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United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Plasma Trading Ltd v Revenue and Customs [2006] UKVAT V19499 (14 March 2006)
URL: http://www.bailii.org/uk/cases/UKVAT/2006/V19499.html
Cite as: [2006] UKVAT V19499
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- The disputed decision of the Commissioners is a decision to refuse Plasma's claim to entitlement to credit in respect of input tax pursuant to sections 24 and 26 of the Value Added Tax Act 1994 ('VATA 1994'). By a letter dated 29 July 2004 the Commissioners rejected Plasma's claim for input tax in the sum of £727,828.81 made in its return for the period 03/04.
- By the same letter the Commissioners notified Plasma of a decision to raise an assessment in respect of input tax wrongly recovered in its return for the period 01/04. The formal notice of assessment was issued on or about 12th August 2004 in the sum of £60,284.81.
- The Notice of Appeal is dated 2nd August 2004 and the Grounds of Appeal are as follows:
- By its Notice of Appeal Plasma applied for directions that the Appeal be entertained without payment or deposit of the tax in dispute on the grounds that otherwise hardship would be caused.
- The hardship application was heard before the Tribunal (Mr Malcolm Gammie QC, Chairman, and Mrs JM Neill, Member), and a decision was released on 17th January 2005. In the course of that decision it was accepted that the Appellant had not in fact brought an appeal against the assessment for the period 01/04. The Appellant therefore filed a further Notice of Appeal on or about 1st February 2005 in respect of the later Notice of Assessment. The Commissioners took no point on the fact that that Notice of Appeal was out of time. At the outset of this hearing we directed that the two appeals be joined. Both parties accepted that the outcome in the second Appeal must be the same as that in the first appeal.
- The main issues before the Tribunal were as follows:
- Was there a genuine trade in platinum alloy conducted by the Appellant?
- Were the transactions purporting to show there was such a trade a sham?
- Did Plasma by its officers, servants or agents, know or ought it to have known that the transactions were a sham?
- Had the Commissioners properly pleaded its case that the trade was a sham?
- At the outset of the hearing Mr Beal took issue with Mr Maugham for raising in his skeleton argument an alternative argument, namely that if the goods were not platinum, but this was not known to the Appellant, - i.e. the Appellant was an innocent dupe to a fraud carried out by others – this was insufficient for the Commissioners to succeed in their contention that the transactions were a sham, and the appeal should be allowed. Mr Maugham declined Mr Beal's suggestion that the Grounds of Appeal should be amended to take account of this position. Mr Beal then applied to amend the statement of case in order to deal with the suggestion being put forward for the first time that Plasma was an innocent dupe in the matter. It was decided and agreed between the parties at the outset of the hearing to proceed with the case on the basis that the Tribunal would find the facts and make such decisions as it was able on those facts, and that, if the finding was either that the goods traded were platinum, or that they were not platinum and that Plasma knew that this was the case, then that would be the end of the matter. However, if the Tribunal were to find that the goods were not platinum, but that Plasma did not in fact know that this was the case, then the hearing would be reopened for the parties to address the Tribunal further on the law, and for any necessary amendments to be made. This course was adopted in particular because of the impending release of the decision of the European Court in the case of Bond House (2003) BVC 2,319. The Commissioners intended at any further hearing to contend that the Appellant could not reclaim VAT on the disputed invoices as those invoices would themselves be invalid. They would be invalid because ex hypothesi the invoices would not contain an accurate description of the goods supplied and, ultimately, exported.
- The Tribunal was taken by surprise in the course of the hearing when, on the 30th November 2005, following four days of evidence, Mr Maugham, without any prior notice, made an application for the appeal to be allowed because of a perceived deficiency in the statement of case. The basis for that application was that:
- It was contended by Mr. Maugham that the first clear indication the Appellant had that the Commissioners intended to plead fraud was in the course of Mr Beal's opening submissions on the 9th November. It was submitted both at the time of the oral application, and subsequently in a note prepared by Mr Maugham and served on the Tribunal on the following day, 6th December 2005, that the allegation of knowledge on the part of the Appellant had not previously been made in the decision letter, nor in correspondence, nor in the statement of case, nor in Counsel's skeleton argument. Mr Maugham pointed to a letter dated 21st March 2005 in which Plasma had asked the Commissioners to clarify its position because the statement of case was ambiguous and it was not clear whether or not it was being alleged that Plasma was knowingly a party to any fraud on the revenue. In its reply the Commissioners stated that they did not accept that the statement of case was ambiguous. In response to a question from the Tribunal Mr Maugham contended that the jurisdiction of the Tribunal to strike out the statement of case arose under Rule 19 (3) of the VAT Tribunal's Rules 1986.
- We considered the application by Mr Maugham to have been ill-timed, and the strike-out application to be ill-conceived. It would have been open to him to have asked for further and better particulars of the statement of case. If the Tribunal had directed further and better particulars, and if the Respondents had not complied with that direction, then it would have been open to Mr Maugham to apply under the provisions of rule 19(4) for the appeal to be allowed. The Tribunal would then have to consider whether or not there had been any substantial non-compliance which could be waived under rule 19(5). Mr Maugham subsequently handed up a note on procedure in which he submitted that it would be surprising if the Tribunal did not have power to prevent a party from advancing an allegation of fraud, which had never before been properly pleaded, on the first day of a hearing, and that it must follow that it has the ability to allow or dismiss an appeal for failing to comply with procedural matters which arise during the course of the hearing. The note also stated that the Tribunal was given power to dismiss an appeal for failure to comply with procedural matters by rule 27(4) which enabled the Tribunal to "regulate its own procedure as it may think fit." We do not find merit in this argument: Rule 27(4) was never intended to be used in this way; whilst the County Court or High Court may strike out a statement of claim, such a procedure is not used in the tribunal other than under Rule 19(4) where there has been non-compliance with a Direction. In any event in the course of submissions made by the parties at the outset of the hearing as to whether or not the Respondents should be given leave to amend the statement of case, and whether or not Plasma should amend its Grounds of Appeal, Mr Maugham said: "It is the Respondent's case that the transactions are shams. That question depends on the parties having a common subjective intention to enter a different transaction from those on the face of the documents. The real question is prejudice. It always had to be part of the Respondent's case that we believed the goods were not platinum. We are not in Bond House territory." Furthermore, on the first day of the hearing in reply to Mr Beal's submission that he should amend the Grounds of Appeal, Mr Maugham, said: "The degree of prejudice the Respondent suffers if I amend is nugatory because it always had to be part of his case that we lacked belief the goods were platinum, so he is not taken by surprise that we believed the goods were platinum". Mr Maugham was clearly not taken by surprise, either on the first or on the fifth day of the hearing, by the allegation that the Appellant knew the goods were not platinum, and his application lacked merit.
- Relevant legal provisions
- The supply of goods despatched or transported to a destination outside the Community by or on behalf of the vendor; …"
- The Value Added Tax Tribunals Rules 1986 provide:
- Regulations 25, 39 and 40 of the VAT Regulations 1995 (SI 1995 No.2518) impose obligations on a trader to file a VAT return accounting for the net VAT due and to pay the same to the Commissioners. Regulation 29(1) states:
- The Tribunal heard evidence from Samantha Jane Lee who had been based in the serious non-compliance team at Chelmsford at the relevant time. We also heard oral evidence from Mr Richard Lowish, a banker working in the precious metal dealing section of Engelhards; Mr Heron Ali, an assurance officer with the Commissioners; Ms Smita Parikh, who worked in the MTIC area of the Commissioners; Mr Geoffrey David Parks, an officer with the Commissioners; Mr Terrence Kevin Demand, a senior officer with the Commissioners and from Mr Sam Cook ("Mr Cook"), director of Plasma Trading Limited. There were 4 agreed bundles of documents, not including 2 files of authorities.
- The Appellant ('Plasma') is a Limited Liability Company which carried on business in the demolition industry and as scrap metal merchants. It was first registered for VAT with effect from the 23rd July 2002. Its business activity at that time was stated to be trading in plasma television screens.
- In or about July 2003 Plasma was acquired by Mr Lee Cummins and Mr Cook, the company's two directors. On or about 15th July 2003 an application was made on its behalf to change the trade class to trading in ferrous and non-ferrous metals and to change its trading address to la, Queens Mews, Queens Road, Buckhurst Hill, Essex.
- On or about 27th August 2003 the sum of £5000 was transferred from a company called Broadstone Holdings Limited to Plasma's bank account. The director of Broadstone Holdings Limited is and was at all material times Mr Robert Cook, father of Mr Cook.
- The transactions with which the Tribunal is concerned took place on various dates between 21st January 2004 and the 23rd March 2004 when 19 consignments of goods purporting to be platinum alloy were exported by Plasma to Hong Kong. The first two invoices are dated the 22nd January 2004 and the 28th January 2004, and these invoices are the subject of the second appeal in respect of which the Commissioners repaid to Plasma the sum of £60,284.81. The invoices dated the 2nd February 2004 until the 22nd March 2004 are the subject of the initial appeal which is in the sum of £727,828.81.
- On the 6th August 2003 Plasma registered the domain "plasmatrading.com". Some time later it launched its website. It described itself at that time as trading in ferrous, non-ferrous and precious metals in the following markets: United Kingdom, the Middle East, North America, the Far East, Africa and Europe. At the time it launched its website it had done no trade of any sort in the Middle East, North America, the Far East, or Africa. It described itself as buying and supplying all ferrous and non-ferrous metals and offering "a service ranging through many thousands of tonnes of aluminium, copper … and precious metals including gold, platinum and palladium intended for markets throughout the world". At that time Plasma had done no trade whatsoever in any precious metals. On the website Mr Cummins is described as having a background in the "contact centre industry, and a proven track record of dealing with blue chip companies and accounts at all levels. … His first introduction to the metal industry came when he sold Contact Centre College to the RBG Group, themselves a metal broking company. …". Mr Cook is described as being in the "enviable position of understanding the industry in detail at all levels", i.e. metal broking and trading. Mr Cook in his witness statement described Mr Cummins as having previously worked with "the RGB Group plc, a trading company registered on the London Metals Exchange." In his evidence to the Tribunal Mr Cook said that he had meant that Mr Cummins worked for 'RGB Resources Limited'. He subsequently changed this to 'RBG'. We were shown three decisions involving RBG Resources plc, the first dated 20th December 2002, the second dated the 27th April 2004 and the third being 24th May 2005. All three cases described RBG Resources plc as being in liquidation and Mr Cook subsequently changed his evidence to saying that Mr Cummins had worked for a company called RGB Limited, which is a recruitment company. He accepted that he had not checked his witness statement with Mr Cummins. Mr Cummins did not give evidence.
- In his witness statement Mr Cook described himself as having worked for his father's company, Chequers Iron & Steel, upon leaving school and being involved in all aspects of running a scrap metal business. He became manager of all the company's non-ferrous metal dealing in 1991. In that time he was involved in the identification, sorting and grading of different metals, as well as managing customer accounts, logistics and staff. He left that business in 1992. In his evidence to the Tribunal Mr Cook said he had left school at 16, having become a weighbridge officer for 6 or 7 months. He then learned about the grading of metal and the sorting and recycling of non-ferrous metals which he did for about a year. Following that he had had a string of mobile phone shops. He had done some demolition work before entering the mobile phone business.
- On 19th September 2003 Mr Cook had contacted the National Advice Service to validate two business VAT registration numbers; those businesses were involved in the mobile phone and computer chip industries and were being monitored by the Commissioners under the Missing Trader Intra Community ('MTIC') initiative. On the 22nd December 2003, Mr Robert Cook contacted the National Advice Service wanting to know if VAT would be applicable on the import of fish from outside the EC and from within the EC.
- On the 24th November 2003 an email was sent from a company called Hexagone Asia Limited ('Hexagon') to Plasma. That email reads: "First of all, let us introduce ourselves. We are a company trading in precious metals to our customer (sic) in China. Since demand is growing day by day, we are seeking more supply…We have noticed your website and are interested in purchasing: platinum, palladium, gold…We would be obliged if you could give us more details regarding these above items in your best schedule". The e-mail is said to be from a CK Chan, the purchasing manager of Hexagone and the address is an address in Guang Dong in The People's Republic of China.
- On 24 November 2003 Mr Cummins faxed Mr Chan saying that they were in a position to supply all the metals mentioned, "Although our main area of expertise are currently in the supply of platinum and palladium." He asked for information regarding Hexagone and for bank details. At that time Plasma had never supplied any platinum or palladium to anyone, and had no supplies.
- On 28 November 2003 a fax was sent from a company called Purplex 2000 Ltd which traded as London Construction (East) Co ('Purplex', or where the context requires 'London Construction') to a Mr Roland Tinkler. Mr Tinkler was a scrap metal dealer who in 2003 was retired. However, following an encounter at an American Memorabilia Show in Newark he had met a man calling himself Bose Polanski with whom he shared a common interest in scrap metal. Mr Polanski informed Mr Tinkler that he had access to scrap second grade platinum alloy in Estonia and could supply it at a favourable price if he could find a buyer. We were not told the date of that encounter. Mr Tinkler was an old friend of a Mr Yallop whose son, Matthew Yallop, ran Purplex. Matthew Yallop was an old friend of Mr Cook. It transpired that Mr Matthew Yallop was prepared to deal with Mr Tinkler by offering to buy the platinum alloy at competitive prices. This information regarding Mr Tinkler and his encounter with Mr Polanski came from an interview conducted with Mr Tinkler by Customs on 2 April 2004. Neither Mr Polanski, nor Mr Tinkler, nor Mr Yallop gave evidence before the Tribunal.
- Somewhat surprisingly in view of Mr Tinkler's statement to Customs on 2 April 2004 and Mr Yallop's later statement to Customs that he had known Mr Tinkler for some 15 years, and it was he who had first contacted him re platinum, a fax was sent from London Construction to Mr Tinkler on 28 November 2003 stating:
- On 3 December 2003 Mr Cook sent an e-mail to Mr Chan stating: "We have a lot of stock available". This was untrue as at that stage Plasma had purchased no platinum alloy. On the same date Mr Chan sent an e-mail to Mr Cummins. This is a curious e-mail for various reasons. It gives its bank account name as "Exagone Asia Ltd", (not "Hexagone") and, whilst it gives a bank address and an account number, it does not give the name of the bank or the sort code. Furthermore it says: "Regarding our forecast order QTY., I would say it'll be around a 100,000 pounds for your information." At this stage no details of either the product or the prices had been supplied to Mr Chan.
- There is no reference in the above e-mail to any fax being sent through to Plasma containing a company certificate for Exagone Asia Ltd, or a copy of a passport for a Mr Hong Yan Bo. Both these documents were said by Mr Cook in his evidence to us to have been faxed at about this time. The company certificate and the passport did not contain any fax header. We find it strange that Mr Chan would be forecasting an order in the range of £100,000 without knowing what the product was that he was to be purchasing. At this stage there was no suggestion that Plasma had any platinum or platinum alloy, and indeed when asked about the e-mail of 3 December stating that they had "a lot of stock available" Mr Cook stated that he was "winging it a bit." He further said that he knew that if he "put himself into the marketplace he could come up with the stock". The next e-mail from Mr Cook is even more surprising. It is dated 12 December 2003 and is sent to London Construction and in it he says "I was wondering if you had any more success sorting the platinum that we was discussing last week, if so please don't hesitate to contact as I always looking for more supply." At this stage he had no supply. On 5 December a price list was faxed by London Construction to Mr Tinkler for a variety of forms of scrap metal, but there was no reference to platinum or platinum alloy.
