Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Armsarmah v Revenue & Customs [2007] UKVAT V19988 (26 January 2007)
URL: http://www.bailii.org/uk/cases/UKVAT/2007/V19988.html
Cite as: [2007] UKVAT V19988
[New search] [Printable RTF version] [Help]
- and –
- Robert Armsarmah ("the Appellant") appeals against an assessment to a Civil Evasion Penalty ("CEP") under s.60(1) VATA 1994 raised against a now dissolved company, Tonika Co Ltd ("Tonika") which had been attributed to the Appellant under s.61 VATA 1994. The assessment is for £35,231 reduced to £28,184. The Appellant was, at the material time between 15 January 1997 to 31 October 1997, the company secretary of Tonika and a director of Abtro Limited ("Abtro"), an associated company.
- The appeal concerns a number of VAT invoices used by Tonika to support claims for input tax recovery. The Commissioners for Revenue and Customs ("HMRC") contend that the invoices were not genuine and do not represent sales of goods to Tonika. It is alleged that the use of false invoices in this way was at the instigation of the Appellant, who was solely responsible for managing the business affairs of the company, Tonika. The contested invoices purport to emanate from fie entities which are:
- Tonika carries on business as a general importer and exporter of goods from Hendon, London NW4. It was registered for VAT with effect from 15 January 1997 under registration number 690 8112 32.
- On 22 October 1997, the Appellant was interviewed, pursuant to Notice 730, at HMRC office at Berkeley House, Regent Park Road, London N3. The interview was conducted by HMRC officers W R Cruickshanks and P Golightly. At the interview, various points were raised. The Appellant initially claimed that all invoices in Tonika's records were for genuine supplies of goods. In the course of the interview the Appellant confirmed that Tonika was involved in import and export business and that goods had been purchased from FA, TTM and DL and that they also conducted transactions for cash where customers would pay up to 75% of the money up front. A Notice 730 (1994) was issued to the Appellant and explained and the Appellant confirmed that he had heard and understood its contents.
- On 23 October 1997, the Appellant attended a further interview with HMRC officers W R Cruickshanks and F Jayakumar. He was reminded of the Notice 730 and given a copy to take away. During the interview, he confirmed that he had received false FA invoices from Tonika and that he had been dishonest in claiming input VAT using these invoices. He said the invoices of FC, DL and TTM were genuine.
- HMRC uplifted records from Tonika and conducted investigations with Tonika's suppliers. Witness statements were obtained from:
- By letter on 3 June 1998, HMRC through officer Stephens directed Tonika to reduce the sum claimed as repayment for the period to 31 July 1997 from £996.52 to £323.00 and for the period to 31 October 1997 from £1,384 to £688.52. On 9 June 1998, officer Stephens issued a Notice of Assessment against Tonika in the sum of £9,556.00 plus interest for the VAT quarter ending 30 April 1997.
- On 12 June 1998, the Appellant attended an interview with HMRC officers Cruickshanks and Coleman. He was reminded of Notice 730. The Appellant stated that the purchase invoices of Tonika were genuine and the company had bought approximately £40,000 worth of mobile phones from FC with the invoice supplied on delivery of the goods. He said that the original invoice was handwritten but he had asked for them to be typed. He accepted that the invoices of DC were photocopies but confirmed that he had the originals. He confirmed that he had received the top copy of the invoice from TTM and the TNW invoices were genuine. They were paid in cash for the mobile phones purchased. He said that he was speaking the truth and that the account given by the suppliers was false.
- On 23 October 1998, HMRC officers Cruickshanks and Coleman visited Vipul Raval, a director of Tonika. He confirmed that he had signed the Company's VAT return of 07/79 but had not compiled the information in the return. He said he had left the Company after the return was filed and was a director "in name only" and that the Appellant ran the business.
