Innova Inc (UK) v Customs and Excise [2005] UKVAT V18989 (22 March 2005)
18989
VALUE ADDED TAX — cancellation of registration — determination by Commissioners that registered person not engaged in business — dealer in mobile telephones — whether "business" a sham — nature of tribunal's jurisdiction — supervisory — whether decision to cancel registration and refusal to reinstate it reasonable — yes — appeal dismissed
MANCHESTER TRIBUNAL CENTRE
INNOVA INC (UK) LTD Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: Colin Bishopp (Chairman)
Rayna Dean
Sitting in public in Birmingham on 20 January 2005 and in Manchester on 25 January 2005
Nicola Preston, counsel, instructed by VATease, for the Appellant
James Puzey, counsel, instructed by the Solicitors office of HM Customs and Excise for the Respondents
© CROWN COPYRIGHT 2005
DECISION
"[80]. In order to place the decision of the Commissioners to assess the claimants in context it is necessary to outline a description of the trade in mobile telephones. The global market for mobile telephone handsets in 2003 is said to be approximately 500 million pieces a year. This number is increasing. Products are designed to operate in any country. The trade in mobile phones has become similar to that in other commodities such as oil, coffee beans and pork bellies. There is a primary market in which mobile phones are supplied directly by manufacturers to distributors, which service for example retail chains.
[81]. There is also a secondary market described by Mr Hewetson, director of Rapid Marketing Services Ltd, in his second statement as a "grey wholesale market". It is on that market that the claimants trade. In the primary market there may be delivery delays for up to six months for new models. This results in much speculative ordering, by retailers, distributors and networks. Retailers, distributors and networks may be left with either too few or too many mobile phones of a particular model. The grey market has developed in order to deal with over or under supply and to redistribute products wherever there is an actual retail demand. Manufacturers might also produce, as a matter of speculation, excess stock which, if another model is launched which is more attractive to consumers, will leave that manufacturer with an excess of telephones. The grey market is used also to clear older products. Those retailers or distributors who have ordered too many telephones may sell those, which are excess to their requirements, onto the grey market for immediate cash. If retailers or distributors have under-ordered, because of the delay in production it will be necessary for them to buy from the grey market.
Supply and retail demand and accordingly price, fluctuate daily. A trader may buy a batch of telephones one day, for cash, and discover that the price of telephones has fallen by as much as 20% the next day.
[82]. The market dictates that transactions have to be completed on the same day. Purchases are usually for cash on delivery and it is uneconomic to purchase for volumes of less than 1000 units. If a trader holds onto a product for more than 24 hours it risks losing substantially. Profit margins are low, in the region of 2 to 4 percent. Success is based on turnover. Traders only hold stock for very short periods and, usually, turn over their working capital between four to six times a week. Thus it is important that transactions are completed within the course of one working day.
[83]. Some warehouses are sufficiently secure for goods of small size and value. Stock is often bought and sold by telephone a number of times a day without moving from the secure warehouse. Such secured warehouses are shared by many companies which pay in proportion to their use of that warehouse."
COLIN BISHOPP
CHAIRMAN
RELEASE DATE: 22 March 2005
MAN/04/1620