of the goods in question.
The Appellant's Case
16. The Appellant's
case, as disclosed by its supplemental Notice of Appeal dated 7 March 2008 is
that:
(1)
"the goods were despatched to Enkay and were made available for
collection;
(2)
CMRs and other travel documents were subsequently made available to the
Appellant and provided to HMRC;
(3)
the Appellant [has] provided sufficient documentary evidence to show
that the goods have been removed from the UK."
Issues
17. The issues in
this appeal are:
(1)
whether the Appellant complied with the legislative requirements for
zero rating of supplies, in particular Regulation 134 of the VAT Regulations
1994 and HMRC Public Notice 725, parts of which have the force of law;
(2)
if there is non-compliance with the legislative requirements whether, in
the alternative, the Appellant took every step which could reasonably be
required of it to satisfy itself that the transaction which it was effecting
did not result in its participation in tax evasion.
Legislation
18. Section 30(8) of
the VAT Act 1994 enacts the provisions of the Sixth Directive which are in
point in relation to this appeal:
(1)
Section 30(8) "Regulations may provide for the zero rating of
supplies of goods or of such goods as may be specified in the Regulations in
cases where:
(a)
the Commissioners are satisfied that the goods have been or are to be
exported to a place outside the member state, or that the supply in question
involves both:
(i)
the removal of the goods from the United Kingdom; and
(ii)
their acquisition in another member state by a person who is
liable for VAT on the acquisition in accordance with provisions of the law of
that member state corresponding, in relation to that member state, to the
provisions of Section 10; and
(b)
such other conditions (if any) as may be specified in the Regulations
or the Commissioners may impose are fulfilled."
(2)
Regulation 134 of the VAT Regulations 1994 [1995 2518] provides as
follows:
"Where the Commissioners are satisfied that:
(a)
a supply of goods by a taxable person involves their removal from the
United Kingdom;
(b)
the supply is to a person taxable in another member state;
(c)
the goods have been removed to another member state;
(d)
the goods are not goods in relation to whose supply the taxable
person has opted pursuant to Section 50A of the Act for VAT to be charged by
reference to the profit margin on the supply
the supply, subject to such conditions as they may
impose, shall be zero rated."
19. Additional
conditions for zero rating are to be found in HMRC Public Notice 725:
(1)
Paragraph 4.3 provides (inter alia) that the trader must "obtain
and keep valid commercial evidence that the goods have been removed from the UK
within the time limits set out at paragraph 4.4 [(ie. 3 months)]".
That provision has force of law;
(2)
Paragraph 4.6, which does not have force of law, provides that where the
conditions cannot be met that the trader ought to consider taking a deposit for
the VAT where the trader has "reasonable doubt that the goods will not
be removed". The paragraph continues:
"Extra caution may be advisable if your customer:
o
is not previously known to you;
o
arranges to collect and transport the goods, or their
transport arrives without advance correspondence or notice;
o
pays in cash; or
o
purchases types or quantities of goods inconsistent with their
normal commercial practice."
(3)
Paragraph 4.10 provides for the following:
"Will I have to account for VAT if my customer's
VAT number turns out to be invalid?
o
No. But only if you have:
§
taken all reasonable steps to ensure that your customer is
registered for VAT in the EEC;
§
have obtained and shown your customer's EC VAT Number on your
VAT sales invoice;
§
hold valid documentary evidence that the goods have left the
UK."
(4)
In relation to the appropriate commercial evidence that the goods have
been removed from the UK, Notice 725 provides (per paragraph 4.5) that a
trader's record must show:
(a)
the name, address and VAT number of the customer in the EC;
(b)
the invoice number and date;
(c)
the description, quantity and value of the goods;
(d)
the name and address of the third party in the UK to whom the goods were
delivered;
(e)
the date by which the goods must be removed;
(f)
proof of removal obtained from the person responsible for transporting
the goods out of the UK; and
(g)
the date the goods were actually removed from the UK.