- During this period Plasma had applied to the London Metal Exchange for membership. This application was rejected by letter on 12 December 2003. Following this rejection, by a letter dated 15 December 2003 Mr Cook applied for Plasma to become an associate trade member. Plasma never became a member of the London Metal Exchange, nor an associate member, but despite this it used the logo of the London Metal Exchange on its stationery, and when Mr Cook was subsequently interviewed by the Commissioners he said that they were associate members. This was disputed by Mr Cook in his evidence, but we prefer the evidence of Miss Lee (the Customs officer who conducted the interview) as to this point. When cross-examined about this, Mr Cook had accepted that from the headed note paper it could be thought that Plasma were members of the London Metal Exchange and then said: "In truth it makes no difference to us if we were members. It would have been nice advertising. We did not want to commission new notepaper just to take off the London Metal Exchange. It meant nothing to us nor to our clients."
- On 16 December there is the first specific price for platinum contained on a price list sent by London Construction to Roland Tinkler, it is on a separate sheet and gives a price for platinum at £10.55 per gram. On 18 December Mr Chan sent an e-mail to Mr Cook stating that they were now ready to start purchasing, subject to prices, and referring to "platinum bars we discussed". It states that the initial order will be for 10 kilos, but they would like to build this up in the region of 100 kilos per month and would expect the price to reflect this. It asks for the product to be delivered to their Hong Kong office and states with regard to payment "We are happy to pay upon receiving your invoice providing that, as agreed, you send the product immediately." It was Mr Cook's evidence that at some stage he had taken a sample of platinum alloy to France where he had met a Mr Bo of Hexagone, and Mr Bo had assayed the sample. Mr Cook alleged that the sample had been supplied by London Construction, but this is curious since nowhere is there any reference in the documents to any sample being supplied to London Construction by any other party, nor is there any reference in Plasma's documents to their receiving such a sample.
- On 31 December 2003 there was evidence in the form of an invoice raised by a company called Finance & Management Services to Bouvier Management Services in connection with the registration and VAT registration of Bouvier.
- It was not until 13 January 2004 that Plasma obtained finance for its intended purchase of platinum. This was in the form of a letter from a company based in Gibraltar called Sunkist Ltd. On that date a director of that company, Mr John Reynolds, wrote to Mr Cook and Mr Cummins stating inter alia that it was a pleasure to meet them and to learn about their platinum trading operation. He stated "You have clearly done your homework, know your market and customers well, and in summary it should be a great success." He confirmed that he would finance the purchase of platinum stock up to £300,000 and the exact commercial terms would be discussed when they met again. He had in the meantime arranged the transfer of three amounts of £100,000 each as fixed deposits to Plasma's bankers. The letter then continued: "As we arranged, your buyers should remit the proceeds of the sale to our bankers which are …" Mr Reynolds was a friend of Mr Cook's mother.
- On 21 January 2004 Mr Chan sent Mr Cook an e-mail asking him to prepare 10 kilogrammes of platinum at £13,500 to be delivered to the Hong Kong office. He stated that a purchase order was being prepared. On the same day a letter was sent from London Construction to Roland Tinkler enclosing an up-to-date price list, with platinum shown at a price of £13 per gram. There is no time on this fax, so it is not known whether it was sent before or after the e-mail from Mr Chan. A delivery note dated 21 January was found in Mr Tinkler's papers from Bose Polanski of a company called Bosca & Co. The description is simply "one box un-opened". This is the first evidence of any material arriving with Bouvier. Also on 21 January 2004 there was a purchase order from London Construction to Bouvier for 10,000 grams platinum alloy at the rate of £13 per gram. Mr Tinkler had told the visiting officer that the arrangement was that he would pay Bose Polanski once he had received money from London Construction to make the first purchase. Bouvier's bank statement shows that on 22 January 2004 Purplex paid in £152,750. On 27 January, by urgent transfer, £150,436 was paid to a company called Spartac Ltd. A payment debit advice from the NatWest bank shows this amount was debited to the account of Spartac Ltd in the Hong Kong and Shanghai Bank in Hong Kong. That document says, under 'payment details', 're Boscar (sic) & Co'. There is an invoice dated 22 January 2004 from Bosca & Co SA with an address of 7 Toompea, Tallinn, Estonia The invoice relates to 10 kilos of secondary grade platinum alloy at a unit price of £12,800 per kilo. Value added tax (TVA) is charged at the rate of 17.5%, i.e. the United Kingdom rate, not the Estonian rate, which is 19%. When the Commissioners checked out the VAT number, it was found to be that for British Gas Trading. The goods were apparently delivered to Mr Tinkler in a box in a van driven by either Mr Polanski or somebody working for him. Mr Tinkler then drove the box to London Construction himself. The only contact Mr Tinkler claimed to have with Mr Polanski was by mobile telephone.
- Plasma's invoice to Exagone is dated 21st January 2004 and is for 10 kilos of secondary platinum supplied in bar form for a total price of £135,000. This invoice shows Plasma to be a member of the London Metal Exchange. Also on the same date there is a purchase order from Plasma to Purplex which is incorrectly addressed to London Construction (East) Co. Ltd. This order is for 10 kilograms of secondary platinum in bar form for a price of £132,000 with VAT of £23,100. The price per kilo is expressed to be £13,200. There is a corresponding sales invoice from London Construction to Plasma. There is a purchase invoice from London Construction to Bouvier Management Ltd. for 10,000 grams of platinum alloy at a price of £130,000 with VAT of £22,750. The price per kilo is £13,000. There is no purchase invoice from Bouvier Management Services Ltd. to Bosca & Co. The Commissioners have no record of any importation of these goods into the United Kingdom, nor is there any evidence of any imports by any of the other participants in the chain. The United Kingdom VAT was never declared by Bosca & Company to the United Kingdom authorities.
- At some time on the 21st January 2004 there was a delivery of platinum alloy by London Construction to Plasma at la Queens Mews. Mr Cook told Miss Lee (the Customs officer who subsequently interviewed him) that the platinum alloy was collected by Plasma from its supplier in London and driven in the boot of a car back to the offices in Buckhurst Hill. In his witness statement Mr Cook states that the bars were delivered to Plasma's offices personally by Matthew Yallop or occasionally by one of Mr Yallop's employees. The bars were wrapped in bubble wrap by Mr Cook and double packed (one carton inside another) with approximately two to three bars for every package. This method of packing the bars had been suggested by FedEx with whom Plasma had made arrangements for shipping to Hong Kong. The boxed packages were then delivered to FedEx's office at Stansted Airport by either Mr Cook or Mr Cummins in their car. There was no insurance in respect of the goods in the course of this transport.
- On the 22nd January an international waybill was prepared by FedEx. This showed the recipient as being C Chan of Exagone Asia Ltd. and the delivery address was the Star House address in Kowloon which is the registered office of Exagone Asia Limited. The goods were said to be three metal bars with a value of $49,630.32, the quantity was said to be 2.5 kilograms with a value per kilogram of $19,852. The declared value for carriage was $500.
- On the 22nd January Plasma paid Purplex the sum of £155,100 by electronic transfer, Purplex remitted the sum of £152,750 by Chaps to Bouvier, Bouvier paid Spartac Ltd. by way of urgent transfer in the sum of £150,436. The account credited with this sum is Spartac Ltd. in an HSBC bank account held in Hong Kong. The reference on the payment is "re: Bosca & Co". This was received on the 27th January. On the 28th January payment was sanctioned for telegraphic transfer of £135,000 by Exagone Asia Ltd. to Plasma. This sum was drawn from a bank account held with the HSBC in Hong Kong.
- From the FedEx air waybills, each of which bears a different identification number, it is possible to see that in respect of this first consignment, Plasma shipped to Hong Kong 12.6 kilograms of 85% platinum alloy worth a declared $248,153.10. This is 2.6 kilograms more than the weight of platinum alloy Plasma purchased from London Construction. Mr Cook's explanation for this was that the additional weight was to be accounted for by the packaging, Mr Cook had described the bars as being only 10 centimetres by 4 centimetres by 1 centimetre, i.e. very small indeed. There were only three bars in the first shipment. We find it inconceivable that 2.6 kilograms of the weight can be ascribed to the packaging of such small items. We note that FedEx were charging a specific amount for items under a certain weight, rather than charging by the actual weight, but even so we do not accept that Plasma would have been so careless as to the effect of the packaging on the overall cost as to supply 2.6 kilograms of packaging material. On its Customs Value Waiver Agreement Programme FedEx show an exchange rate at that time of $1.56 to the pound. Given the improbability of all the extra weight being attributable to packaging, it appears that Plasma shipped goods worth approximately £160,000 in return for the £135,000 received from Exagone. If, as seems probable, the additional weight was in the bars that were packed, rather than in the packaging material, then this would imply that Plasma were careless as to the quantity of the goods being supplied, and indicates that what was shipped out was not platinum
- On the 2nd February 2004 London Construction faxed a memo to Bouvier enclosing yet again prices for various items, including the price for platinum alloy which was given as £13.28 per gram.
- On the 6th February 2004 Plasma filed VAT returns for the period 01/04 seeking to reclaim the sum of £60,652.58, which is the subject of the second Appeal.
- Also on the 19th February Mr Cummins notified the Commissioners that its principle place of business was being changed from la to 3 Queens Mews. No change was ever effected on its stationery. On the 20th February 2004 there is a further letter from Sunkist to Plasma confirming its new bank details and asking for these to be passed on "to the customers to whom you sell 'our' platinum". The letter continues:
- The second transaction took place in much the same way as the first transaction. A purchase order was sent on the 29th January from Exagone to Plasma. It was said to come from a Mr Hong. There was no fax header on the order. The trading address was no longer in the Peoples Republic of China but was now at Room 1006, 10/F, Worldwide House, Central, Hong Kong. The delivery address for the goods was no longer 727A Kowloon, but the above address at Room 1006. This is a room which the Commissioners' enquiries show is now occupied by a language centre and where there is no sign for Hexagone/Exagone outside the building.
- The goods on this occasion were 16.35 kilograms of secondary platinum supplied in bar form at a price of £215,820 in total. The price per kilo was £13,200. Plasma did not in fact receive this purchase invoice until after it had already committed itself to purchase the goods from London Construction. This purchasing order is from Exagone Asia Limited signed by Mr Hong. On the same date there is a purchase order from Exagone Asia Limited for 16.35 kilograms of titanium at a total cost of £215,820. This order is signed by Hong Yan Bo. The address is given as Room 1006, as it was on the previous order. On the 29th January Plasma raised a sales invoice against Exagone Asia Limited giving its own address as la Queens Mews, not its new address of 3 Queens Mews, and sending the invoice to Guang Dong in China rather than to the address of Room 1006 in Hong Kong which was the address given on both the purchase orders from Hexagone/Exagone. This invoice is for 24 bars of platinum alloy weighing 16.35 kilograms at a price of £215,820.
- A purchase order had been sent from Plasma to Purplex on the 28th January for a similar quantity of platinum alloy at a price of £212,484.60, being £12,996 per kilo. VAT of £37,184.81 on the invoice made a total price of £249,669.41. The sales invoice from London Construction to Plasma is in similar form. The purchase invoice from London Construction to Bouvier Management Ltd. is also dated the 28th January and is for platinum alloy in two quantities of 9,100 grams and 7,250 grams at a price per kilo of £12,730. The total price is £208,135.50 and VAT of £36,423.71 is included. The sales invoice from Bouvier to London Construction is expressed as 16.35 kilos of second grade platinum alloy at a total price of £210,359.91, with VAT of £36,812.98. The price per kilo is given as £12,866. There is thus a discrepancy between the sums and amounts ordered by London Construction and those supplied by Bouvier. Again there is no purchase invoice from Bouvier to Bosca & Co, but the sales invoice from Bosca & Co to Bouvier is in similar form to the previous one, and is in respect of 16.35 kilograms of secondary grade platinum at a total cost of £208,266, the price being £12,738 per kilo. VAT at the rate of 17.5% in the sum of £36,446.55 is included on the invoice. Payment details are said to be cash, and under description of the goods is written "verbal". British Gas' VAT registration number is again shown on the invoice.
- This second delivery was also said by Mr Tinkler to have been made by Mr Polanski to Mr Tinkler's home address. Similarly Mr Tinkler was alleged to have delivered two separate quantities of platinum alloy to London Construction. On the 29th January Plasma received a delivery from London Construction, or possibly Plasma collected it. A similar process was followed as before, namely, that Plasma boxed up the packages and delivered them by car and uninsured to FedEx's office at Stansted airport.
- On the 30th January there is an international air waybill prepared by Fed Ex made out to Hong Yan Bo at Exagone Asia Limited at Room 1006. The value for Customs is given as $48,114. The goods are said to be three metal bars and the quantity is 2.025 kilograms. As before, the declared value for carriage is $500. On that same date there is a series of 700 FedEx air waybills in virtually identical terms, each of declared items of three metal bars. The declared weights are, however, different, being respectively: 2.1, 2.5, 2.5, 2.1, 2.5, 1.975 and 2.5 kilograms. The total weight for the entire series of 8 freights is 18.2 kilograms. The declared value on air waybills does not vary proportionately with the weight of the load. On this occasion there is a surplus of 1.85 kilograms over and above the amount of platinum alloy said to be purchased from London Construction. We find it highly improbable that this extra weight can be attributable to packaging alone. Payment for the goods took place in much the same way as the previous transaction, all the sums being transferred on the 29th January with the exception of the sum of £215,812.93, which was not received in Plasma's bank account from Exagone Asia Limited until the 2nd February 2004.
- We do not propose to itemise in such detail all the further transactions that took place, but there was a very rapid series as follows:
- Despite the change in the trading address of Exagone, from China to Hong Kong, the telephone numbers have remained the same. The contact telephone number given for Hong Yan Bo of Exagone Asia is in fact a French telephone number. This is not surprising as Mr Cook claims to have made contact with Mr Bo in France on several occasions. Mr Cook gave evidence that, quite by co-incidence, Mr Cummins had known Mr Bo previously.
- On the third transaction the FedEx air waybills show a series of nine freights with a total weight of 20.9 kilograms. This is 2.6 kilograms more than the weight purchased. We do not find it plausible that this is attributable to packaging. On the fourth transaction the series of FedEx air waybills shows that each package is a declared item of three metal bars. The declared weights are seven lots of 2.5 kilograms and one of 1.5 kilograms. The total weight for the entire series is 21.5 kilograms, which is 2.65 kilograms more than Plasma purchased from London Construction.