- By letter on 26 March 1999, HMRC notified Tonika of its liability to a penalty under s.60 VATA 1994. The amount considered to be the subject of an assessment was £35,231 (reduced by 20% in the discretion of HMRC for disclosure and co-operation). Tonika was informed that the conduct giving rise to the dishonest evasion was wholly attributable to the Appellant's conduct. By letter on 26 March 1999, HMRC issued a s.61 VATA 1999 notice against the Appellant. The total amounts assessed are broken down as follows:
- Relevant legal provisions
- Section 26 reads as follows:
- Section 60 of the VATA 1994 provides that:
- Section 60(2) and (3) set out how the amount of VAT evaded is to be determined for the purposes of the section. VAT evaded includes claiming a VAT credit that was not due. Section 60(7) states that the burden of proving dishonest evasion of VAT shall lie on the Commissioners. Nonetheless, by virtue of rule 7(2) of the VAT Tribunal Rules 1986 (SI 1986 No.590, as amended from time to time), the Commissioners are not required to prove any matter which is admitted by the Appellant in his Defence.
- Section 61 provides as follows:
- Section 70 VATA 1994 permits the Commissioners to reduce the penalty to such amount as they think proper by way of mitigation of the penalty. The same power is afforded to the Tribunal on appeal.
- Section 73(1) VATA 1994 states:
- 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 76 VATA 1994 reads:
- Section 76(3) governs the relevant period over which the evaded VAT is to be assessed.
- 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(n) confers a right of appeal on a person assessed to a penalty under section 60 or 61 VATA 1994. 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. Section 83(q) permits an appeal to be brought against the quantum of any penalty.
- Section 6(1) of the Human Rights Act 1998 ("HRA 1998") imposes an obligation on the Tribunal to act compatibly with Convention rights, as defined in section 1 HRA 1998 and Schedule 1. Schedule 1 incorporates the majority of the provisions of the European Convention on Human Rights (~"the Convention"). Article 6 provides as follows:
- Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law.
- Everyone charged with a criminal offence has the following minimum rights:
- Regulation 13 of the VAT Regulations 1995 requires a registered person who makes a taxable supply in the United Kingdom to provide a VAT invoice. Regulation 14(1)(g) requires "a description sufficient to identify the goods or services supplied" to be entered on a VAT invoice (save as the Commissioners may otherwise allow). 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 following witness statements were provided to the Tribunal:
- The Appellant states that he was only working for the company and did not know of and was not involved in any dishonest conduct. The false VAT return were done by other parties.
- The HMRC argue that the Appellant was responsible for dishonest evasions of VAT perpetrated by Tonika. He was the company secretary and was responsible for the management of the company. He signed two of the three VAT returns upon which the claim for repayment was based.
- We outline below our views.
- The Tribunal gave support and adopted the meaning of dishonesty in the criminal case of R v Ghosh [1982] 1 QB 1053, CA at p.1064 where Lord Lane C.J. set out the following test for dishonesty. He stated:
- The word "dishonesty" is a normal English word and the test of what constitutes dishonesty is the same in criminal and civil cases. This view is taken by Carnwath J in Staff (t/a De Wynns Coffee Shop) v Customs and Excise Commissioners [2000] STC 342 at 348.
- CEP are classified as criminal matters for the purposes of Article 6 of the Convention (see Hau & Yau v Commissioners of Customs and Excise [2001] EWCA Civ.1048; [2001] 1 WLR 2253 (CA) and certain minimum standards of fairness must be coupled with at the hearing.
- The recent Court of Appeal decision in Khan v HMRC [2006] EWCA Civ 89 lays down some guidelines when dealing with the CEP and dishonesty, these are:
- A note on the Notice 730 (1 December 1994). In investigating a CEP, there is a procedure to be followed by HMRC which is outlined in the Notice. The procedure simply involves investigating officers interviewing the Appellant, explaining the CEP procedure and asking for co-operation in dealing with the VAT. An explanation would be given of the underdeclaration and how it arises from the dishonest conduct. The Appellant and their advisors would be given an opportunity to offer an explanation. Under the CEP, the penalty starts at 100% of the VAT underdeclared and this is reduced with co-operation by the Appellant. An early and truthful explanation would give up to 40% reduction of the CE|P, co-operation in establishing the true amount of arrears will give up to 25% reduction and attending interviews and producing records and information will give up to 10% reduction of the CEP. The maximum reduction is 75%, which is provided in exceptional costs. In this case, the penalty was reduced by 20% to take account of disclosures and co-operation by Tonika. The Appellant confirmed in the interview transcripts that he understood what was explained by the HMRC officers on the Notice 730.
- Let us look at the evidence.