(5)
Finally, paragraph 4.12 provides as follows:
"Will VAT be chargeable if reasonable steps are
not considered to have been taken?
o
Yes. You will have account for VAT at the appropriate rate on
goods in the UK."
20. Applying those
legislative provisions and the principles in Notice 725 to the present
situation led HMRC to conclude that the conditions for zero rating of the goods
supplied by the Appellant to Enkay had not been met, and that therefore an
assessment pursuant to Section 73A of the Act was appropriate. It is obviously
that assessment which is now under appeal.
The Hearing
21. The hearing was
heard over 2 separate dates 25 June 2009 and 4 April 2011.
22. HMRC called the following
witnesses:
(1)
Helen Corr, an Officer of HMRC who provided both an original and
supplemental witness statement and oral evidence of the visit to the
Appellant's premises and the rationale for raising the assessment based on:
(a)
the Appellant's failure to comply with PBN 725;
(b)
the fraudulent nature of the transportation documentation which had been
supplied;
(c)
the trader's connections with the trade suppliers, most of whom had (by
the time the assessment was raised) been de-registered for VAT for a variety of
reasons;
(2)
Mr. David McGarel, an Officer of HMRC, who provided a witness statement
and gave oral evidence that:
(a)
he had asked the Appellant for additional information evidencing removal
of the goods from the United Kingdom prior to raising the assessment;
(b)
that investigations had been carried out on the vehicle registration
numbers which appeared in the CMR documentation the vehicles cited being
proven to be, in the main, domestic vehicles and therefore unsuitable for the
carriage of commercial goods;
(3)
Mr. B. Roland, a Finance Officer with P&O, who confirmed that the
P&O release notes which had been furnished to HMRC as evidence of removal
of the goods from the United Kingdom were forgeries.
23. Mr. Kenneth
Kinnear, a Director in the Appellant Company, gave evidence on behalf of the
Company, as did Mr. Michael Crooks, the company accountant, who had conducted
the initial meetings with HMRC.
Evidence
(a) Background
24. Mr. Kinnear took
over the company from his father in the late 1970's and during the intervening period
changed the emphasis of the company into a retail distribution company focusing
on pharmaceutical products and batteries. Evidence was given that the business
was a low margin, high volume business. Mr. Kinnear operated the business from
his home, 47 Earlswood Road, Belfast, and generally would order goods which
would be delivered to his warehouse in Dargan Crescent, Belfast ("the
Dargan Premises") from whence they would be distributed to onward
purchasers.
25. The warehouse
facility at the Dargan Premises was operated by a warehouse man who took
control of both the receipt of supplies and their onward transportation. It is
relevant to this appeal that the warehouse man died 18 months before the
hearing of this case and that, therefore, little or no evidence was produced by
the Appellant in relation to the circumstances around the uplifting of the
goods which are the subject of this appeal by or on behalf of Enkay.
26. It is also
relevant that the Appellant gave evidence that prior to his introduction to Mr.
Brown / Enkay that the Appellant had done very little by way of European trade,
and had focused mainly on the Northern Irish market.
27. In that regard
the Appellant was one of two appointed distributers for Gillette products in
Northern Ireland.
28. In terms of his
initial dealings with Mr. Brown / Enkay, evidence was given that Mr. Kinnear
met him at a number of successive trade fairs in Birmingham. After a period of
association, Mr. Brown on behalf of Enkay placed an initial order with the
Appellant.
29. At that point,
evidence was given that the Appellant undertook the following due diligence:
(1)
he checked the veracity of the VAT registration number which was given
by reference to the EU website - a copy of the search that had been carried
out, confirming the validity of Enkay's VAT number as at the 19 October 2005
was produced to the Tribunal;
(2)
the Appellant also obtained a copy of Enkay's VAT registration
certificate;
(3)
finally Mr. Kinnear, through his bankers, HSBC, carried out a credit
check on Enkay and, prior to actually releasing the goods which were the
subject of the first order, insisted upon advance payment. It was only when
that payment was received into the Appellant's HSBC account that the first
goods were released.