- After the second transaction sums were received into Plasma's bank account from Exagone Asia Limited on the day that the materials were shipped out. The order placed on the 13th February was in the sum of £241,263.75, whereas Plasma received the sum of £241,256.90 on the 16th February 2004. In this and the remaining shipments the excess weight appears to be only of the order of 0.25 kilograms which could be attributable to the packaging. Mr Cook's explanation was that initially he was not concerned with the weight of the packaging because he knew that, provided the items came in under a certain weight, it would make no difference to the costs charged by FedEx. The following table sets out the various weights of the platinum alloy shipments:-
- In the course of these transactions London Construction again sent current price lists to Bouvier and on the 1st March Matthew Yallop of London Construction sent a fax to Mr Cummins asking for up to date market prices for the week ending 5th March 2004 to be faxed through to him. Similarly he promised to fax through to Mr Bouvier prices for the week ending 5th March. On the same day Bouvier had faxed London Construction offering platinum at £12,173 per kilo.
- On the 2nd March 2004 there was a visit to the Appellant's premises by an officer of Customs, Ms McCluskie. This was a credibility check for the period 01/04, in the event nobody was available to see Ms McCluskie on that date and a visit was arranged for the 10th March when again she was unable to meet the directors, but only saw the accountants. Her notes of that visit state that she discussed the two major purchases of platinum which had occurred with the accountant, but decided to hold off payment until she received the VAT return. Once she received the return she confirmed a telephone number which had been given on the purchase invoices as belonging to the supplier, and she obtained proof of payment. Her notes end: "Now satisfied that trader is credible and repayment to be made in full".
- On 16th March Matthew Yallop of London Construction again asked Mr Cook of Plasma to confirm the up-to-date market prices.
- On the 22nd March Samantha Lee and another officer, Siobhan Hynes, paid an unannounced visit to Plasma's premises because of matters unconnected with this case. The officers called at both la and 3 Queens Mews. la was occupied by a new business and the man that answered the door informed them that he did not know where the company had moved to, but said that someone called occasionally to collect the mail. No. 3 was shut up and looked empty. The officers left a business card and when they returned to their offices they received a telephone call from Mr Cummins who informed the officers that they now traded only from Unit 3 and not from Unit la. An appointment was made for a further visit on the 25th March.
- On the 23rd March London Construction sent a fax to Mr Tinkler referring to a telephone conversation of that morning and stating that they required further materials. On the same date London Construction sent a purchase order with a fax saying "Please find enclosed p/o for your fax of the 22nd March 2004". London Construction sent a purchase order dated 23rd March to Bouvier for 18.725 kilograms of second grade platinum alloy delivered. On the same date again London Construction sent a fax to Mr Tinkler saying "Please could you amend the last p/o we sent you to the new p/o of the 19.425 kilos". There is a purchase order from London Construction dated 23rd March for 19.425 kilograms second grade platinum alloy delivered.
- On the 25th March Ms Lee visited Plasma. In her witness statement she records that she was told that Plasma was involved in demolition jobs whereby they receive commission for finding customers for the onward sale of scrap metal. Their business was mainly in the form of commission from London Construction. Inter alia they were told that both directors were intending to do a course to become metal brokers specialising in nickel and copper on the London Metal Exchange and they were already associate members of the Exchange. It was said that the main part of their previous VAT return was for platinum alloy deals and that these deals concerned 85% platinum mixed with rubbish/scrap. There were no hallmarks or distinguishing marks on the bars and they themselves did not know where it originated, or whether London Construction smelted it themselves. Miss Lee was told that the first deal had been assayed by their customer, Hexagone Asia Limited, who had been satisfied with the goods. Both Mr Cummins and Mr Cook had said that they could tell just by looking that the goods were platinum and Mr Cook looked at Ms Lee's engagement and wedding rings and told her that he could tell they were platinum. In fact her wedding ring is made of white gold and not platinum. In his witness statement Mr Cook denied having said this, but in his evidence to the Tribunal he said that he 'could not remember' having said it.
- Ms Lee was told that Plasma collected the platinum alloy from its supplier in London and drove it in the boot of the car back to the office in Buckhurst Hill where it was weighed and then split up into packages and the online air waybills were completed on the FedEx website. The packages were then driven again in the boot of the car to Stansted airport and handed in to FedEx. There was no insurance during this period but each package was insured with FedEx for $500 although each had a maximum value of $50,000. The company could not afford to insure the packages for more than $500 each as it would wipe out any profit they might make. In his evidence Mr Cook said that he considered it safer to transport such valuable material in his own car rather than to advertise that they were dealing in valuable commodities by having a secure van deliver it and take it from their premises.
- Ms Lee was told about the funding from Sunkist and that, other than the first two deals where the goods had been sent to Hong Kong before any payment was received, Plasma received payment from its customer, which it then used to pay its supplier. As a consequence of concerns that Ms Lee had arising out of this visit, an urgent visit request was put to the London team to visit Purplex.
- On the 26th March there was more communication by fax between Bouvier and London Construction with regard to further purchases of platinum, although no purchases were made. On the 29th March officers Lee and Hynes returned to the Appellant's premises to return the documentation which had been uplifted and to collect copies of further documentation in relation to other transactions. On the same date the Commissioners faxed through a request for a number of documents and items of information to be made available. By letter also of the same date the Appellant replied to the Commissioners' request and indicated inter alia that: "Regarding the assay report we informed you when we met last week that our customers had the product tested themselves. This morning you appeared to under the impression that we told you we had the product assayed in France. Again I refer you to our meeting last week where we informed you that we provided them with samples when we met them in France, not that we had the product tested there. I hope this clears up any confusion there may have been your end. In any case I have requested from our customers that they provide us with documentation regarding the product's tests". In fact no assay test was ever provided to the Commissioners by Plasma, and Mr Cook's explanation for Hexagone not supplying him with the assay report which it claimed to have had done was that it was "commercially sensitive information", which we do not find to be a credible assertion.
- There was further communication between the Commissioners and the Appellant and on the 31st March, following a visit by an officer, Mr Heron Ali, to Purplex' registered address where no-one could be found, a decision was taken to deregister Purplex because it was considered to be a missing trader. Plasma was informed that it should not trade with Purplex as it had been deregistered. Following the initial deregistration of Purplex there was considerable communication between Purplex and the Commissioners and subsequently the company was reregistered by the Commissioners on the 8th June 2004 and this registration was back-dated to the date of cancellation.
- On the 2nd April an officer of Customs, Mr Geoffrey Parks, together with Mr Kevin Demand, visited the trading address of Bouvier Management Services Limited, which was in fact a residential address. It was on this occasion that the Commissioners learned about Mr Polanski and the involvement of Bosca. Mr Tinkler was advised not to trade any further with Bosca & Co. because it was using a hijacked VAT registration number. In the course of the visit by Mr Parks to Bouvier he came across a document headed "fax memo" to London Construction stating that palladium had just arrived at $276 per troy ounce, it had 48 kilos in stock and there was a big supply from St. Petersburg, Latvia. This was being offered to London Construction since Bouvier never dealt in palladium Among the documents found at Bouvier's premises were documents from the web relating to Russian mining from Johnson Matthey's website which Mr Beal described as an "idiots guide". There were also a trading glossary which would appear to be an unusual document for a trader to have. Bouvier applied to deregister for VAT as soon as the company was visited by the Commissioners.
- On the 16th April an officer of Customs, Ms Smita Parikh, together with another officer visited Purplex/London Construction because of its new trade in platinum, whereas previously it had operated in ferrous and non-ferrous metals and with semi-precious metals. In the course of the visit the officers were informed by Mr Yallop that he had known Mr Tinkler of Bouvier for about 15 years and that Mr Tinkler had first contacted him and offered him platinum bars. Mr Tinkler had provided a drilling sample to Mr Yallop which had been sent to Mr Yallop's customer, Plasma Trading, to price the bar. Mr Yallop had known Mr Cook for a long time. The arrangement was that the goods would be brought by Mr Tinkler in a van to the British Rail Station at Chadwell Heath, Mr Yallop would accept the delivery and sign the delivery note. He would then take the goods in his own van to Plasma and Plasma would sign the delivery note and would pay Mr Yallop at that time. Having received payment from Plasma, he would pay Bouvier, his supplier, by telegraphic transfer. He did not insure the goods when they were in his possession and he was not worried about any loss as the goods were scrap metal.
- Mr Yallop told Customs that he had not himself assayed the bars, which did not have any serial numbers nor had he noticed any hallmark. He did not know when the bars were manufactured nor where nor by whom. He did not have any idea what the purity of the metal used was. He had no information concerning the measurements or weight of the bars but believed that the weight of each bar to be different because of the difference in the invoices. He himself had worked on a profit margin of 1% or 2% or £120 or £150 per kilo. Purplex/London Construction's last trade in platinum had been on the 23rd March 2004. This is the same date as the last delivery by Bosca & Co. to Bouvier. There was no explanation as to why London Construction should have sent a fax to Bouvier on the 26th March stating it was interested in purchasing materials, details of which were faxed to it that morning. There is a handwritten note from Bouvier to London Construction which is described as a "fax memo", but there is no fax header on the document that refers to Bouvier having 19.725 kilos of platinum at 18,882 lbs. per kilo, and effectively asks whether London Construction is interested in purchasing it. It would appear to be the document to which London Construction's fax of 26th March refers, and yet no supplies had been delivered to Bouvier at that date. We note that on 6 April 2004 Mr Chan sent an e-mail to Mr Cook stating:
- On the 30th April Plasma's return for the period 03/04, which had already been filed with the Commissioners, became due. This was a substantial repayment return in the sum of £728,023.73 which is the subject of the main appeal.
- On the 4th May WJB Chiltern plc, who were now acting on behalf of Plasma, wrote to the Commissioners setting out Plasma's case, and with regard to the matter of the assay testing of the bars, stated that it was for Plasma's customers to test the platinum they had purchased and, if they were dissatisfied with the quality of the metal, they could make representations, sue or refuse to deal with Plasma in future. It continued that the relationship was based upon trust and that was typical of trading relationships of both metal and other industries. Plasma was aware that its client had performed a satisfactory assay test on the initial consignment of platinum and this assay test was not available to them. In addition Chiltern informed the Commissioners that Plasma wished to inform them that it had recently purchased a spectrometer with which to conduct in-house checks on the quality of any future purchases of platinum. This in fact was acknowledged by Mr Cook in his evidence not to be the case, and no such machine had been purchased, which is not surprising, as there was no further trade in platinum after 23rd March 2004.
- Ms Lee in her evidence to the Tribunal confirmed the contents of her witness statement. Whilst it is correct that there were two matters which Ms Lee recorded in her witness statement which do not appear in her notes taken at the time of the meeting with Mr Cummins and Mr Cook, namely the notes do not refer to Mr Cook pointing to her rings, nor do her notes record Mr Cook and Mr Cummins saying they were associate members of the London Metal Exchange, we found Ms Lee to be a reliable witness and accept her evidence on these points. Ms Lee had been unable to find any evidence of any of the goods arriving in the United Kingdom, and she considered it highly unlikely that they could have been smuggled in as speculated by Mr Cook, on 19 separate occasions. She informed the Tribunal that no steps had been taken against Bouvier or Purplex/London Construction because the Commissioners were awaiting the outcome of this appeal. She accepted the possibility that the goods had been smelted in the United Kingdom or had come in before January 2004.
- Richard Lowish is the General Manager of Engelhard Metals Limited and Engelhard International Limited. He has had 20 years' experience in the platinum industry including dealing in platinum. He has a Batchelor of Arts Degree in Political Science, he had gone to Vienna as a Fullbright Scholar in Economic Sciences and he has a Masters Degree in International Affairs. He has considerable professional experience, having initially worked as a banker for Credit Suisse in New York, New York, then for the First Austrian Bank in Vienna. In 1983 he came to London when he joined Engelhard for 2 years in their precious metals dealing section. He then went to the Chase Manhattan Bank in London where he was Vice-President and dealt with precious metals. He was then with the Bank of Boston in London as their precious metals trader, when he became the manager of their worldwide precious metals dealing section. Eleven years ago he went back to Engelhard as their General Manager and Director and has been there ever since.
- Engelhard is a large American corporation with three UK subsidiaries. One of the subsidiaries, Engelhard Sales Limited, buys various refinables from various sources, and is involved in selling and buying on a daily basis through Engelhard Metals Limited. Engelhard Metals Limited is a founding member of the London Platinum Market and a founder member and shareholder of the London Platinum Fixing Co, which trades in platinum, palladium, rhodium, gold and silver in Tokyo and throughout Europe and the Northern USA.
- Whilst Mr Engelhard's experience was mainly at the top end of the market and dealing with raw platinum, he also had experience of platinum alloy. He described trade in platinum alloy as being very rare, however. His company bought catalytic converters, which contained platinum, from various scrap dealers. The core of his business is buying and selling from buyers and consumers. He had personally been physically involved in all aspects of the trade. He had from time to time bought scrap and, whilst he personally would not go to the scrap yard, he had someone reporting to him who would visit the scrap yards.
- His evidence in the main was that Engelhard would buy platinum and then charge the customer for its transformation. Stocks of platinum were held securely in various locations. Other customers could have a product which contained platinum (such as catalytic converters) and Engelhard would refine it for platinum which would be credited to the customer's metal account, less a charge for the refining. The major manufacturers tended to have trading accounts with each other. Platinum was only normally shipped to a secure location from the producers and from there to the place where it was going to be used, because the shipping of the metal was both risky and costly.
- The two main mining sources of platinum are in South Africa and Norilsk Nickel in Russia. Platinum tended to come as "sponge", which was like gravel, or in ingots. 95% of the London platinum and palladium market trade was in ingots, with the remainder as sponge. Virtually all trades in platinum in Mr Lowish's experience were 99.9% pure platinum. Major companies did not buy anything less pure unless they knew the supplier extremely well. If platinum that was less than 99.9% pure was purchased, a preliminary assay would be done before it was purchased. If that assay was acceptable, then a full assay would be done, which involves melting the alloy down, and could take several weeks, depending on the composition of the metal. This is a costly procedure, and, with the quality of the platinum not known until the process is completed, the purchase would not be paid for in full until the end of the process.
- With regard to trade in 85% platinum alloy, Mr Lowish regarded this lower percentage of platinum as unusual. For the metal to be of any use, the purity would have to be increased to 99.9% which would involve refining, which was a costly and lengthy process.
- Mr Lowish was unable to think of any instance where 85% platinum would be mixed with various scrap metals. It was necessary to know exactly what it had been mixed with, as contaminated material could cause allergic reactions or worse. He accepted that any inherent danger in the unknown content would come to light when the product was being refined, not necessarily when it was being transported or at any other time, but he was adamant that a refiner would need to know the origins of the bar because impurities could be dangerous in the smelting and refining process. When burning off impurities it was possible to create dangerous emissions and pollution, and for health control reasons it was necessary to know what these might be. There were therefore both commercial and legal reasons for needing to know the nature of the alloy. Mr Lowish acknowledged the possibility that platinum could come from computer scrap whereby the boards would be ground, including the plastic, and melted to burn the plastic off, but the metals would not be "rubbish" as they would contain a possible mixture of gold, silver and palladium, amongst others. The only possible use he could initially think of for 85% platinum was for jewellery, but this would be specifically created for the purpose from 99.9% pure platinum, with full knowledge of what other metals had been mixed with the platinum. He considered it difficult to make anything from an alloy of which you did know the constituents, since different metals have different melting points and malleability. He accepted that platinum could be used with other metals, but only with other precious metals, such as rhodium or iridium.