- HMRC disallowed three invoices from TNW to Tonika. These were:
- Invoice 11.8.97 No.4489 VAT £3,001.25
- Invoice 8.9.97 No.4672 VAT £3,001.25
- Invoice 18.9.97 No.4896 VAT £4,016.25
- HMRC disallowed fourteen invoices made by DL to Tonika between 28 February 1997 and 15 April 1997 totalling £12,349.95 of VAT. DL traded in electronic equipment. Mr Vijay Gulati, director DL gave evidence and provided a witness statement. He confirmed that the black and white photocopy invoices as well as the colour originals produced by DL were not genuine DL invoices. The colour original were presented by the Appellant to officer Stephens during her visit to Tonika's premises as confirmed in her supplementary statement of 24 August 2006. Mr Gulati said the invoices lacked sequential numbering and perforated edges and the figures in the invoice had been altered. The genuine DL invoices were shown to the Tribunal. He confirmed that he had dealt with a `Robert' from Tonika who had paid for goods in cash, with cash payments there was no name given on the invoice. The Appellant confirmed he had dealt with a "Vijay" from DL and had collected his goods from the back of the shop where parking facilities had been provided.
- The penalty assessment for input tax falsely claimed were for the quarters 04/97, 07/97 and 10/97. Where a notice is served under s.61 VATA 1994, as in this case, there is an appeal procedure laid out in the legislation. There has been no appeal on the assessment in this case. The Tribunal would not reopen the assessment for the purpose of assessing the penalty. The level of mitigation afforded to the Appellant for co-operation and disclosure is 20%, which is reasonable. There are no circumstances which would warrant the opening for review of the level of mitigation.
- The Appellant is a "named officer" of Tonika as the company secretary. He managed the company and the evidence shows that the invoicing at Tonika was attributable to his dishonesty either wholly or substantially. He was involved in the company's affairs, kept records, invoices, originals, made photocopies of invoices, dealt with suppliers, collected goods, loaded containers to Africa and was known at FC, TTM, FA and DL either by his real name or aliases. He signed the VAT returns. The Appellant has done nothing to disprove the charges made by HMRC and in fact has confessed to the falsification of invoices. There is a high degree of probability that the Appellant operated an organised and sophisticated operation of falsifying invoices from several companies in order to recover input tax which was not legitimately due to him or Tonika.
Armsarmah v Revenue & Customs [2007] UKVAT V19988 (26 January 2007)
19988
Value Added Tax – Evasion of Tax – Conduct involving dishonesty – Amount of Tax evaded – s 60 VATA 1994 – Appeal dismissed
ROBERT ARMSARMAH Appellant
Sitting in public in London on 25 September 2006
The Appellant in person
Kieron Beal, Counsel, instructed by Acting Solicitor for HM Revenue & Customs, for the Respondents
The Appeal
(1) Fancy-it Agency Ltd ("FA")
(2) Faweh Communications Ltd ("FC")
(3) Talk 'N' Walk Ltd ("TNW")
(4) This and That Midlands Ltd ("TTM")
(5) Desgate Ltd ("DL")
HMRC believe that the Appellant had rendered inaccurate VAT returns and that his conduct involved dishonesty.
Factual background
On 17 June 1997, HMRC officer Jill Stephens (then Jill Sheil) visited Tonika's premises to conduct a prepayment credibility check for the period 04/97. The VAT return for the period was not received until 28 May 1997 and was signed by the Appellant. During the visit, officer Stephens noted that several invoices were paid in cash and the sums received by Tonika were used to pay their suppliers and not banked. Some invoices from suppliers were made to "trade/cash" sale and not to Tonika. The invoices were uplifted to check their validity.
(1) Anthony Omosholape Fanehinmi, Director, of FC
(2) Vijay Gulati, Director, DL
(3) Mohammed Arif, Director, TTM
HMRC officers spoke to Mr Fanehinmi, the sole proprietor of FC who stated that his company had dealt with a man called Joe (an alias of the Appellant) from Tonika. He said Joe requested a quote for a large order of mobile phones and insisted that the quotation be typed on an invoice. Mr Fanehinmi was shown all the FC invoices in Tonika's records and he confirmed that one of the invoices was the quote prepared by him on 1 June 1997. He confirmed that his company had not traded and he had received no money from Joe nor made any supplies.