30. It probably
should be noted at this stage that the documentation available in respect of
the first order consisted only of the invoice provided by the Appellant. There
was no formal purchase order, CMR documentation or delivery dockets.
31. Mr. Kinnear
confirmed in his evidence to the Tribunal that part of his approach at this
stage was to establish some degree of trust in the trading relationship with
Enkay.
(b) Transactions
32. The Appellant's
case (as pleaded in the amended Notice of Appeal) and in submissions from
Appellant's Counsel was essentially (and here I summarise) that the Appellant
had undertaken sufficient reasonable enquiries, to which the evidence referred
to above was adduced, namely the Appellant's check on the EU website, its
obtaining of the Certificate of Registration of Enkay as a VAT registered
entity, and the credit checks undertaken on the Appellant's behalf by HSBC.
The Tribunal agrees that in relation to the initial stage of investigation,
these all are appropriate, but these investigations, of themselves, obviously
do not entitle a trader to zero rate the supply of goods. That entitlement focuses
entirely upon the evidence of the removal of those goods from the relevant
member state. It is not surprising, therefore, that in the main both the
evidence of Mr. Kinnear, and Mr. Crooks on behalf of the company both in
chief and in cross examination focused on the available documentation which
had been produced in support of the Appellant's case and, in particular, the
evidence of transportation.
(c) Transportation Documentation
33. The documents
relevant to the transactions in question largely divide into purchase orders,
the CMRs / release notes (collectively the "transportation documentation")
and, finally, delivery information as supplied to the Appellant by the
purported carrier of the goods, Hansa Cargo Transport GmbH, based in Hamburg.
(d) The Purchase Orders
34. The evidence to
the Tribunal was that in most cases the purchase orders were supplied by fax
from Enkay Marketing. It was noted that the typescript was individualistic
and, in most cases, the purchase orders were faxed from a Spanish fax number.
The details normally included in a purchase order included:
(1)
the date;
(2)
Kenco's order reference;
(3)
an instruction to supply identified goods (generally either
pharmaceutical supplies and/or batteries);
(4)
the cash purchase price.
In most cases the collection details were described as
"T.B.A." but otherwise that the goods were "Ex Ireland".
35. During the
course of cross examination HMRC brought out their principal objections to the
purchase orders, not by reference to the purchase orders by themselves, but by
reference to the fact, that when related to the remaining transactional
documents, inconsistencies arose.
36. For example, in
some cases it appeared from the documentation that the purchase orders
themselves post dated the despatch of goods. For example, in one case (a purchase
order for 192 cases of Braun brush heads (value £13,363.20)) the purchase order
itself was dated the 12 January 2006, but purportedly had been faxed from Enkay
Marketing on the 7 January 2006 (at 22.57).
37. For the same
transaction it appeared, from the documentation presented to the Tribunal, that
the invoice which Kenco had raised in respect of those goods was, in fact,
dated the 9 December 2005 and that the goods themselves had actually been
despatched on the 12 December 2005 ie. a month before the purchase order was
created. Again, in that particular case, the CMR recorded a transportation
date of the 12 December 2005, which was purportedly stamped by P&O Ferries
on the 9 December 2005 (at Dover, Kent) and bore the receipt stamp of Enkay
Marketing as acknowledging that the "goods were received" on the 16
December 2005.
38. The specific
inconsistencies in relation to this particular order, and others of a similar
ilk, were put to Mr. Kinnear, whose explanation was that in some cases the
goods were despatched based on telephone orders which did not necessarily
always follow the exact chain of documentation. He also accepted that his
documentary records may not have been very well or systematically kept.