- With regard to the activities of the various companies concerned in the chain ending with Hexagone, he considered it highly unlikely that the goods would be transported as they had been with minimal insurance, no assay checks and no security. He considered it extremely dangerous to move platinum in that way. Platinum was moved around in high security armoured vehicles, not cars and it would be an unacceptable risk if it were not insured. It was also his professional opinion that nobody would buy platinum without a full assay, particularly since it could be hazardous.
- Having seen the volumes of platinum said to be traded by Plasma, he considered this quantity would make the companies involved major dealers in the market, and as such he would have expected to have heard of them, whereas he had heard of neither Plasma Trading Limited nor Purplex/London Construction. Similarly he had never heard of Bouvier Management Services Ltd. or Bosca & Co.
- Mr Lowish was shown a purchasing order from Hexagone dated 13th February 2004 in which it was buying 17.675 kilograms of secondary platinum at a price of £13,650 per kilogram. He considered this to be a 'fantastic price' in the circumstances. It was his opinion that if he had bought a bar with an unknown element in it, he would expect to buy at a significant discount with regard to the platinum element. He considered it imprudent to have shipped the goods out to the customer before receiving payment, as had happened on the first two occasions. He considered that one assay test would not be enough, and that tests should be done throughout the entire transaction chain and for each transaction. He considered the whole situation to be 'wholly impossible' in terms of commercial feasibility and viability.
- With regard to Mr Cook's statement in his witness statement that he had been given assurances by London Construction that the alloy was purchased from established and known suppliers, and it was to be supplied in unmarked, smelted bars, and Mr Cook's comment that this was not unusual for an alloy that had been recovered from another use, Mr Lowish accepted that it was not unusual to find smelted bars, but in his experience this was not typically a product which was sold. It might be found in a refinery which would have it to sell on to another further refinery, but was not a product that was typically bought and sold on the market. With regard to evidence that was produced by Mr Cook from a magazine 'Recycler's World', which referred to precious metals recycling, including platinum group metals' recycling, it was again Mr Lowish's evidence that this would normally only be sold to a refinery who would melt it down and assay it. With regard to extracts from American documents which show that Midwest refineries were willing to buy any amount of platinum and were willing to pay 89% of the value of the platinum, in Mr Lowish's opinion that would only be after an assay test had been done. The platinum bars referred to in some other of the literature again could, in Mr Lowish's opinion, only be stamped bars, and would not be the same as the product in question here.
- Mr Lowish acknowledged that a market in scrap platinum group metals existed, as shown on Johnson Matthey's website, in the present case he could not imagine buying or selling a bar with possible impurities without knowing what it contained. Whilst Mr Lowish personally had not come across a mixture of platinum and arsenic, he had heard of such mixtures. He had also come across arsenic in combination with other metals. He was surprised that FedEx were prepared to ship the bars without knowing their content. He did not consider it possible with a hand held scanner to determine the content of the alloy because such a machine only scanned the surface of the product.
- In Mr Lowish's experience smaller companies tended to be much more risk averse when dealing in the market. Because of Engelhard's exposure in the form of extending credit and trading on the margin, it was incumbent on him to familiarise himself with all aspects of the client company's business, and he was well aware of the smaller companies and how they operated. He considered it highly unlikely that a refiner would put a product that was 15% of an unknown metal onto the market. A mixture of 85% platinum and 15% of an unknown metal could not be used in any industrial process because it could contaminate or hurt the integrity of the industrial product, and concomitant with the sale of such a product was the potential liability.
- To the best of Mr Lowish's knowledge there were no good delivery refineries in Hong Kong nor in China. By "good delivery" was meant that the bars were of a very high purity, i.e. some 99.95%, which was recognised by the market as being pure. These bars came from a number of different refineries which were consistently of a certain standard and regularly produced quantities of the material which were regularly assayed. A good delivery producer would put serial numbers and a unique stamp on the bar. The producer would keep lists of the numbers and marks so it was always possible to find out when a particular batch was made, which generated credibility in the bar itself. In such a case the full market price would be paid. The process of assaying a bar would continue until it had reached the good delivery refinery stage when it would end up with a mark. On each occasion it would be the seller who would pay for the assay. At the conclusion of Mr Lowish's evidence Mr Maugham informed the Tribunal that he would not be tendering any expert evidence on behalf of Plasma.
- We heard at length from Mr Cook but we did not find him to be a credible witness. His answers in the course of his evidence were on occasion at variance with his witness statement, and were at variance with the known facts. He was careless as to accuracy in many aspects, a typical example being his stating in his witness statement that Mr Cummins had worked as a consultant at the "RGB Group plc", as set out above, which he described as a trading company registered on the London Metals Exchange, when no such company could be found on the London Metals Exchange. Similarly, he had claimed when Ms Lee visited the premises that they were associate members of the London Metal Exchange, which is not the case. The reason given for them not becoming a member of the London Metal Exchange in his witness statement is that they "later decided that it would not be economic for us to join". This again was clearly not the case, their application had been rejected very promptly. Nor is it the case that it was somehow a "later" decision that it would not be economic, as claimed by Mr Cook.
- In his witness statement Mr Cook states that a drilled sample was provided to Plasma by London Construction and Mr Cook himself passed the sample personally to Mr Fone-Tang when he met him in Paris in December 2003. There is no evidence of any sample coming from Bosca, or being given by Mr Tinkler to Mr Yallop. It would have been open to Mr Cook to call Mr Yallop as a witness to confirm that he had obtained a sample which he had given to Mr Cook, which he did not do. In any event, it is not even alleged that there were assay tests done on any of the later alleged purchases of alloy. It is clear from Mr Lowish's evidence that testing platinum alloy takes a considerable amount of time and any test done which enabled Hexagone to notify Mr Cook the following week, as Mr Cook claimed in his witness statement, that they had a satisfactory result from testing the platinum alloy, can only have involved the most superficial of tests with a scanner, rather than any process of smelting as would be required to take a proper sample.
- When questioned about the various misdescriptions of the company, its personnel and experience on the website, Mr Cook considered that this was normal business practice and could see nothing out of the ordinary in it. He took the same attitude to the misdescriptions involved in his e-mails to Hexagone.
- It was Mr Cook's evidence in his witness statement that he had not heard of the companies Bouvier Management Services Limited, Bosca & Co. or Spartac Limited, or those persons purportedly running them, prior to the intervention by Customs in this matter. He also claimed never to have met any of the people who ran those companies. When asked about the connection between Mr Tinkler and Mr Yallop, whom Mr Cook had described as a close friend, and someone whom he trusted, he said that he did not know the connection between Mr Yallop and Mr Tinkler. This is surprising since Matthew Yallop's father, Terry Yallop, was said to work for Plasma in an advisory capacity, and Terry Yallop knew Mr Tinkler. What is also surprising, since Mr Cook said in his evidence that the connection between Mr Tinkler and Mr Yallop was not known to him, is that Mr Cook claimed that the reason for the absence of any assays of the samples was that the business was done on trust. The start of this chain of transactions was a chance encounter between Mr Tinkler and Mr Polanski, so there could not have been any established basis for trust there.
- Another aspect of Mr Cook's general lack of prudence or conscientiousness as a businessman was that he had allowed a friend of his father who wanted to import fish into the United Kingdom from Hong Kong to use Plasma's invoice address and documentation in order to effect the importation because the friend in question had no United Kingdom address. The friend paid for all aspects of the enterprise, which in any event failed.
- On the 19th February 2004 Mr Cummins had filled in an application form with Metdist Trading Limited and on that form it was stated that the nature of the Appellant's business was as buyers and sellers of ferrous and non-ferrous metals, also large traders of platinum and palladium. When questioned about this, Mr Cook could see nothing wrong with this, saying that it was the exact truth with the regard to platinum, and since the other content of the bars was unknown, it could be palladium and therefore they could be traders in palladium. However, as Mr Cook pointed out, it was not possible to trade precious metals with Metdist and Plasma only wanted to trade with them in aluminium and copper.
- It was Mr Cook's evidence that much of the business with Hexagone was done over the telephone, yet he did not produce his telephone records, claiming he did not know that there was an obligation to retain those records and that he had kept only the British Telecom bills, but not the itemised ones. We note that by a letter of the 2nd November 2005 the Commissioners asked the Appellant for evidence to support the employment history of both directors and for both mobile and landline telephone records. These were never provided, and whilst it may be that Mr Cook did not retain other than the British Telecom records for the landline as he claimed, this does not explain why he did not retain his mobile phone records, which would have been of particular relevance given his assertion that he had meetings with a representative of Hexagone/Exagone in France, and his mobile phone records would be relevant to this.
- Mr Cook accepted that no credit checks had been carried out on Hexagone/Exagone. Mr Cook was aware that Matthew Yallop had never dealt in platinum before, but stated that he had been assured by Mr Yallop that he was purchasing from established and known suppliers. Mr Cook acknowledged that when he had, on the 3rd December 2003, sent an email to Hexagone stating that the company had a lot of stock available, this was untrue.
- Mr Cook gave a very rambling explanation about the excess weight of some 2.6 kilos in the first shipment. He accepted the company was completely responsible for the packaging, and that the product was never itself over more than 10 kilos in weight. He claimed that less packaging was used in the later deals, but because the company was never asked by FedEx to specify the amount of packaging, the amounts referred to were only estimates that he would put down for Plasma's own costing. After the FedEx forms were filled in, FedEx confirmed the weight and invoiced the weight shipped. It was only once the company knew that the transport pricing was based on weight that they cut down the packaging. However, Mr Cook subsequently said in evidence that the product was packed in the same way every time, and if they paid over the odds for the packing then that was what they did.
- Mr Cook claimed never to have dictated the price of the product to London Construction, despite the fact that he was faxing price lists to London Construction, who was sending them on to Bouvier. He claimed only to be informing Matthew Yallop of the prices that his customer was prepared to pay.
- According to Mr Cook, the trade between the parties stopped because Plasma had no more funding, he claimed it needed another advance from Sunkist at the time and, although it did receive a further £100,000, with which it could have done two more trades, it was at that time waiting for the refund of the VAT on the earlier deals. The company has subsequently been continuing to trade in commercial vehicles. Mr Cook claimed that the cessation of the platinum trade had nothing to do with the visit by Customs & Excise, and he pointed to the fact that there had been visits from Ms McCluskie at an earlier stage. Mr Cook accepted that when the further £100,000 came from Sunkist on 1st April 2004 he had not informed Sunkist that they were not intending to do any more trading in platinum. Once Sunkist had been informed that there was a delay with the VAT payments, Mr Cook claimed that no more money was lent by them. Subsequently, whilst giving his evidence, Mr Cook produced further bank statements which show that in fact Sunkist had lent a further £49,500 to Plasma. When he was recalled to explain this, he said the money was not a direct loan, but had come from his mother: Mr Reynolds of Sunkist had been lending her money for the purchase of her house in France, and so she gave that money to Plasma. In Mr Cook's words "It is not from Sunkist, technically it is from my mother". However, technically, it was most certainly from Sunkist. Mr Cook's explanation for his saying to the Tribunal at the hardship hearing on the 11th November 2004 that he could get no more funds from Mr Reynolds was similarly that the money had in fact come from his mother.
- Mr Cook at no time gave evidence to the effect that he had been deceived and that the goods might not have been platinum. He remained insistent that they were. He also stated that he was still doing business with Mr Bo of Hexagone/Exagone and with Purplex.
- The Commissioners contend that the starting point is the evidence of Mr Lowish, in particular his evidence that transactions in platinum alloy of 80% to 85% purity simply did not take place in the way described, and in any event, the sale of platinum with an unknown alloy content would lead to a substantial discount on the market price rather than, as had happened here, the payment of a premium. The price paid by the end customer was such as would have been payable for pure platinum, and such platinum would have been freely available from a number of sources in Hong Kong. The prices charged in the chain of transactions had been based on the up to date market prices for platinum, the various parties were in possession of documents showing the then current exchange rates and whoever calculated the price did not factor in the discount which would be accorded to the goods on account of their alleged impurity.
- Mr Cook's evidence that the 15% to 20% alloy could in fact have been of an even higher value precious metal was not accepted by the Commissioners, as it was inconsistent with what he and Mr Cummins had told the officers at the time of their visit to the trader in March 2004 when they described the bars as containing 80% to 85% platinum and the rest being made up of "scrap" or "rubbish".
- Mr Beal pointed to the material which Mr Cook had adduced in the form of print-out from Recycler's World and the Platinum Group Metals Recycling Exchange listings, which indicated that platinum scrap should be assayed and sold based on the platinum content. The print-outs contained regular warnings about the need to assay, and references to types of materials found containing alloys of platinum that are in readily recognisable products, such as insulating wire and thermo couple wire, where the alloy is of rhodium or palladium, which are not unmarked bars with no hallmarks. There is also a reference on the website to "rare metals reclamation" and the necessity to obtain internationally recognised certificates of non-contamination. That site makes clear that a trader will only pay for metal actually recovered, not for a speculative quantity of unknown material.
- The Commissioners pointed to the very large quantity of platinum traded, being 341.85 kilograms in total. They relied on the fact that the Appellant had not seriously sought to challenge the mechanisms of the transactions, nor the evidence about the activities of Bosca & Co., Bouvier, or London Construction
- The Commissioners also relied both on the size of the new business that Plasma established very quickly and also the short space of time between each transaction. There were nineteen deals between the 21 January 2004 and 23 March 2004. The volume of goods traded was 341.85 kilograms and the total price was £4,570,464.48. Mr Beal referred the tribunal to the case Regalway Care Limited [2005] EWHC 261 (Ch) which was heard in the High Court of Justice on 25 February 2005 before Mr Justice Blackburne. In that case the learned Judge set out the indicia of both MTIC fraud and acquisition fraud. It was submitted that many of those indicia were present in this case, those relied on by the Commissioners were:
- In the present case no assays were taken by any of the individual sellers, despite Mr Lowish's clear evidence that it would be commercially suicidal not to do so. Furthermore, it was the Commissioners' case that for the genuiness of the chain of transactions to be accepted, a spectacular combination of coincidences must have occurred:
- It was further submitted that when the transactions were considered as a whole, there was no evidence of any "extrinsic" profit being made by the participants in the deals. The total VAT lost to the Revenue matched almost exactly the net profits which were gained by each of the recipients of the transactions. Assuming that the money paid to Spartac was used by Exagone, there were no external funds coming to the transaction which required any of the participants to be out of pocket. In a genuine commercial transaction it is not expected that the net profits paid by each of the parties match the overall VAT loss. The payment made to Hong Kong matched exactly the sum paid from Hong Kong for the goods. The only profit to be derived from the transactions matched exactly the VAT loss sustained by the Commissioners. If Exagone was unconnected to Spartac, it would not be possible to achieve by coincidence the remarkable symmetry between the ultimate purchase price and sums transferred to Hong Kong at an earlier point of the chain of transactions. Mr Beal produced a schedule showing the profit split which is at Annex 1.