Mr Vijay Gulati of DL in his witness statement confirmed that the DA invoices in Tonika's records were not original invoices and did not match the invoices issued to customers.
Mr Mohammed Arif, of TTM, in his witness statement said that the invoices in Tonika's records were not issued by his company. They were of a different style and colour to the genuine invoices. He also confirmed that the company did not deal in large orders as stated on the invoices.
Oswald Bond, a director of TNW confirmed that his company would only sell two (2) mobile phones per customer. The TNW invoices in Tonika's records were different in style, numerical sequence and quantity of phone from genuine TNW invoices. HMRC officers Cruickshanks and Coleman uplifted copies of TNW invoices found on the premises.
| Supplier | Total due (£) | Period | Amount assessed |
| Fancy-it Agency Ltd | 2,362.50 | 04/97 | 9,556.00 |
| Faweh Communications | 7,157.00 | 07/97 | 15,520.00 |
| Talk 'N' Walk Ltd | 10,018.75 | 10/97 | 10,155.00 |
| This & That Midlands Ltd | 3,142.87 | ||
| Desgate Limited | 12,349.95 | ||
| Total | £35,031.07 |
(1) The Value Added Tax Act 1994
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) …
(c) …
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 …"
"(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."
"(1) In any case where –
(a) for the purpose of evading VAT, a person does any act or omits to take any action, and
(b) his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability),
he shall be liable, subject to subsection (6) below, to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded by his conduct."
"(1) Where it appears to the Commissioners –
(a) that a body corporate is liable to a penalty under section 60, and
(b) that the conduct giving rise to that penalty is, in whole or in part, attributable to the dishonesty of a person who is, or at the material times was, a director or managing officer of the body corporate (a "named officer"),
the Commissioners may serve a notice under this section on the body corporate and on the named officer.
(2) A notice under this section shall state –
(a) the amount of the penalty referred to in (1)(a) above ("the basic penalty") and
(b) that the Commissioners propose, in accordance with this section, to recover from the named officer such portion (which may be the whole) of the basic penalty as is specified in the notice.
(3) Where a notice is served under this section, the portion of the basic penalty specified in the notice shall be recoverable from the named officer as if he were personally liable under section 60 to a penalty which corresponds to that portion; and the amount of that penalty may be assessed and notified to him accordingly under section 76.
(4) Where a notice is served under this section –
(a) the amount which, under section 76, may be assessed as the amount due by way of penalty from the body corporate shall be only so much (if any) of the basic penalty as is not assessed on and notified to a named officer by virtue of subsection (3) above; and
(b) the body corporate shall be treated as discharged from liability for so much of the basic penalty as is so assessed and notified.
(5) No appeal shall lie against a notice under this section as such but –
(a) where a body corporate is assessed as mentioned in subsection (4)(a) above, the body corporate may appeal against the Commissioners' decision as to its liability to a penalty and against the amount of the basic penalty as if it were specified in the assessment; and
(b) where an assessment is made on a named officer by virtue of subsection (3) above, the named officer may appeal against the Commissioner's decision that the conduct of the body corporate referred to in subsection (1)(b) above is, in whole or part, attributable to his dishonesty and against their decision as to the portion of the penalty which the Commissioners propose to recover from him."
"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."
"(1) Where any person is liable –
(a) …
(b) to a penalty under any of sections 60 to [69A], or
(c) …
the Commissioners may, subject to subsection (2) below, assess the amount due by way of penalty, interest or surcharge as the case may be and notify it to him accordingly; and the fact that the conduct giving rise to a penalty under any of sections 60 to [69A] may have ceased before an assessment is made under this section shall not affect the power of he Commissioners to make an assessment."
The Human Rights Act 1998
"1. In determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law …
(a) to be informed promptly, in a language which he understands and in detail, of the nature and cause of the accusation against him;
(b) to have adequate time and facilities for the preparation of his defence;
(c) to defend himself in person or through legal assistance of his own choosing or, if he has no sufficient means to pay for legal assistance, to be given it free;
(d) to examine or have examined witnesses against him or to obtain the attendance and examination of witnesses on his behalf under the same conditions as witnesses against him;
(e) to have the free assistance of an interpreter if he cannot understand or speak the language used in court."