(e) Transportation Documents (CMR and Release Notes)
39. During the
Appeal, some considerable time was spent in examining the transportation
documentation. The CMR documentation, in virtually all of the instances where CMR
documentation existed, was incomplete. In general terms:
(1)
the sender's details were included as Kenco;
(2)
the consignee's details were included as Enkay;
(3)
the place of delivery was generally given as Malaga, Spain;
(4)
the place of loading (generally given as Belfast, plus relevant date);
and
(5)
including the (purported) stamp of P&O Ferries and a stamp of Enkay
the latter purporting to acknowledge receipt of the various goods;
(6)
in some but not all cases the trailer number and lorry / tractor number
were included (the lorry / tractor numbers themselves subsequently proving to
be fraudulent);
(7)
in none of the CMRs produced to the Tribunal were the boxes completed
which disclosed details of the transporter; the route; or the final
destination.
40. The CMRs
themselves obviously did not evidence the actual transportation of goods but
they, together with valid release notes, could obviously perform that function
and it is they upon which the Appellant relies.
41. In terms of the
release notes (as already indicated) it subsequently transpired that these had
been created fraudulently. As Mr. Roland's evidence confirmed, there were
deficiencies in relation to the documents:
(1)
in the first place, the sailings quoted Dover to Calais were not
consistent with the scheduled timings of P&O Ferries;
(2)
the release notes were given on documents headed "P&O Irish
Sea" and purportedly given by "P&O European Ferries (Irish
Sea) Limited of Channel House, Channel View Road, Dover". It was Mr.
Roland's evidence that any such documentation would not be relevant to
transportation in the English Channel between Dover and Calais;
(3)
the documents included a vehicle registration number and a driver's name
and were purportedly signed, but no confirmation was available to confirm that
those details were consistent with those included in the CMR;
(4)
the reference numbers quoted on the release notes were generally
intended to accord with those quoted on the CMR, but in none of the cases were
they consistent with the reference numbers adopted by P&O in relation to
its internal accounting procedures or computer systems.
(f) Vehicle Registrations
42. Whilst certain
of the CMRs purported to include the details of the collecting vehicles
(example ILZ 2749 or ILZ 9643) the evidence before the Tribunal (as provided by
both Ms. Corr and Mr. D. McGarel on behalf of HMRC) confirmed that in each case
where vehicle registration numbers were checked by reference to the records
held by DVLA that the vehicle in question was not of a type appropriate to the
carriage of commercial goods. In most cases, in fact, the registration numbers
quoted were actually linked to ordinary domestic vehicles.
43. As these details
had been included on the CMRs provided by the Appellant, the point was put to
Mr. Kinnear.
44. Mr. Kinnear
explained that all of the deliveries had been generally operated by his now
deceased warehouse man and, therefore, he could not provide any explanation as
to the vehicles which had actually uplifted the goods in question or as to why
there were inconsistencies with the vehicle registration numbers which appeared
on the CMRs.
(g) The HANSA Documentation
45. The Appellant
had also been provided, via Enkay, with documents purporting to be delivery
invoices raised by Hansa Cargo Transport GmbH based in Hamburg. In most cases
these were invoices raised against Enkay Marketing and referred to goods
generally "Ex Kenco, Belfast" cross referencing to a particular delivery
note. In all cases the appropriate fee was indicated on the face of the
invoice and an instruction that the delivery was to "Antwerpen,
Belgium".
46. It became
apparent from the evidence provided to the Tribunal that these had been made
available by Enkay to the Appellant after the HMRC assessment had been raised.
Indeed, the fax transmission details which appeared on most of the relevant
Hansa documentation was the 30 November 2006 not only after the assessment
but also after Enkay had been compulsorily de-registered for VAT by the Spanish
authorities.
47. Mr. Kinnear
could not explain the mandating of the goods to Antwerp on the face of the
documents.
(h) Banking Transactions
48. It had been Mr.
Kinnear's evidence that in relation to the first transaction he had insisted
upon pre-payment of the total value of the invoice, prior to despatching goods.