- The Commissioners' reasons for not accepting the Appellant's argument that, even if the platinum alloy was not in fact genuine, at all times Mr Cook and Mr Cummins had genuinely thought that it was, were as follows:
- The Commissioners did not accept Plasma's explanation for the sudden cessation of trade following the Commissioners' interest in the transactions as shown by the visit on 22 March and the third visit on 25 March 2004. It did not accept that this was justifiable by reference to the submission of its VAT return or a perceived absence of funds. It could have carried on trading until 2 April 2004 when it submitted its return, that return was not due in until 30 April 2004 and Plasma could not reasonably have expected any repayment from the Commissioners until the middle of April at the earliest. It already had the funding from Sunkist who were saying that this was " a profitable business". It received its further funding from Sunkist on 1 April 2004 of £100,000. It had every incentive to carry on its transactions, if its version of events were true.
- The lie to Mr Cook's belated assertion that he was merely an innocent dupe caught up in someone else's fraudulent activity was given by the fact that, despite having been informed by the Commissioners that the goods purchased from London Construction and sold on to Exagone were not platinum alloy, Mr Cook had remained on excellent terms with Matthew Yallop, his Chinese contacts from Hong Kong, and Mr John Reynolds of Sunkist.
- With regard to Purplex, Mr Beal pointed to the fact that Matthew Yallop when interviewed showed that he:
- Purplex had consistently maintained that what it sold to Plasma was genuine platinum alloy, and, through its accountant, said that the sample was tested prior to any transactions being completed. This could have only have been know by Mr Yallop through Mr Cook or Mr Cummins discussing the actions of their Chinese customer with him. Furthermore London Construction had asked Plasma to tell it what prices to supply at, and requested it to supply the market prices, these were then faxed on to Roland Tinkler. Therefore Plasma was dictating the prices at which people supplied goods to it. As a buyer it should have been asking the supplier for his prices, and not telling him what to charge.
- The Commissioners' case was that Plasma was involved in a sham in that supplies in accordance with the claimed invoicing arrangements had not taken place. It was said in the decision letter of 29th July 2004 that it was considered that on the balance of probabilities something had been shipped to Hong Kong, but it was not platinum alloy. It was also the Commissioners' case that there had been a fraud committed at an early stage, in that Bosca & Co. Ltd. had used a hijacked VAT registration number. What had taken place was not what is generally known as a "carousel" fraud, because the goods involved in the transactions had not been returned to the UK, which was a characteristic of a carousel fraud. In the statement of case it is alleged that each of the disputed transactions between the parties was a sham, and that no supply in accordance with the claimed invoice arrangements had taken place, and that what took place was a fraud on the revenue. However, nowhere does it specifically state that Plasma knew this to be the case.
- The Tribunal was referred to the case of Schmeink and Cofreth AG & Co. KG Case C – 454/98. At Paragraphs 53 and 54 re the interpretation of Article 17(2) of the Sixth Directive the court said as follows:
- It was submitted that the case of Rompelman relied on by Mr Maugham was prior to the case of Genius and was contrary to it. We were referred to Case C – 342/87 Genius Holding BV v Stattssecretaris van Financien the judgment in which was released in 1989. At paragraph 15 the Court said:
- The tribunal was also referred to Case C-32/03 I/S Fini H v Skatteministeriat [2005] STC 903, in which the judgment of the European Court was given on 3 March 2005. In that case at paragraphs 33-35 it was said :
- It was submitted that the cases of both Snook v London and West Riding Investments Ltd [1967] 2QB 786 and Hitch & Others v Stone(Inspector of Taxes) [2001] STC 214 relied on by Plasma could be distinguished. In Snook there was a finding that the defendant was not a party to the sham transaction, and so its sham nature could not be relied upon as against that party, and in Hitch v Stone the expression "sham" was used to cover a situation where parties to a transaction enter into a document which it is commonly understood does not, in fact, represent the correct legal or factual position between them. The Tribunal was referred to the fact that Arden LJ on two occasions referred to "this type" of sham. The sham in the present case equated more closely to that examined by the court and the Tribunal respectively in the cases of McNicholas and Richmond Cars. In case of McNicholas Dyson J at paragraph 34 approved the definition of a "sham" transaction as per Diplock LJ in the case of Snook:
- The Commissioners referred the Tribunal to the case of Hitch v Stone (supra), and in particular to paragraph 85 of the judgment of Arden LJ where she considered the question of whether, as a matter of law, an instrument which in part fulfils requirements of a sham for the purposes of the Snook test can be held as respects such part to be a sham, notwithstanding that the balance of the instrument is not shown to be a sham:
- It was the Commissioners' case that what has been perpetrated here is an acquisition fraud as explained in the cases of Commissioners v Federation of Technological Industries [2004] ECWA Civ 1020, Regalway Care Limited (Supra) and Softwarecore Limited [2005] EWHC 1845 (Ch). In the case of Softwarecore Pumfrey J considered that Nelsonian blindness could be sufficient to establish dishonesty in this kind of case. He relied upon the decision of the House of Lords in Twinsectra Limited v Yardley [2005] UKHL 12; [2002] 2 AC 164, and in particular on the speech of Lord Hutton. It was submitted that the following principles emerged from that speech:
- In the alternative, if it was not accepted that Plasma was knowingly involved in sham transactions, then they had ignored all the evident signs. The Commissioners referred the Tribunal to the principles behind Nelsonian blindness which were considered by the House of Lords in Manifest Shipping Co Limited v Uni-Polaris Insurance Co Limited [2001] UKHL 1, [2003] 1 AC 469 (a decision cited with approval by Lord Hoffman in Twinsectra.). At paragraph 112 Lord Scott said:
- It was submitted that the burden of proof was on Plasma to show that the assessment reached by the Commissioners was wrong. This was so notwithstanding the allegation the Commissioners advanced that the transactions in question were a sham. For this proposition the Tribunal were referred to the case of New Fashions (London) Ltd v HMRC [2005] EWHC 1628 (Ch) per Lightman J. It was accepted that the Commissioners had an evidential burden to discharge in showing, on the balance of probabilities, that no genuine transactions had taken place. (Aircall Export Ltd v HMRC [2005] UK VAT Decision No.19185.) This was subject to the qualification that the more improbable the event, the stronger must be the evidence that it did occur.
- The Tribunal was invited to draw the reasonable inference that the scheme was arranged and implemented with the active and knowing involvement of Plasma. Alternatively its directors and employees had turned a blind eye to the obvious deficiencies and the commerciality of the transactions, and, under those circumstances should be fixed with knowledge of the sham nature of the transactions.
- Mr Maugham relied on the case of Bater v Bater [1950] 2 AER 458 per Lord Denning at 459C for the submission that the tribunal should be slow to find that someone had done something as unlikely as fraud, and it would depend in part on an individual's past history. In the present case there was no suggestion that either Mr Cook or Mr Cummins had a criminal history, or that any companies they had been concerned with had any outstanding value added tax debts.
- It was contended that the statement of case did not properly set out whether the Commissioners accepted that Plasma believed that what it bought from London Construction and sold to Exagone was platinum alloy or was contending that its directors were a knowing party to a conspiracy to defraud the Exchequer. It remained the Appellant's case that the goods shipped to Hong Kong were genuine platinum alloy but that if they were not, then Plasma was an unknowing party to a fraud which had been committed by Bosca & Co Limited at the outset when it used British Gas hijacked registration number. The loss of VAT to the Commissioners was as a consequence of Bosca & Co's action in failing to account for tax on its supplies to Bouvier. The question of how the Commissioners should protect the Revenue against fraud of this kind was not one for the Tribunal. It was clear that there was no facility in the relevant statutory provisions, case law or otherwise, whereby the Commissioner could make Plasma bear the burden of the fraud committed against them by Bosca & Co, yet this was what the Commissioners purported to do.
- The Tribunal was referred to a letter dated 14 May 2004 from Officer Lee to Chiltern in which it was stated that there was a trader using a "hijacked" VAT registration number with a consequent loss of United Kingdom revenue. It was submitted that this is where the true fraud lay. It was a basic error of law to visit Bosca's fraud on Plasma. It was within the Commissioners' power to regulate by means of statute, for example it could amend section 77a to include other items. If the Respondents were right, then section 77a was otiose. The statute must be construed so as to avoid redundancy.
- On the present facts Bosca had one hundred and twenty eight days to account for VAT and therefore until day one hundred and twenty one Bosca had not failed to account for VAT. It was not possible to know for one hundred and fifteen days whether it had paid VAT. No one could know at the early stage whether there had been a fraud this offended against the principle of legal certainty and the trader was in any position to counteract it.
- It was submitted that the statement of case offended against the fundamental principle of VAT law, that a transaction should be construed without regard to its purpose or the motive of the parties. The Tribunal was referred to Case C–255/02 Halifax Plc v Commissioners of Customs and Excise, where, in his opinion, the Advocate General stated inter alia:
- With regard to the Respondents' submission that believing the goods were platinum was inconsistent with its case that the goods were platinum, on the contrary, it was unequivocally consistent. Plasma's case was that: (i) the goods were platinum and, moreover (ii) Mr Cook both at the time and in the course of the hearing believed the goods to be platinum. The only way the tribunal could form a view as to what the witness believed, was from his evidence.
- The Tribunal was invited to accept that Mr Cook did not know anything about Bouvier Limited. It was never put to him by the officers that the goods were anything other than what he believed them to be. Nowhere in the statement of case did the Commissioners say that Plasma knew the goods were not platinum, or that Purplex/London Construction knew they were not platinum. This particular fraud occurred from the sale of goods by Bosca to Bouvier, and its failure to pay output tax. There was no need for all the other transactions to take place, if the sale was of goods of no value, but Bouvier held a very early tax invoice from Bosca, that would be quite sufficient to have committed this particular fraud. If the goods were indeed scrap, there was no need for the chain. It was Mr Demand's evidence that a fraud took place at the early stage. Whilst it could be said that all the transactions led to fraud because the goods needed to be recycled, it was not inherent in either position that Plasma knew the goods were not platinum.
- Mr Maugham again pointed to a letter from Chiltern to the Commissioners on 21 March 2005 asking whether or not the Commissioners were alleging that Plasma Trading Limited (or its directors) was knowingly party to any fraud on the revenue. The reply which Chilterns received from the Commissioners stating that it was not accepted that the statement of case was ambiguous, was wrong in fact and as a matter of practice. The tribunal was referred to the case of Davy and Garrett [1877] D.167. In that case the Court of Appeal struck out a statement of claim which intended to allege fraud that contained no charge of fraud. Thesiger LJ at page 489 held: "In the Common Law Courts no rule was more clearly settled than that fraud must be distinctly alleged and as distinctly proved, and that it was not allowable to leave fraud to be inferred from the facts. … it appears to me that a plaintiff is bound to show distinctly that he means to allege fraud. In the present case facts are alleged from which fraud might be inferred, but they are consistent with innocence. They were innocent acts in themselves, and it is not to be presumed that they were done with a fraudulent intention"
- It was submitted that it was not until the Respondents' skeleton argument was it alleged that Plasma knew that the goods were not platinum or that they had turned a blind eye to the possibility. This submission of the Commissioners did not go far enough because it would not make the transaction a sham even if Plasma knew that Bosca had not accounted for value added tax. The submission was repeated that the statement of case should be struck out to discourage the Commissioners from behaving in the same way in other cases, and in any event the decision of the Court of Appeal above was binding on the tribunal.
- Whilst it was clear from the evidence of Mr Demand that the Commissioners' case was that Bosca was the fraudster, there was no reference either in the decision letter, which had followed an interview with Mr Lowish, or the statement of case, to the effect that Plasma was a fraudster. The inference Mr Maugham drew was that it was Plasma's service of its skeleton argument on 8 November 2005 which pointed out that knowledge was a pre-requisite to the doctrine of sham which prompted the decision to allege fraud.
- The statement of case itself exhibited a confusion as to the nature of input tax in that input tax in relation to a taxable person was a tax on the supply to him of goods (see section 24(1) of the VAT Act). The Commissioners did not purport to assess Plasma to output tax, it was therefore unclear what relevance the subject matter of the supply made by Plasma had. The Tribunal was referred to the case of Rompelman [1985] ECR655 at 664 where in relation to input tax, it was stated that its purpose was:
- Were the goods platinum?
- Did Plasma know the goods not to be platinum?
- Did Purplex know the goods not to be platinum?
- It was not sufficient to plead a loose doctrine of sham. Following the case of the Rompelman (above), a sale of goods for a fraudulent purpose was still a sale of goods whatever the purpose, it was still an economic activity.
- The system of input tax was given effect in the United Kingdom by sections 24 to 26 of the VAT Act which established the following propositions:
- It was not suggested in the present case that all the requirements of the VAT Act and its regulations had not been met by the Appellant, subject to the point made by the Commissioners, which was to be addressed later, if necessary, that if the goods were not platinum, then the invoices were invalid.
- The Tribunal was referred to the case of Hitch and Others v Stone (Supra) which concerned Capital Gains Tax avoidance. In that case Arden LJ set out at paragraphs 63-69, what she considered to be the relevant principles with regard to the sham transactions:
- The Appellant relied on both Hitch and Stone and Snook for the submission that to show there was a sham it was necessary to show a party to it had subjective knowledge. Mr Maugham referred to Diplock LJ's reference to the required "common subjective intention". He distinguished the case of Software on the basis that it was not concerned with sham but with a missing trader, nonetheless in that case all the facts were known to the relevant party. It was submitted that in the present case all the facts were not known to Plasma, and Plasma had no reason to know the facts.
- It followed from Hitch and Stone that, where there was only one document, for a transaction to be a sham, it had to be the common intention of both parties to the transaction that it should be a sham. Both the parties must have subjective knowledge, and there was no evidence about Purplex's knowledge here. It was a necessary part of the Commissioners' case that they must show both that the goods were not platinum and that both Purplex/London Construction and the Appellant knew it. The burden of proof was on the Respondents with regard to showing that both parties knew it.
- In the present case it had never been suggested that Purplex knew the goods were not platinum, and yet what Matthew Yallop knew was a necessary part of the Commissioners' case, but there was no evidence of what he knew.
- Even if the transactions were a sham, it did not follow that Plasma could not recover. It was necessary to analyse the treatment of what did take place. The Tribunal was referred to the case of Richmond Cars Limited v Commissioners of Customs and Excise [2000] V&DR 388, in that case the Commissioners had contended that documented but unreal transactions were to be disregarded for all purposes as shams.