The VAT Regulations 1995
"(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 29(2) requires a person to hold a proper VAT invoice for this purpose.
Copy witness statement of Mohammed Arif dated 7 May 1998
Copy witness statement of Omosholape Fanehinmi dated 12 May 1998
Copy witness statement of Vijay Gulati dated 17 March 1998
Copy witness statement of William Robert Cruickshanks dated 5 May 2000
Copy witness statement of Renford Coleman, undated
Copy witness statement of Jillian Roseline Stephens dated 19 April 2004
Copy witness statement of Renford Coleman dated 31 August 2006
Copy witness statement of Jill Stephens dated 24 August 2006
Copy witness statement for William Robert Cruickshanks dated 27 July 2006
Copy witness statement of Paul Golightly dated 8 August 2006
Copy witness statement for Flora Jayakumar dated 24 August 2006
All the above persons were also called as witnesses by HMRC except Mr Fanehinmi. The Appellant called no witnesses and made an unsworn statement without going into the witness box.
Appellant's case
Commissioner's case
Let us first examine the case law. The Tribunal must decide by the ordinary standards of reasonable and honest people whether or not what the Appellant did was dishonest. S.60(7) VATA 1994 places on HMRC the burden or proving such dishonesty. They must prove that the Appellant had taken or omitted to take action "for the purpose of evading tax" and his conduct involves dishonesty. The standard of proof is on the civil level of a balance of probabilities not the criminal standard of beyond reasonable doubt. The factors to be established in relation to CEP are laid out by the VAT Tribunal in Ghandi Tandoori Restaurant v Commissioners of Customs and Excise (1989) VATTR 39 at 45C where the Tribunal stated:
"… before a taxpayer can be made liable to a penalty under this section the following matters must be established:
(1) that the taxpayer has done a specified act or has omitted to take some specified action;
(2) that the taxpayer's purpose in doing or omitting to do the act in question was to evade tax; and
(3) that the taxpayer's conduct in connection with the action or omission involves dishonesty."
The issue of what conduct involves dishonesty was explained by the Tribunal at p.47 B-C where it was said:
"Parliament must have intended to add a further mental element in addition to the mental element of intending to evade tax. We think that that element can only be that when he did, or omitted to do, the act with the intention of evading tax, he knew that according to the ordinary standards of reasonable and honest people that what he was doing would be regarded as dishonest. … In the majority of cases brought under this section the course of conduct adopted by the taxpayer will be such that the necessary mental element of dishonesty can be readily inferred."
"In determining whether the prosecution has proved that the defendant was acting dishonestly, a jury must first of all decide whether according to the ordinary standards of reasonable and honest people what was done was dishonest … If it was dishonest by those standards then the jury must consider whether the defendant himself must have realised that what he was doing was by those standards dishonest. In most cases, where the actions are obviously dishonest by ordinary standards, there will be no doubt about it. It will be obvious that the defendant himself knew that he was acting dishonestly. It is dishonest for a defendant to act in a way which he knows ordinary people consider to be dishonest, even if he asserts or genuinely believes that he is morally justified in acting as he did. For example, Robin Hood or those ardent anti-vivisectionists who remove animals from vivisection laboratories are acting dishonestly, even though they may consider themselves to be morally justified in doing what they do, because they know that ordinary people would consider these actions to be dishonest."
(a) The burden of proof lies with HMRC to prove an intention to evade VAT and dishonesty in the case of CEP. However, in calculating the amount of tax due the burden rests with the taxpayer.
(b) In most cases, proof of intention to evade tax is likely to depend partly on proof of evasion.
(c) Section 73(9) VATA 1994 provides that the assessed amount subject to appeal, is "deemed to be an amount of VAT due." Where there is no appeal against the assessment, this provision would appear to preclude any attempt to reopen the assessment for the purpose of assessing the penalty.
(d) The standard of proof is on a balance of probabilities.
The last point is supported by Lord Nicholls in R H [1966] C 563 at 586-7, where he said:
"The more improbable the event, the stronger must be the evidence that it did occur before, on a balance of probabilities, its occurrence will be established."