49. The Tribunal was
furnished with a number of bank statements in respect of the relevant period
through which the trading relationship between the Appellant and Enkay existed.
50. It appeared from
the evidence that certain of the payments in respect of the goods supplied to
Enkay were paid through an HSBC branch in Eccles, Manchester. It was suggested
by HMRC, firstly, that this was unusual given the nature and location of the
transactions and, secondly, that the timing of some of the payments did not
accord with Mr. Kinnear's evidence, namely that in some cases the lodgements
were a number of weeks after the shipment of goods took place and not in
advance as he suggested.
51. The Tribunal was
not particularly convinced regarding the suggestion that this disclosed an
irregular pattern of payments, such as would put any trader on alert. In the
first place, Mr. Kinnear gave evidence that cheques often arrived by post and
it may have been the case (he could not quite recall) that he had retained the
cheques for some time before actually lodging them. Another explanation for
the lodgements in Manchester was that he himself could have lodged them in
Manchester, although he did not discount the possibility that Mr. Brown could
have made the lodgements as, although he was based primarily in Spain, he was
originally from the Manchester area.
52. In totality,
however, the Tribunal did not consider the payment profile to provide any
helpful evidence to advance either party's argument.
(i) Interaction with HMRC
53. Part of the
Appellant's case was that HMRC had conducted a site visit on the 14 February
2006, that the then inspector, Gillian Jackson, had conducted a review and that
the audit report for that visit did not disclose any notable issues and,
indeed, payment was made in respect of VAT reclaimed on purchases which, in
turn had been the subject of zero rated supplies.
54. The Appellant,
based on that, tried to make the case that the documentation provided must
then, objectively, be sufficient to have justified the zero rating. That
assertion, however, does not appear to have a correct basis in either fact or
in law and indeed, in the evidence provided by Helen Corr, the point was made
that in the subsequent visit to the Appellant's premises it was made quite
clear that HMRC did not consider that the documentation which was uplifted was
sufficient to justify the zero rating which the Appellant had applied. Indeed,
it was based on that subsequent visit that the Appellant then proceeded to go
to Spain to attempt to contact Mr. Brown to see if additional information could
be made available.
Finding of Facts
55. The Tribunal finds
the following facts:
(1)
the Tribunal finds that Enkay did not account for VAT in Spain on the
goods supplied by the Appellant. In reality the documents provided by or on
behalf of Enkay to demonstrate removal of the goods from the United Kingdom
were forgeries. In those circumstances, the Tribunal finds that on the
evidence before it the Appellant's transactions with Enkay formed part of a
scheme of tax avoidance, most likely perpetrated by Mr. Brown of Enkay, and
that the goods never reached Spain. It is important, at this point obviously,
to record that the Tribunal found no evidence of the Appellant's knowing
involvement in that scheme of avoidance;
(2)
that the Appellant only truly became aware of the position after the
HMRC inspection visits in September 2006 at which point the Appellant sought further
evidence of the removal of the goods from the United Kingdom;
(3)
the Appellant carried out limited checks on Enkay. At the beginning of
its trading relationship the Tribunal finds that, as one might have expected,
the Appellant did check the veracity of Enkay's VAT registration. Equally, but
more importantly to the Appellant, the Appellant did take certain measures to
protect itself in terms of insisting on advance payments for goods supplied. It
was apparent from Mr. Kinnear's evidence, however, that solvency issues were
uppermost in his mind at that stage and that once a degree of trust had been
established, then the Appellant, broadly speaking, relied on his personal
dealings with Mr. Brown;
(4)
the Tribunal finds that the Appellant did not carry out sufficient due
diligence in relation to the overall transactions particularly where, as Mr.
Kinnear acknowledged, the Appellant was inexperienced in cross border trade
arrangements. There was limited or no evidence put before the Tribunal to
establish what advance preparation the Appellant undertook to satisfy itself as
to what detailed documentation or evidence would be required to satisfy HMRC
that goods supplied to Enkay could be the subject of zero rating.