- There was no obligation on Plasma to hold evidence as to the nature or type of goods in which it was transacting. The obligation was to hold an invoice which stipulated what the goods were, and this was directed to proving that the transactions took place, not the nature of what goods were traded. The Commissioners were entitled to recover VAT on the invoice raised by the vendor, it made no difference to the proper functioning to the VAT system what the invoice said as to the nature of the goods. The Commissioners could not and did not allege that these supplies were not platinum. All they could say was that the supplies were "unknown" goods or "probably" not platinum. Neither Plasma nor the Commissioners were in a position conclusively to establish whether or not the supplies were of platinum. That the actual transaction differed from that shown on the documents was but one precondition to a transaction being "sham". It was for the Commissioners to prove that both Plasma and Purplex knew that supplies were not of platinum. It was Plasma's case that it was simply irrelevant whether the supplies were or were not of platinum.
- The arrangements for the transporting and delivery of the goods were perfectly plausibly explained by Mr Cook, it being a known fact that diamond merchants send diamonds via the regular postal service so as not to draw attention to the value of the goods. With regard to Plasma not having carried out an assay test, it quite reasonably took the view that as its customer was content with the quality of the platinum supplied, and would return it otherwise, it was not necessary to do so. With regard to the decision not to insure the platinum for its full value, this was again a perfectly proper commercial decision.
- With regard to the expert evidence of Mr Lowish, Mr Maugham criticised the manner in which the evidence was given as not complying with the "Protocol for the Instruction of Experts", and submitted that this devalued his evidence. Whilst it was acknowledged that Mr Lowish had considerable experience in the platinum trade, he had limited ability to speak as to how small and unsophisticated traders operated as between themselves. Nonetheless he acknowledged that there was a market in platinum alloy before it was refined to good delivery. The fact that his formal training and qualifications were in arts rather than science subjects was pointed to.
- The Appellant's reply to the five principle points relied on by Mr Lowish was as follows:
- Mr Lowish and Mr Cook came from completely different backgrounds. Furthermore, the Johnson Matthey website make clear that a number of innocents have been caught up in the trade of forged platinum bars, involving offers to buy bar originating in Asia, and where "considerable technical skill" was used in their manufacture. This was a trait of which Mr Lowish was aware. No doubt the people caught up in that innocent trade would not have traded in the way with which Mr Lowish did, but it did not follow that they were acting fraudulently.
- Plasma relied on the fact that Mr Cook had carried on trading after Officer McCluskie had visited, which had been around 10-12 February 2004 according to Mr Cook, and after she had met his accountant on 10 march 2005. Twelve of the nineteen transactions took place after the 12 February 2004 and 4 after the 10 March 2004. These were hardly the actions of a party that knows its trade is a false one.
- With regard to the Commissioners' contention that the prices paid by Plasma were passed on by Purplex/London Construction to Bouvier, there were no Plasma invoices found in Bouvier's files; the evidence relied on by the Commissioners was the presence of a fax header printed " IMAGE 370" on the invoice dated 2 February 2004 apparently sent from London Construction. It was submitted that the words "IMAGE 370" indicate faxes were sent by Purplex/London Construction, rather than Bouvier. The tribunal was invited to take judicial notice of the fact that transmitting reports are generated by the sender not the recipient fax machine. The tribunal was referred to a number of faxes sent by London Construction to Bouvier which were in the bundle and which all had the words "IMAGE 370" on them.
- Issue was taken with the suggestion that Purplex/London Construction was telling Bouvier what prices to charge. The fact that a number of pricing lists were sent to Bouvier before Bouvier had any platinum to sell was relied on by the Commissioners; if that was in fact the case, then it made it improbable that Plasma was in a position to supply a sample for Exagone to assay. Of six invitations from Purplex, two did not offer to supply platinum, and of the remaining four, one was prior to any trade in Platinum occurring between the parties. The tribunal was asked to draw the inference that Purplex was simply attempting to generate business.
- The tribunal was referred to the case Softwarecore v Pathan [2005] EWHC 1845 (Ch). This was an MTIC fraud case. Pumfrey J stated at paragraph 31 that the question of third party payments was at the heart of that case, since third party payments were the means by which a missing trader was rendered incapable of accounting for any sums to the Revenue. It was submitted in the present case there was no suggestion that the Appellant made or received third party payments.
- It was submitted that the Commissioners' investigation into the facts was completely inadequate in that there was no evidence that they followed up the phone numbers for Bosca & Co provided by Roland Tinkler, there was no investigation of Bosca & Co in Estonia, Mr Cook was never asked any questions about Exagone, although his evidence was that he was still in regular contact with the company.
- Mr Maugham took issue with an exercise carried out by officer Lee purporting to show the "profits" between the various parties in the transaction chain. It was submitted that what was demonstrated was the self-evident truth that if you buy something for VAT inclusive sum (117.5) and sell it for a VAT exclusive sum (110), the net profit (10) plus the difference between the VAT inclusive and VAT exclusive sums (7.5) will always be equal to VAT(17.5). With regard to the profit levels, whilst it was true that in eighteen of the nineteen transactions Plasma made a higher level profit level than the others, it should be taken into account that it had to pay the shipping costs out of its share. In a carousel fraud the buffer companies would make much smaller profits than the broker. It was proper to infer that it was unlikely that Plasma could have set all this up, taken the risk of challenge by Customs, the risk of non-payment of its claim and the inevitable delay in repayment, for such a small amount of money on each transaction if it was a knowing participant in a fraud. These facts were more consistent with the Appellant being drawn in to someone else's fraud.
- In this, as in any appeal, the onus of proof is on the Appellant to show that it has an entitlement to credit. There is, however, a considerable evidential burden on the Respondents to show that there was no genuine trade in platinum alloy, and that the Appellant was knowingly involved in a sham.
- With regard to Mr Maugham's submission that the Appellant was prejudiced by a lack of particularity in the statement of case, we found this to be without merit. As set out above in respect of Mr Maugham's application to strike out the statement of case, we do not find that the Appellant was taken by surprise by Mr Beal's skeleton argument alleging that Plasma knew that it was not dealing in platinum alloy. Whilst it is the case that the Commissioners did not state in terms in the statement of case that Plasma, or Mr Cook or Mr Cummins committed a fraud on the Revenue, or were aware that the goods they were exporting to Hong Kong were not in fact platinum alloy, it is abundantly clear from the statement of case that the sham transactions alleged are not limited to those flowing from the act of Bosca in high-jacking British Gas' VAT number. At paragraph 62 it is specifically stated that each of the transactions was a sham, and at paragraph 63, whilst accepting that the fraud alleged was not a carousel fraud of the type in the case of Bond House, it was nonetheless contended that the sham arrangements put in place amounted to a fraud on the Revenue. After setting out part of the history of the transactions, it is stated: "The benefit gained from each of the sham transactions was the putative VAT credit, less the cost of shipment and the original acquisition costs of the (probable) scrap metal. By keeping these costs to a minimum, the parties (or underlining) would maximise the benefit gained from the putative VAT credit." The Commissioners then refer to two spreadsheets showing the profit split between each of the parties to the chain of the VAT loss said to be achieved by each of the parties. These spreadsheets show how the entirety of the transactions were driven by the benefit to be derived by the participants from the putative VAT credit and not from any extrinsic commercial profitability.
- The statement of case then sets out the expert evidence relied on to show that the trade in platinum alloy was a sham, followed by the specific facts relating to the Appellant's behaviour, in particular that he had no history of trading in platinum alloy, the lack of insurance, the arrangements for the transport of the goods, and the Appellant's claim to be a member of the London Metal Exchange.
- Prior to setting out these facts and matters the relevant case law is set out in some detail and we do not consider that the Appellant can have been any doubt as to what is alleged against it. Chiltern on behalf of the Appellant had written to the Commissioners on 12 March 2005 with reference to paragraph 63 of the statement of case stating that it was ambiguous. It would have been preferable for the Commissioners to have stated specifically in reply that they were alleging, as later emerged in the course of the evidence, that the directors not only knew that they were dealing with a product that was not platinum, but also that they themselves were instrumental in setting up the sham transactions. However, this was not fundamental to the Commissioners' case which was that Plasma was involved in a sham trade in platinum and that at all times it knew, or must have known, that the platinum was not genuine, and which is clear from the statement of case. We also consider that when referring in the statement of case to the fact that the case was not of the same type as Bond House, it would have been preferable if the Commissioners had not only stated that what took place fell short of a 'carousel' fraud, as in that case, but had also stated that they did not consider Plasma to be an innocent trader caught up in the scheme. It is right that an appellant must have a clear opportunity to meet the Crown's case where wrong-doing is alleged, but to our minds, there was, and there can have been, no doubt in the minds of those representing Plasma, as to what the allegation was that was being made, (Mr Maugham's remarks at the outset of the hearing which are set out in paragraph 10 above are relevant here) and therefore there was no prejudice to the Appellant.
- We are satisfied from the evidence of Mr Lowish, from the way in which each of the parties to the chain of transactions behaved in that none of them carried out an assay in the United Kingdom on any of the supplies, from the fact that they all were prepared to transport the goods in their own cars without any insurance, and with regard to Plasma, that it made no proper enquiries whatsoever of its customer, and from the fact that the goods were sold to Exagone at the market price with no reasonable discount for the uncertainty of their content, that the goods were not in fact platinum alloy.
- Mr Maugham submitted that it was a fundamental principle of VAT law that transactions should be construed without regard to their purpose or the motive of the parties, and referred the Tribunal to the opinion of the Advocate General in the case of Halifax (supra). However, this principle does not apply in circumstances where there is fraud or abuse of the system. In Case C-400/98 Breitsohl [2000] ECR 1-4321, the ECJ stated;
- Both the above cases were specifically referred to in the statement of case. Mr Cook chose to give evidence before us, but Mr Cummins did not and nor was Mr Yallop called on behalf of the Appellants. Whilst there is no obligation on either side to call any party as a witness, we do find it surprising that Mr Cummins, who was present in Court throughout the hearing, did not at any stage give evidence and, given the friendship which is said to exist between Mr Cook and Mr Yallop, we also find it surprising that Mr Yallop was not called. There is a burden on the Appellant, as stated above, and the burden does not rest through the entirety of the case with the Commissioners. We did not find Mr Cook an impressive or reliable witness. He seemed to have no idea of the necessity for integrity in business, particularly with regard to financial conduct. His website told a pack of lies about the company's trading activities and was misleading about its personnel. He was prepared to allow Plasma to be used as a vehicle by a friend of his father's who wished to import fish into the United Kingdom, and he also told an untruth to a differently constituted tribunal about the willingness of Sunkist to lend any more money to Plasma. His lack of probity means we are quite unable to accept his word that he had all times believed that he was trading in platinum alloy and in any event the evidence all points away from this conclusion. It is not the case, as submitted by Mr Maugham, that we can only adduce a person's intentions from what he says.
- When the whole history of the matter is looked at from the commencement, which was the setting up of Plasma's website with its various misrepresentations, it becomes more than likely that Plasma was instrumental in setting up the whole chain of transactions, or at least was heavily involved in its being set up. We do not accept that it was a coincidence, as claimed by Mr Cook, that Mr Bo of Hexagone/Exagone was previously known to Mr Cummins. We take note of the fact that Spartac, to whom Bouvier remitted payment, had an account in Hong Kong. We take account of the fact that Plasma was careless as to the weight of the goods it shipped out, and that it took out only minimum insurance, and that only at the point of despatch, the goods were not insured prior to being delivered to FedEx.
- We accept Mr Lowish' evidence as to the nature of the platinum trade throughout the world and we find it inconceivable that Plasma would have bought the quantity of goods it did, in the circumstances in which it did, without having first had an assay done or having access to an assay. The manner of the prices being given on occasion by Plasma to Purplex and then to Bouvier, coupled with the fact that, although the prices given related to the market price on a particular day for platinum, no account was taken of any discount that would be expected because of the unknown element in the product, and the necessity for extensive and expensive smelting to be done both to get an idea of what those other elements were, and to make the product viable for use, together with the fact that there was no assay done in respect of 18 out of the 19 transactions, and the one that was done (and we doubt whether there ever was one carried out by Hexagon/Exagone) can only have been with a surface scanner, make the nature of the transaction with Hexagone/Exagone highly suspect..
- The Appellant apparently made no subsequent enquiries of any of the parties in the chain as to the nature or origin of the goods, despite the fact that Mr Yallop was an old and long-standing friend of his. This is not the behaviour of an innocent dupe caught up in someone else's fraud. This fact also implicates Purplex. We do not accept Mr Maugham's submission that it is necessary for the Commissioners to show that Purplex had knowledge that the trade was a sham. We prefer the passage in Hitch v Stone at paragraph 85 of the judgment of Arden LJ cited above by Mr Beal, to the passages at paragraphs 63-69 of the same case cited by Mr Maugham. We adopt Mr Beal's submissions in this regard. However, even if we are wrong about this, we do not consider Purplex to be a totally innocent party. At the very least it was guilty of Nelsonian blindness, and here again we adopt the argument of, and authorities relied on, by Mr Beal, set out above. Purplex too had been prepared to trade in a high value precious metal which contained an unknown quantity without having made any effort to have an assay done. Mr Yallop was (apparently) aware of the alleged drilling sample being provided, since he claims to have given it to Plasma. However, at the time he was questioned by the Commissioners he had no idea as to what the other element in the material was and therefore cannot have enquired as to the outcome of any assay, if indeed any assay was ever carried out, which we doubt. He not only had no idea of the purity of the alleged platinum in the bars, he did not even know what size the bars were, or whether they had any hallmarks, or when and where they were manufactured.
- As set out above, we do not find that the statement of case is inadequately pleaded, nor, in so far as it does not specifically state that Plasma by its servants or agents knew that the trade was a sham, do we find that Plasma was taken by surprise by this allegation or prejudiced by it. The answers to the other questions posed at the outset of this appeal are that, for the reasons set out above, (i) we do not find there was a genuine trade in platinum alloy conducted by the Appellant; (ii) we find that the transactions purporting to show that there was such a genuine trade were a sham; (iii) we find that Plasma at all times knew that there was no platinum alloy. In all the circumstances this appeal is dismissed. The Respondents are awarded their costs of and incidental to this appeal, with liberty to apply in respect of those costs.