The case of James Ashworth Waterfoot (Successors) Ltd v Commissioners of Customs and Excise [1996] V&DR 66 held that it was open, in exceptional cases, to increase the penalty that fell to be paid.
A word about fairness. The Appellant confirmed at the start of the hearing that he would represent himself. During the hearing he asked for legal assistance from a solicitor. The Tribunal offered the contact details of the pro-bono service offered by the Revenue Bar. The Appellant contacted a solicitor who asked for an adjournment. However, since the Appellant had not previously arranged legal representation and could not arrange such representation when the hearing had started, a decision was made to proceed with the hearing. The Appellant was afforded several breaks requested during the hearing and points of law, procedure and documents were explained in great detail to assist the Appellant. As the hearing proceeded, the Appellant became more familiar with the procedure.
The Appellant was the company secretary of Tonika, the director was Mr V Raval, who said he was a director "in name only" and was not involved in the management of the company. The HMRC interviewing officers, Cruickshanks and Coleman formed the view during the interview that the Appellant was responsible for the management of the Company and had signed two of the three VAT returns upon which the claim for repayment had been made. Tonika is now dissolved and there has been no appeal against the penalty assessment.
In the interview conducted on 23 October 1997 by HMRC officers Cruickshanks and F Jayakumar, the Appellant confirmed that invoice number 010215 dated 28 March 1997 from FA with VAT of £2,362.00 was a false invoice. Copies of blank FA invoices were with the records of the associated company, Abtro and Tonika. The Tribunal were presented with blank FA invoices which were in the possession of the Appellant.
HMRC disallowed an invoice issued by FC dated 1 June 1997 for VAT amounting to £7,157.00. The sole proprietor of FC, Anthony Fanehinmi gave a statement to officer Cruickshanks on 12 March 1998 where he continued that FC had not traded and had submitted nil VAT returns until 06/97. Mr Fanehinmi confirmed that he had met a man called Joe (an alias of the Appellant) who ran a company called Tonika and who had requested a quote for an order of £48,000 worth of mobile phones. He was asked to prepare the quote using a formal invoice which was typed with Company and VAT details. This was done. He was shown an invoice for £48,057.00 dated 1 June 1997 by the interviewing officers and confirmed that it was the invoice which was given to Joe. He was also shown other invoices made out by FC to Abtro Ltd and confirmed that those invoices were false. There was no purchase order, sale, payment or delivery of goods by Tonika. There is a very high probability that Tonika simply used the quote from FC to prepare an invoice which was used to recover input tax.
The total VAT disallowed was £10,018.75. On 5 May 2000, HMRC officers Cruickshanks and Coleman visited Oswald Bond, director, TNW at his business premises and uplifted invoices used in the business. The uplifted invoices were different in typeface, style, and layout from the TNW invoices Tonika had presented in reclaiming VAT. The sequential invoice numbers used by TNW genuine invoices had reached number 2923 whereas the invoices produced by Tonika commenced at 4489. Mr Bond confirmed to the HMRC officers that his company did not sell more than two mobile phones per customer and the invoices produced by Tonika showed the purchase of large quantities of phone. It is very probable that the invoices produced by Tonika originated from blank copy invoices to which sales details were added. The false TNW invoices showed to the Tribunal were different in layout and form to the genuine invoices.
HMRC disallowed approximately twenty-five invoices issued by TTM to Tonika between February 1996 and February 1998 with a total VAT reclaim of £3,142.87. The amounts on each invoice was relatively small. Mr Mohammed Arif, a director of TTM gave oral evidence and a witness statement dated 7 May 1998. He confirmed that he did not know the Appellant personally but know one of his friends, Mahesh (Mic) Kotecha. In his evidence he confirmed that the invoices from TTM used by Tonika were not genuine. The invoices were blue not white, the size was A5 and the quantity of goods was larger than they would normally supply. Further, they would not supply goods to a customer unless the cheque making payment had cleared and they did not deliver goods to London, it being too far from Leicester. In the circumstances he said that he did not believe the transactions had taken place.
The Appellant said that he had not met Mr Arif and was aware that the cheque making payment had bounced. He confirmed that he had collected the goods from Leicester but could not confirm the collection address. He said that some of the goods purchased went to one of Mahesh Kotecha's three shops. He said the goods were definitely received and some were loaded onto a container for Ghana.