56. In the main, the
documents which would have supported the Appellant's argued that the goods
validly exported from the United Kingdom were, in this case, essentially the
CMR documentation read together with the release notes. The Appellant argues
that applying the "first sight test" (per Teleos see below)
the documents do not alert concerns. The Tribunal does not agree, and finds
that on a visual inspection of those documents, either looked at on their own
or, indeed, in conjunction with the purchase orders etc., there are certainly a
good number of inconsistencies (see paragraphs 33 to 40 above above). The
Tribunal was given evidence as to those inconsistencies by Mr. Roland, the
officer of P&O. The Tribunal finds that a reasonable person looking at
those series of CMR documents and release notes would certainly have been on
notice of inconsistencies not least because of the obviously omissions when
one considers the legal requirements to which such documents should conform by
virtue of the Carriage of Goods Act 1965. It is plainly clear that a good
proportion of the essential information which one might expect in the CMR
documentation was absent. In short, therefore, the transportation documentation
relied upon by the Appellant was either incomplete or, where it had been
completed, would, the Tribunal finds, have been sufficient to raise suspicion
on the "first sight" test as referred to in Teleos (commented
on below) and subsequent cases.
57. Had the
Appellant, in the initial stages, made itself aware of the essential
requirements of the transportation documentation required to establish the
entitlement to zero rating, the Tribunal finds that it would have been possibly
more alert to the detail that would have been required to satisfy HMRC.
Failure to appraise itself of those requirements, however, clearly does not
excuse the Appellant.
58. To avail of the
argument that the Appellant took all reasonable steps to avoid participation in
the tax avoidance which has occurred would, in the Tribunal's opinion, have
necessitated a clear explanation of what the Appellant did to inform itself as
to the actual requirements and evidence needed to establish zero rating, and
then to both devise and adhere to a plan by which that documentation was
collated; reviewed and checked against events such as the collection of the
goods by the actual vehicles cited on the documentation. The Appellant, by his
own evidence, conceded that his own record keeping was disorganised and that
with the benefit of hindsight that he would have been more proactive in terms
of his due diligence and administrative processes. The Tribunal can do no more
than take those comments at face value.
59. The Tribunal
finds that the contrary position existed, and for whatever reason, the
Appellant was sufficiently comfortable, given the initial trades that had been
conducted with Enkay, to rely upon Enkay and its representative Mr. Brown
almost entirely. A method of business, on a largely informal basis, arose
between the two entities and regrettably it would appear to have been that
trust which Enkay was then able to exploit.
Decision
60. First Issue
has the Appellant complied with Section 30, Regulation 134 and Notice 725?
61. It will be
apparent from the findings of fact immediately above that the Tribunal finds
lack of sufficient evidence of compliance with the legislative requirements
which were in place to justify the Appellant's attempt to zero rate the supply
of goods to Enkay.
62. The reality was
that there is no cogent evidence that the goods were transported out of the
United Kingdom and, on a balance of probabilities, it would seem that they were
diverted before the purported transportation could have occurred.
63. Second Issue
did the Appellant take every reasonable measure in its power to ensure the
transactions were not connection with fraud?
64. Mr. Young, for
the Appellant, argued that, when viewed objectively, the Appellant had taken
proper care in relation to the documentation which it was able to present to
HMRC and relied, to some extent, on the fact that on the first visit of Miss.
G. Anderson from HMRC that no issue was raised in relation to the documentation
which had been available for inspection. In essence, Mr. Young argued that the
"first sight" test as has been referred to in cases following after Teleos
had been satisfied.
65. In the
Tribunal's view, however, that is not correct. In reality, as will have been
apparent above, the Tribunal takes the view that the Appellant relied upon Mr.
Brown and Enkay to supply the information which would justify the entitlement
to zero rate.