19499
INPUT TAX – Whether there was genuine trade in platinum alloy – Whether Appellant knowingly involved in sham transactions – Hitch & Others v Stone (Inspector of Taxes) [2001] STC 214 considered
PROCEDURE – Whether statement of case adequately pleaded – Tribunal's jurisdiction to strike out – Rules 19(4) and 27(4) VAT Tribunals Rules 1986 considered
LONDON TRIBUNAL CENTRE
PLASMA TRADING LIMITED Appellant
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: MISS J C GORT (Chairman)
MISS DIANA WILSON
MRS H KELLY
Sitting in public in London on 9 to 11 November, 29 and 30 November and 19 December 2005
Mr Jolyon Maugham of Counsel, instructed by Chiltern Plc, for the Appellant
Mr Kieron Beal of Counsel, instructed by the Solicitors Office, for the Respondents
© CROWN COPYRIGHT 2006
DECISION
In regard to the assessment of VAT for the VAT period ending 31st January 2004, and 31st March 2004 and the Commissioners decision to disallow input tax:
(i) The Appellant challenges the Commissioners' decision that it received no supplies used or to be used for the purpose of any business carried on, or to be carried on by Plasma. The VAT paid by the Appellant in respect of the purchases made by the Appellant and cited in the Commissioners letter of 29th July 2004 represents input tax on the supplies of goods by a taxable person in the United Kingdom to the Appellant in the course of the furtherance of a business carried on by the Appellant and is accordingly input tax within Section 24 of the VAT Act (1994). Consequently an entitlement to claim input tax in respect of these supplies exists within Section 26 of the VAT Act (1994);
(ii) The Appellant challenges the Commissioners' assertion that "…no supply in accordance with the invoice arrangements occurred", and maintains that the supplies of goods as described were made, and the metal in question was platinum alloy, which was described correctly on the sales documentation produced by the Appellant.
(i) The Commissioners were alleging fraud against the Appellant;
(ii) The Commissioners were accordingly obliged to plead the state of knowledge of the officers, servants or agents of the Appellant;
(iii) It was unfair to expect the Appellant to answer such serious charges
without knowing the case it had to meet.
We will deal below with whether or not the statement of case adequately pleads fraud.
(1) The Sixth VAT Directive
The Sixth Council Directive of 17 May 1977 had as one of its objectives the abolition of the imposition of tax on importation and the abolition of the remission of tax on exportation in trade between Member States, Nonetheless, the preamble to the Sixth Directive also recognises that Member States should be able, within certain limits and subject to certain conditions, to take special measures derogating from the Directive to avoid fraud or tax avoidance.
Article 2 of the Sixth Directive provides that both the supply of goods and services within the territory of the country by a taxable person acting as such, the importation of goods shall be subject to VAT. Article 4(1) of the Directive defines as a taxable person anyone who "independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity." The activity included in paragraph 2 includes the activities of producers, traders and those providing services. Article 7 defines importation of goods for the purposes of Article 2.
Article 15 provides:
"Without prejudice to other Community provisions Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any evasion, avoidance or abuse;
Article 17(1) confers on taxable persons a right to deduct deductible tax at the time that it becomes chargeable. Article 17(2) provides that:
"(2) Insofar as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax he is liable to pay:
(a) value added tax due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person;
(b) value added tax due or paid in respect of imported goods within the territory of the country …"
Article 18 lays down rules governing the exercise of the right to deduct. Article 21(1) lays down a general rule that the person liable for the payment of tax shall be the taxable person carrying out the taxable supply of goods or services. In addition, any person who mentions the VAT on an invoice or other document serving as an invoice is liable to pay it, under Article 21(1). Article 21(3) provides that Member States may in the situations identified in Article 21(1) and 21(2) provide that someone other than the person liable for payment of the tax shall be liable for payment of the tax. Article 21(4) states that on importation, VAT shall be payable by the person designated or accepted as being liable by the Member State into which the goods are imported.
Article 22(8) provides as follows:
"Member States may impose other obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion, subject to the requirement of equal treatment for domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.
The option provided for in the first sub-paragraph cannot be used to impose additional obligations over and above those laid down in paragraph 3."
(2) The Value Added Tax Act 1994 and VAT Regulations 1995
Section 1 of the VATA 1994 states that VAT shall be charged, in accordance with the provisions of the Act, on the supply of goods in the United Kingdom; on the acquisition in the United Kingdom from other Member States of any goods; and on the importation of goods from places outside the Member States. Section 1(2) establishes that liability to account for VAT on the supply of goods within the United Kingdom is on the supplier.
Section 4 of the VATA 1994 provides that VAT shall be charged on any taxable supply of goods made by a taxable person in the course or furtherance of a business carried on by him. General provisions regarding imported goods from outside the EU are set out in section 15.
Section 24 of the Act defines input tax. It provides as follows:
"(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 (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him."
Section 25(1) sets out the obligation imposed on taxable persons to account for and pay VAT in respect of supplies made by him for each prescribed accounting period. Section 25 also states:
"(2) Subject to the provisions of this section, he is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him.
(3) If either no output tax is due at the end of the period, or the amount of the credit exceeds that of the output tax then, subject to subsections (4) and (5) below, the amount of the credit or, as the case may be, the amount of the excess shall be paid to the taxable person by the Commissioners; and an amount which is due under this subsection is referred to in this Act as a 'VAT credit'.
…
(6) A deduction under subsection (2) above and payment of a VAT credit shall not be made or paid except on a claim made in such manner and at such time as may be determined by or under regulations …"
Section 26 provides:
"(1) The amount of input tax for which a taxable person is entitled to credit at the end of any period shall be so much of the input tax for the period (that is input tax on supplies, acquisitions and importations in the period) as is allowable by or under regulations as being attributable to supplies within subsection (2) below.
(2) The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business –
(a) taxable supplies;
(b) supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom."
Section 30(6) VATA 1994 provides that:
"A supply of goods is zero-rated by virtue of this sub-section if the Commissioners are satisfied that the persons supplying the goods –
(a) has exported them to a place outside the Member States; or
(b) …
and in either case if such other conditions, if any, as may be specified in regulations or the Commissioners may impose are fulfilled."
Section 73(1) VATA 1994 provides:
"Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him."
Section 73(2) makes provision for an assessment to be raised where for any prescribed accounting period there has been paid or credited to any person, as being due to him as a tax credit, an amount which ought not to have been so credited, or which would not have been so credited had the facts been known as they later turn out to be.
Section 83(c) confers jurisdiction on the Tribunal in relation to appeals against the amount of any input tax which may be credited to a person. Section 83(p) provides for an appeal to be raised against an assessment to VAT under section 73(1) or 73(2) or the amount thereof.
Paragraphs 5(2) and 5(3) of Schedule 11 to the VATA 1994 provides that:
"(2) Where an invoice shows a supply of goods or services as taking place with VAT chargeable on it, there shall be recoverable from the person who issued the invoice an amount equal to that amount which is shown on the invoice as VAT, or, if VAT is not separately shown, to so much of the total amount shown as payable as is to be taken as representing VAT on the supply.
(3) Sub-paragraph (2) above applies whether or not –
(a) the invoice is a VAT invoice issued in pursuance of paragraph 2(1) above; or
(b) the supply shown on the invoice actually takes place or has taken place, or the amount shown as VAT, or any amount of VAT, is or was chargeable on the supply; or
( c) the person issuing the invoice is a taxable person
and any sum recoverable from a person under the sub-paragraph shall, if it is any case VAT, be recoverable as such and shall otherwise be recoverable as a debt due to the Crown."
Regulation 19
(4) If any party to an appeal or application or other person fails to comply with any direction of a tribunal, a tribunal may allow or dismiss the appeal or application.
Regulation 27
(4) Subject to the foregoing provisions of this rule, a tribunal may regulate its own procedure as it may think fit.
"(1) Subject to paragraphs (1A) and (2) below, and save as the Commissioners may otherwise allow or direct either generally or specially, a person claiming deduction of input tax under section 25(2) of the Act shall do so on a return made by him for the prescribed accounting period in which the VAT becomes chargeable."
Regulation 129 of the VAT Regulations (SI 1995 No.2518) provides that:
"(1) Where the Commissioners are satisfied that –
(a) goods intended for export to a place outside the Member States have been supplied, otherwise than to a taxable person, to –
(i) a person not resident in the United Kingdom;
(ii) a trader who has no business establishment in the United Kingdom from which taxable supplies are made; or
(iii) an overseas authority, and
(b) the goods were exported to a place outside the Member States; the supply, subject to such conditions as they may impose, shall be zero-rated."
The evidence
The facts
"I am writing to you to introduce our company and to quote for you the current prices of non-ferrous and precious metals of all grades. I am pleased to hear that you are back in the marketplace and would hope that we are successful in quoting your company for any future jobs. A (sic) discussed please would you forward to us all of your company's details to our head office as above."
Mr Tinkler sent his personal details to Mr Yallop on the same day, providing his fax/phone number, but it was clear that London Construction already had these details as they had sent the above letter by fax, and they had already spoken on the telephone. At this stage Mr Tinkler did not have a company through which to deal. He subsequently purchased a company called Bouvier Management Services Ltd, some time in December 2003.
.
"Now that we are up and running, it is perhaps appropriate that we confirm in writing our discussions for the financing of platinum.
The financing itself
Given the current rates of interest charged by the banks, you have agreed to pay us annual interest on a daily basis at 10 [ten] percent per annum for the funds transferred to you. By way of example, for each £100,000 transferred, you will credit our bankers as above with £10,000 on a date convenient to you but not more than 365 days from the receipt of the funds."
| Date of Invoice | Amount (net) | VAT |
| £ | £ | |
| 02/02/2004 | 288,520.55 | 42,971.15 |
| 04/02/2004 | 276,261.36 | 41,145.31 |
| 05/02/2004 | 277,690.60 | 41,358.17 |
| 09/02/2004 | 283,272.67 | 42,189.55 |
| 11/02/2004 | 296,092.60 | 44,098.90 |
| 13/02/2004 | 280,639.67 | 41,797.40 |
| 17/02/2004 | 277,816.30 | 41,376.90 |
| 19/02/2004 | 282,180,83 | 40,026.93 |
| 23/02/2004 | 293,976.54 | 43,783.74 |
| 25/02/2004 | 270,227.18 | 40,246.60 |
| 01/03/2004 | 290,039.59 | 43,197.39 |
| 02/03/2004 | 189,972.61 | 28,293.79 |
| 04/03/2004 | 260,717.46 | 38,300.26 |
| 12/03/2004 | 340,157.92 | 50,661.82 |
| 16/03/2004 | 356,150.96 | 53,043.76 |
| 18/03/2004 | 324,689.98 | 48,358.08 |
| 23/03/2004 | 311,872.26 | 46,449.06 |
| Total 03/04 Return | £4,900,279.08 | £727,828.81 |
| Date | Volume of platinum sold (kg) [Exhibit File/Page] | Weight Shipped(Contents) (kg) from invoice [Exhibit File/Page] | Weight Shipped (Contents and Packaging) (kg) from waybill |
| 21.1.04 | 10 | Documents not in bundle | 12.5 |
| 29.1.04 | 16.35 | 16.35 | 18.2 |
| 2.2.04 | 18.3 | 18.297 | 20.9 |
| 4.2.04 | 18.85 | 18.85 | 24 |
| 5.2.04 | 17.675 | 17.6724 | 20 |
| 9.2.04 | 17.825 | 17.811 | 19.9 |
| 11.2.04 | 18.9 | 18.8974 | 20.5 |
| 13.2.04 | 17.675 | 17.66742 | 17.9 |
| 17.2.04 | 17.65 | 17.6454 | 18.3 |
| 19.2.04 | 17.85 | 17.8398 | 20.9 |
| 23.2.04 | 19.8 | 19.7928 | 22 |
| 25.2.04 | 17.525 | 17.5224 | 20.2 |
| 1.3.04 | 20.075 | 20.07486 | 20.1 |
| 3.3.04 | 12.925 | 12.918 | 13.2 |
| 4.3.04 | 17.7 | 17.69994 | 17.9 |
| 12.3.04 | 21.9 | 21.891 | 23.5 |
| 16.3.04 | 21.725 | 19.785 | 24.5 |
| 18.3.04 | 19.7 | 19.692 | 24.5 |
| 23.3.04 | 19.425 | Documents not in bundle | Documents not in bundle |
"Regarding product tests: our Q.C. depart are fully satisfied with all the shipments … so far … we hope you will be able to continu (sic) on the same grade specifications and prices too … Awaiting your soon supply. …"
(i) The transactions in the chain were entered into at speed, in a short space of time, for a short period and by traders with no previous experience in the market;
(ii) The transactions took place in the course of a single day;
(iii) There was a consistent mark up on the onward sale of items in the supply chain;
(iv) There was "puzzling willingness" of participants to part with very substantial sums without the assurance of obtaining the goods in return;
(v) There was a substantial risk of non-payment of those substantial sums, with no security being taken and no attempt being made to investigate the credit worthiness of the purchaser;
(vi) There was an absence of any steps taken to insure the goods;
(vii) Steps were taken to export the good before any inspection has taken place.
(i) An unknown Chinese company suddenly became interested in purchasing platinum from Plasma, as a result of seemingly vague assertions made on Plasma's website;
(ii) At roughly the same point in time, Matthew Yallop of Purplex suddenly re - established contact with Roland Tinkler, who had been in retirement for some time;
(iii) Matthew Yallop discovered that Roland Tinkler was suddenly a source of platinum;
(iv) Roland Tinkler had a chance encounter with "Bose Polanksi" at a trade fair for American memorabilia which led to the availability of over 341 kilogrammes of platinum alloy (of 80% to 85% purity) in a two month period;
(v) None of Bouvier, Purplex or Plasma had ever traded in platinum. Plasma had never traded in high value transactions of any nature and Bouvier was formed for the purpose of these transactions alone. Bouvier ceased trading as soon as the transactions were over;
(vi) Suddenly, with an investment from a benign Gibraltarian investor, Plasma turned over £4.5 million pounds' worth of business in two months;
(vii) Each of the transactions were back to back with the same parties, with similar profits being made at each stage by each of the participants;
viii) The scheme was characterised by a hijacked trader at the start of the chain with a mechanism for third party payments being used to remove the risk of any recovery by the Commissioners against the defaulting trader.
(i) Mr Cook and Mr Cummins had always maintained they were engaged in a genuine trade involving platinum alloy and had told officer Lee that they could tell real platinum just by looking at it. Chiltern on behalf of Plasma, had informed officer Lee, and this must have been on instructions, that Purplex were "one of the largest suppliers of precious metal in the United Kingdom" and on another occasion that the Hong Kong customer had been "met through contacts in the industry", which was at odds with Mr Cook's evidence. There had been consistent and repeated attempts by Messrs Cook and Cummins to portray Plasma as specialist traders in platinum alloy when it was apparent that they were nothing of the sort. Neither of them had the experience boasted about on the website. Furthermore, around late April, early May they had wrongly informed Chiltern that they had purchased a spectrometer, and the suggestion that the appellant was continuing to trade in platinum at that time was at odds with the abrupt cessation of the purported trade in late March 2004.
(ii) One assay report taken at the beginning of a series of transactions would not have provided commercial guarantees of the purity of the material supplied in the rest of the trades.
(iii) The Commissioners also pointed to the lack of probity on the part of Mr Cook and/or Mr Cummins, in particular the misrepresentations on the website, and the fact that they were prepared to advertise themselves as members of the London Metal Exchange on their letterhead. They were prepared to continue to use out of date stationery, which no longer showed the correct trading premises for the company, they were prepared to misrepresent themselves as large traders in palladium in the course of their application to join Metdist, and Mr Cook had refused to produce copies of his telephone records, despite a request from the Commissioners to do so, and despite their obvious relevance. Mr Cook had given evidence before the Tribunal that Sunkist would not lend the Appellant any more money, and yet there had been a further payment by Sunkist of £49,500. Furthermore, the supposed "original" copy of the "business registration certificate" for Exagone Limited was said to have been faxed to Mr Cook, yet it contained no fax header sheet or fax markings on it, in contra-distinction to other faxed documents produced.