If we look at the invoices, there is inconsistency between the genuine TTM invoices and those held by Tonika. The colour, size, form and quantity of goods do not match genuine invoices. There was also no payment since the cheque making payment was not honoured. If TTM confirmed that the invoices were not theirs then the Tonika invoices representing TTM purchases were false. The invoices also did not match genuine invoices.
It is clear from the evidence of Mr Gulati and officer Stephens that the DC invoices produced by Tonika were not genuine. It is reasonable to assume that Tonika conducted some genuine business with DL and had paid in cash for goods. It is possible that these were goods for customers in Africa who had paid cash and invoices in such cases would not be made to Tonika. However, the DL invoices used by Tonika to reclaim VAT were false. The Appellant at his interview confirmed that he had altered invoices for goods shipped to Africa in order to obtain reduced import duty in the importing country. He said this was not done on Tonika invoices. The alterations were made on a typewriter which was kept at Tonika's premises. The Appellant said that there were at least three containers of goods sent to Africa by air and sea but there was little documentary evidence to support such exports. There were therefore significant cash sales made by the Appellant.
There are a number of points which emerge from the evidence. The first and perhaps the most important is that the Appellant admits in his interview on 23 October 1997 that he used false FA invoices in seeking to recover input VAT by Tonika. The actual invoice creating operation seems to have involved several people. He had obtained blank invoices (from JAY at FA) which were completed with false details and passed off as legal invoices. These invoices included 58936 (2/1/97); 53780 (19/12/96); 60983 (29/1/97) and 59987 (25/1/97), all FA invoices. Goods were not purchased and money was not paid for items listed on the invoice. Several blank FA invoice were given to third parties and it is not clear why this was done or whether the blanks were used by those parties. The Appellant knew that he had acted dishonestly in claiming VAT in respect of those invoices but claims that all other invoices used by Tonika were genuine.
The second point which emerges is that proper invoices were obtained for quotes on goods which did not result in a sales transaction. The quotes were typed on forms which were capable of being used as invoices. The quotes were either used or altered and then used to reclaim VAT. This was done with FC invoices.
The third finding is that the invoices were used by Tonika to reclaim VAT when the goods listed on the invoice were not supplied to them by the vendors but were for third parties. The Appellant confirmed that goods purchased from TTM were for the shops of Mahesh Kotecha, a business acquaintance. The invoices were made to Tonika.
The fourth point is that genuine invoices were altered or falsified or used as the basis for the creation of invoices which were used by Tonika in making input tax claims. The invoices of TNW, TTM and DL were altered since the colour, size, layout, typeface and style did not match the originals or they were simply photocopies where the original invoice were not with Tonika.
The invoices were created because there were no genuine invoices, the goods had not been supplied and no payment had been made to the vendor. In one case, there is no evidence that the supplier had ever traded. The clear intention was dishonesty. A dishonest intention is also present in altering export invoices for sales to Ghana. The Appellant was clearly involved in the management of Tonika and involved in all transactions.
HMRC have established that the Appellant acted to evade tax, not just in the FA claims, which is admitted. This has been established from the copious evidence provided by witnesses and suppliers of goods who have carefully shown that invoices were altered, no payment was made for goods and no goods were supplied on the invoices used to reclaim VAT.
The Notice 730, Investigations, Statement of practice was explained to the Appellant and understood by him. This was confirmed in the transcripts to the interview conducted on 23 October 1997 (see statement of Paul Golightly, officer, HMRC, dated 8 August 2006). There was a proper explanation of the penalty regime and how it can be reduced by truthful admissions, co-operation, information, attending interviews and giving honest answers and true facts. The Tribunal is satisfied that the Appellant was fully informed within the CEP procedure as laid out in Notice 730. The Tribunal feels that the requirements of section 6(1) of the HRA 1998 were complied with and the Appellant had ample opportunity to conduct his case fairly.
In conclusion, the Tribunal believes that the Appellant was responsible for the dishonest evasion of VAT perpetrated by Tonika and the civil evasion penalty attributable to him should be recovered from him. The parties may make representations as to costs.
The appeal is accordingly dismissed.
LON/99/750