66. There is little
or no evidence before the Tribunal suggesting that the Appellant took many, if
indeed, any precautions to satisfy itself independently as to what requirements
would need to have been satisfied. It did this at risk, bearing in mind that
it had little or no experience of intra member state trade. At the same time,
and as against that, there is a very clear guidance which is available to guide
traders in this position - not least Public Notice 725.
67. On the issue of
the test of "first sight", as highlighted above the Tribunal takes
the view that it is eminently transparent from the CMR documentation and,
indeed, the release notes, that they were incomplete not least the fact that
significant boxes showing details of the transporter, consignee and route of
the journey were very obviously left blank in all of the CMRs. Where details
were completed they ought, in the Tribunal's view, to have raised some degree
of concern. It must surely be questionable to have a document which purports
to be with P&O Irish Ferries on a crossing between Dover and Calais? Even
on an initial examination of the CMRs that must objectively raise some
suspicion.
68. In terms of the
Hansa documentation, whilst Mr. Kinnear was able to procure that, it obviously
was procured largely after a point when he had become aware that HMRC did not
find the documentation in his possession to be sufficient to evidence the
transportation of the goods. HMRC's position led Mr. Kinnear to travel to
Spain to see if he could locate the whereabouts of Mr. Brown. That resulted in
the production of the Hansa but, in reality, that series of purported invoices
did no more than raise further queries as to the consistency between those
documents and the rest of the transport documentation that had been produced by
the Appellant.
69. It was the
European Court of Justice in Teleos plc and Others v Customs and Excise
Commissioners [2008] QB 600-633 which established a defence for bona fide
traders against a requirement by tax authorities to account for VAT on
transactions which were vitiated by fraud. The defence was considered by
Lewison J as Commissioners v Livewire Telecom Limited [2009] EWHC 15 (Ch)
where he examined the Teleos test of "taking every reasonable step which
could be reasonably required" albeit in a context of whether the tax
payer knew or should have known about a tax fraud. In that case Lewison J
indicated that the test required the supplier to be of good faith and to have
taken every reasonable measure to ensure that his supply was not participating
in VAT evasion. At paragraph 23 of his Judgment he states that:
"The test does not require the taxable
person to take every possible precaution: merely every precaution reasonably
required. This test gives the Tribunal sufficient flexibility to decide, on
particular facts, that a suggested precaution would have gone beyond what could
reasonably have been expected."
70. To put the point
simply, the Tribunal does not feel that the Appellant did take every precaution
reasonably required on the facts of this case. As we have indicated before,
the Appellant too readily relied upon the assertions and, indeed,
documentation, supplied by Enkay. There was no evidence to suggest that the
Appellant sought to satisfy itself on what exactly was required, much less the
detail that would be expected when that documentation was fully completed.
71. The fact that
the Appellant's warehouse man died eighteen months before the hearing is
obviously unfortunate on many levels, but even then one wonders if the
warehouse man would have been alive to the comparison of the vehicle numbers
which had appeared, as forgeries, in the CMR documentation. If Mr. Kinnear had
not been aware of the exact requirements, how likely would it have been that
the warehouse man would have been alert to details of that type? In any event,
the Tribunal does not need to consider that point and it is certainly not part
of the judgment in this case.
72. It necessarily follows
that the Appeal is dismissed.
73. No order as to
costs.
74. The Tribunal was
referred to and considered the following cases:
(1)
Appleyard Vehicle Contracts Limited and HMRC [20891];
(2)
N2J Limited and HMRC [20895];
(3)
JP Commodities Limited v Revenue & Customs Commissioners [2008]
STC816;
(4)
Euro Tyre Holding BV v Staat Ssercrtaris Van Financiλn;
(5)
General Bundesanwalt Veim v Bundesgerichtshof
75. 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.
IAN WILLIAM HUDDLESTON
TRIBUNAL JUDGE
RELEASE DATE: 8 March 2012