(iv) There were untruths in Plasma's e-mails to Exagone. The correspondence between Mr Tinkler and London Construction appeared to be stage-managed. At the start Mr Tinkler had not yet formed a company to deal with the scheme, and when prices were faxed through to Mr Tinkler on 5 December 2003, it appeared that it was London Construction who would be supplying Tinkler, and not the other way around. Those price lists contained no reference to platinum or platinum alloy.
(v) The correspondence with Hexagone/Exagone via e-mail lacked credibility. There was no e-mail reference to any fax sent through to Plasma containing a company certificate, or a copy of a passport. No fax header was provided on the copied document. The chain of e-mails was fabricated to try to lend an air of authenticity to the transactions and to establish a paper trail.
(vi) The whole history of the matter cast grave doubts on the authenticity of the documents between London Construction, Roland Tinkler, and Plasma. It was likely that the chain of correspondence had been drafted simply to provide a spurious cover for the sham transactions. The loan arrangements were not those of a commercial transaction; Sunkist was providing a short term injection of capital to get the scheme up and running, whereafter it would be self-financing with money from the public purse.
(vii) Plasma on a number of occasions was shipping material to Hong Kong which was substantially overweight. This extra weight could not be attributed to packaging. It was not credible that there would have been a substantial over-supply if the goods were indeed platinum alloy. Deal number 18 represented an over supply of about 25% and approximately £65,000 worth of goods. It was expected that the packaging for similar shipments would be similar, but this was not the case, nor could the discrepancies be explained by FedEx's tariff structure. FedEx would need to know the weight of the packages it was carrying on its planes to determine the amount of aviation fuel required and for safety reasons. The weights given by FedEx for the packages were not limited to any identification of the particular tariff weight it charged, instead specific weights were provided on the documentation. The only possible conclusion was that either:
(a) Plasma was shipping more "platinum alloy" than it had contracted to do or
(b) the weight (and therefore the value) of the goods shipped by Plasma to Hong Kong were not a matter of concern to it. Overall Plasma had acted in a very un-commercial manner.
(i) had no knowledge about who had manufactured the bars or where;
(ii) had no idea of what the exact purity of the bars was;
(iii) had no formal agreement with Plasma;
(iv) had no formal agreement with his supplier, Bouvier.
The Commissioners' submissions on sham
In answering that question, the Court held in Genius Holding that the right to deduct provided for in the Sixth Directive did not apply to tax which is due solely because it is mentioned on the invoice. The Court explained in paragraph 13 of its judgment that the right to deduct could be exercised only in respect of taxes actually due, that is to say, the taxes corresponding to a transaction subject to VAT or paid insofar as they were due.
As the Court observed in paragraph 17 of its judgment in Genius Holding if any tax which has been invoiced could be deducted, even though it does not correspond to taxes legally due, tax evasion would be made easier.
… By contrast, as was the case in Genius Holding, where the risk of any loss of tax revenues has not been wholly eliminated, the Member States may make the possibility of adjusting VAT which has been improperly invoiced conditional upon the issuer of the relevant invoice having acted in good faith. As the national court has stated, if it transpires that it is no longer possible to cancel a deduction granted in respect of the addressee of the invoice and the issuer of the invoice has not acted in good faith, he may be held responsible for the shortfall in tax revenues in order to ensure tax neutrality."
"According to Article 18 (1) (a), to exercise this right to deduct, the taxable person must hold an invoice, drawn up in accordance with Article 22 (3) (b) , which requires the invoice to state clearly the price exclusive of tax and the corresponding tax at each rate as well as any exemptions. In accordance with that provision, mention of the tax corresponding to the supply of goods and services is an element in the invoice on which the exercise of the right to deduct depends. It follows that that right cannot be exercised in respect of tax which does not correspond to a given transaction, either because that tax is higher than that legally due or because the transaction in question is not subject to VAT.
…
Finally with regard to the argument put forward by the appellant in the main proceedings and the Commission to the effect that the fact of limiting the exercise of the right to deduct to taxes corresponding to the supply of goods and services calls into question the neutrality of VAT, it should be pointed out, in order to ensure the application of that principle, it is for the Member States to provide in their internal legal systems for the possibility of correcting any tax improperly invoiced where the person who issued the invoice shows that he acted in good faith".
"If the tax authorities were to conclude the right to deduct has been exercised fraudulently or abusively, they would be entitled to demand, with retrospective effect, repayment of the amounts deducted (see, inter alia, Rompelman, paragraph 24 … ).
It is, in any event, a matter for the national court to refuse the allow the right to deduct where it is established on the basis on objective evidence, that that right is being relied on for fraudulent or abusive ends.
The answer to the first question must therefore be that Article 4(1) to (3) of the Sixth Directive is to be interpreted as meaning that a person who has ceased an economic activity but who, because the lease contains a non-termination clause, continues to pay the rent and charges on the premises used for that activity is to be regarded as a taxable person within the meaning of that article and entitled to deduct the VAT on the amounts thus paid, provided that there is a direct and immediate link between the payments made and the economic activity and that the absence of any fraudulent or abusive intent has been established."
".. acts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing I think, is clear in legal principle, morality and the authorities … [is] that for acts or document to be a "sham", with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating".
The President of the Tribunal in the case of Richmond Cars at paragraph 18 noted that:
"Sham transactions… i.e. transactions that 'are not what, on their face, they purport to be', will never form the basis of a liability to or relief from tax. That is so even if the sham were constructed with the most bona fide commercial objectives in view. The existence of a commercial or business purpose (apart from the avoidance of a liability to tax) will be relevant to the applicability of the Ramsey principle. That principle requires the Courts to ignore or excise otherwise genuine transactions creating genuine rights and obligations where those transactions formed part of a pre-ordained series of transactions but had no commercial or business purpose other than the avoidance of a liability to tax. The Ramsey principle does not, however, come into play here because documented transactions… are not genuine transactions."
"I have already noted that it is an established requirement of a sham transaction that the parties should have the common intention that it should not take effect according to its tenor and in addition that a false impression should be given to third parties. But this point raises one of the issues of law that has arisen in this case: common to whom? Mr Price submits that the intention must be common to all the parties to a document save in very exceptional circumstances, which he does not define and which he submits it is not appropriate to define since they were not applicable in this case. … Mr Vallance submits that this is not a necessary requirement of a sham, and does not apply where (as here) the document implemented more than one transaction. In principle I accept Mr Vallance's submission. In Snook Diplock LJ was concerned with the situation where the document implemented a single transaction, and his words must be read in the context of the case before him. In any event the effect of Mr Price's submission is that the court will be precluded from finding that a document is a sham because it includes an additional provision which is intended to be effective. This might deprive the doctrine of sham of any operation in a situation which is logically indistinguishable from the situation where the doctrine of sham already applies. In my judgment, the law does not require that in every situation every party to the actual document should be a party to the sham."
(i) The test of dishonesty would remain for findings of "knowing assistance" in a breach of trust in equity (paragraph 36);
(ii) Dishonesty required knowledge by the defendant that what he was doing would be regarded as dishonest by honest people, although he should not escape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct;
(iii) The objective part of that test required the Court to consider whether what a person had done was dishonest by the standards of a reasonable and honest man or one in the defendant's position (paragraph 37);
(iv) The subjective part of that test required the Court to consider whether a person in the defendant's position must have known that what he did was by standards of ordinary decent people dishonest (paragraph 37);
(v) An honest person does not deliberately close his eyes and ear, or deliberately not ask questions, lest he learn something that he would rather not know and proceed regardless. "Nelsonian blindness" could be dishonesty (Para 46 & 49).
(vi) Acting in reckless disregard of other persons' rights could be a telltale sign of dishonesty (paragraph 48).
"Blind-eye knowledge approximates to knowledge. Nelson at the battle of Copenhagen made a deliberate decision to place the telescope to his blind eye in order to avoid seeing what he knew he would see if he placed it to his good eye. It is, I think, common ground - and if it is not common it should be – that an imputation of blind-eye knowledge requires an amalgam of suspicion that certain facts may exist and a decision to refrain from taking any step to confirm their existence".
The Appellant's case
"It is common ground that the term 'economic activity' in article 4 (2) of the Sixth Directive has a wide scope and that it is objective in character. As the Court stated in Rompelman 'the common system of value added tax… ensures that all economic activities, whatever their purpose or results…are taxed in a wholly neutral way'. Accordingly, Article 4 (1) of the directive expressly refers to any activity 'whatever the purpose or results of that activity'. In its judgment of 26 March 1987 in Commission v Netherlands the Court considered that, in order to determine whether an activity is an economic activity within the meaning of the common system of VAT, 'the activity is considered per se and without regard to its purpose or results'. It is therefore necessary to consider an activity objectively and per se to identify its characteristic features in order to decide whether or not its nature is that of an economic activity, rather than having regard to the eventual purpose of the transaction of motives of the parties.
"That rule is based on the requirements that the common system of VAT should be neutral and on the principle of legal certainty which requires that the application of Community legislation must be foreseeable by those subject to it. That requirement of legal certainty must be observed even more strictly in the case of rules entailing financial consequences, so that those concerned may know precisely the extent of their rights and obligations".
… to relieve the trader entirely of the burden of VAT payable or paid in all the course of his economic activities. The common system of VAT therefore ensures that all economic activities, whatever their purpose or results, provided that they are themselves subject to VAT, are taxed in wholly neutral way.
The only considerations for the tribunal were the transactions between Purplex/London Construction and Plasma and the questions to be asked were:
(i) input tax in relation to any person means VAT on the supply to him of any goods being goods used for the purpose of any business carried on by him: section 24(1);
(ii) a taxable person is entitled at the end of each prescribed accounting to credit for so much of his input tax as is allowable under section 26: see section 25(2);
(iii) section 26(1) and (2)(b), a taxable person is entitled to a credit for input tax at the end of any period in the amount of such input tax as is attributable to supplies outside the United Kingdom which would be taxable supplies if made within the United Kingdom; and
(iv) to exercise his right to claim input tax, he must hold a valid VAT invoice: see regulation 29 Value Added Tax Regulations 1995.
"The particular type of sham transaction with which we are concerned is that described Diplock LJ in Snook v London and West Riding Investment Limited [1967] 2 QB 786. It is of the essence of this type of sham transaction that the parties to a transaction intend to create one set of rights and obligations but do acts or enter into documents which they intend to give third parties, in this case the Revenue, or the court, the appearance of creating different rights and obligations. The passage from Diplock LJ's judgment as set out above has been applied in many subsequent decisions and treated as encapsulating the legal concept of this type of sham. …
"An inquiry as to whether an act or document is a sham requires careful analysis of the facts and the following points emerge from the authorities.
"First, in the case of a document, the court is not restricted to examining the four corners of the document. It may examine external evidence. This will include the parties' explanations and circumstantial evidence, such as evidence of the subsequent conduct of the parties.
"Second, as the passage from Snook makes clear, the test of intention is subjective. The parties must have intended different rights and obligations from those appearing from (say) the relevant document , and in addition they must have intended to give a false impression of those rights and obligations to third parties.
"Third, the fact that the act or document is uncommercial, or even artificial, does not mean that it is a sham. A distinction is to be drawn between the situation where parties make an agreement which is unfavourable to one of them, or artificial, and a situation where they intend some other arrangement to bind them. In the former situation, they intend the agreement to take effect according to its tenor. In the latter situation, the agreement is not to bind their relationship.
"Fourth, the fact that parties subsequently depart from an agreement does not necessarily mean that they never intended the agreement to be effective and binding … .
"Fifth, intention must be a common intention (see Snook)…
(i) Mr Lowish could not imagine someone buying or selling a bar without knowing what impurities were in it, yet Mr Cook's evidence was that a drilling sample was given to the client before any trade in platinum took place. Exagone could have returned it if it had been unhappy.
(ii) Mr Lowish would not ship material without fully insuring it. Mr Cook stated that he had obtained a quote, but it was too expensive for the profit margins at which they operated. He had taken the precaution of engaging a highly reputable carrier and it was perfectly sensible for a limited liability company with little capital to lose to take a risk that a company such as Englehard could not take.
(iii) Mr Lowish would not send the product to a customer without receiving money in advance. Plasma had taken steps to obtain Exagone's business registration ordinance, a copy of the passport of its officer Mr Bo, a copy of its accountant's address and its bank details. Mr Cummins had previously met Mr Bo. Mr Cook's evidence was that the industry in which he operated worked on the basis of trust. It was suggested that Exagone could, had it chosen, not paid for the second shipment and then realised a profit of £215,820.00.
(iv) Mr Lowish would always have had assays carried out. Mr Cook's evidence was that Exagone was happy with the assay test it itself had carried out and Mr Cook took the view that if Exagone was unhappy with the product it would have returned it.
(v) Mr Lowish pointed to the fact that the sale on 30 February 2004 was above the market price of platinum on that day. The price paid by Exagone was more than 85% of the market price of platinum on 13 February 2005; Mr Maugham calculated that the price was 93.7% of the platinum price on that day in the following way. Exagone had paid £13,650 per kilo. The price in US dollars on that day was $855 per kilo (from historical data on platinum prices from the Johnson Matthey website). The price paid by Plasma was (using exchange rates from the Bank of England website) $801.55 per troy ounce (£13,650.00 x 1.8879$/£ = $25,769.83;/32.15 troy ounces per kilo = $801.55. He calculated that on the 1 March transaction the price charged was less than 80% of the then market price. He calculated that using the exchange rates from the Bank of England website and historical data on platinum prices obtained from the Johnson Matthey website: price charged £12,296.00 per kilo; converted in to dollars 1.8692 = $22,983.00 per kilo; / 32.15 troy ounces per kilo = $714.89 per troy ounce which is 79.87% of the market price of one third of $895 per troy ounce. Mr Lowish' evidence was that platinum alloys were usually mixed with other precious metals such as gold, silver and palladium. In determining the price it was prepared to pay, Exagone would in all likelihood have taken into the account its knowledge of the composition of the remaining content of the bars.
Reasons for decision
"In the absence of fraud or abuse, … the principle of VAT neutrality requires …"
The Court in that case cited the case of Gabalfrisa SL & Others [2000] ECR 1-1577 where the ECJ held at paragraph 46:
" Article 4 of the Sixth Directive does not, however, preclude the tax authority from requiring objective evidence in support of the declared intention to commence economic activities which will give rise to taxable transactions. In that context, it is important to state that a taxable person acquires that status definitively only if he made the declaration of intention to begin the envisaged economic activities in good faith. In cases of fraud or abuse, … the tax authority may claim repayment of the sums retroactively on the grounds that those deductions were made on the basis of false declarations (Rompelman …)."
MISS J C GORT
CHAIRMAN
RELEASED: 14 March 2006
LON/04/1187
LON/05/0122