United Kingdom VAT & Duties Tribunals Decisions

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K I Associates Ltd v Revenue & Customs [2007] UKVAT V20428 (22 October 2007)

20428

SECURITY — Commissioners relying upon three factors — one factor erroneous — second factor altered by evidence given at the hearing — should Commissioners' decision be judged in the light of such evidence — no — would Commissioners' decision inevitably be the same notwithstanding the error — yes — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

K I ASSOCIATES LIMITED Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting (Chairman)

John Lapthorne FCMA

Sitting in public in Birmingham on 5 September 2007

Philip Rayner, VAT Consultant for the Appellant

Richard Mansell, of the Solicitor's Office of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The Appellant appeals against the decision of the Commissioners contained in a letter dated 6 October 2006 to require security under paragraph 4(2)(a) Schedule 11 Value Added Tax Act 1994. The amount of security then required was £9,900 which was later reduced to £7,200.

With the consent of the parties, the order of proceedings was reversed with the Commissioners presenting their case first. On behalf of the Commissioners, we heard oral evidence from Mr Nigel Ridsdel, whose decision it was to raise the requirement and on behalf of the Appellant, oral evidence was given by Mr Khalid Iqbal.

The Evidence

The Appellant carries on a business in the wholesale of jewellery from premises in Saltley, Birmingham. In August 2006, officers attended at the business premises in what appears to have been a pre-registration visit. The officers interviewed Mr Iqbal. The officers clearly had concerns about the application for registration both from what they were told and from information which they had otherwise obtained. The officers prepared a report which concluded that they very reluctantly thought that registration had to be allowed but recommended the imposition of securities. Registration took effect from 15 January 2006. The officers passed a copy of their report to Mr Ridsdel. The report referred to two associated businesses into which Mr Ridsdel made further enquiries. He learnt that Mr Khalid Iqbal, who was a director of the appellant company, had also been a director of two earlier companies which had gone into liquidation with an outstanding liability to the Commissioners. Miss Siama Limited had been registered from 1 September 2003 to 24 January 2005. It was in the business of retailing womens wear and went into liquidation on 10 January 2005 owing the Commissioners £17,984.17. MI Jewellers Limited had been registered from 1 August 2000 to 5 June 2006. Its business was described as retailing jewellery, clocks and watches, and this company had gone into liquidation on 3 May 2006 owing the Commissioners £12,481. Miss Siama had not lodged its returns for periods 07/04, 08/04, 09/04, 12/04 or 03/05. Default surcharges against this company were also outstanding in the sum of £1,033.55. MI Jewellers Limited had lodged no returns after October 2005.

In addition to the report from the visiting officers, Mr Ridsdel obtained a copy of the Statement of Affairs in the liquidation of MI Jewellers Ltd. The trading history contained the following statement from Mr Khalid Iqbal:

"The company experienced a huge loss of stock caused by a robbery. There had been a delivery of stock at the Bradford shop after working hours, and the director decided to take the stock home and not open the safe due to the lateness of the hour. Over £150,000 worth of stock was stolen, and the company appointed a loss adjuster and subsequently solicitors to retrieve their claim from the insurance company. The insurance company disputed the claim and the director felt that he had little option but to take them to court. Unfortunately, the potential cost of legal action was in the region of £40,000 and given the effect the theft had on the Company's cashflow, the director was unable to pursue the matter."

The Appellant's visiting officers' report had also dealt with this robbery in the following terms:

"MI Jewellers had gone into liquidation as his nephew had been kidnapped and beaten and brought to the shop and made to open up and jewellery on display was stolen. As it was not in the safe it was not insured. Also a lengthy and costly court case followed. This happened 2 years ago."

To Mr Ridsdel, these two statements were in direct conflict with each other. He accepted there had been a robbery but the circumstances of the robbery had been described so differently by Mr Iqbal that it raised in his mind the question of Mr Iqbal's credibility and truthfulness. To Mr Ridsdel it called into question the accuracy and truthfulness of future VAT declarations.

The report from the visiting officers also contained a reference to Mr Iqbal having been recently to Dubai and being detained at Heathrow for attempting to smuggle jewellery in from Dubai and India. The report goes on to say that Mr Iqbal "confirmed the story about the Heathrow seizure" but went on to tell the officers that the importation was seized as Mr Iqbal had not at the time been registered for VAT and he was therefore not allowed to bring the goods in free of duty. He had therefore arranged for a company called Diamond Jewellers, who were registered, to make the purchase and pay the duty. This company had sold the goods back to Mr Iqbal.

Mr Ridsdel, taking into account the two previous failed companies; the conflicting statements with regard to the robbery and the fact of Mr Iqbal's detention at Heathrow, believed that there was a sufficient risk to the Revenue to justify a request for security. No return had by this time been lodged by the Appellant and Mr Ridsdel therefore calculated the amount of security required from the predicted turnover in the application for registration. The letter of the 6 October 2006 was duly issued.

The Appellant appealed against the Requirement and in the normal course of events, the Statement of Case was prepared and served. This would have been the first opportunity which Mr Iqbal would have had of seeing the reasons behind the request for security. The Statement of Case listed the failed companies, the conflicting versions of the robbery and the detention at Heathrow. Mr Rayner was representing the company and informed the Commissioners that the Heathrow detention allegation was false. Mr Iqbal had never been detained at Heathrow. Mr Ridsdel was asked by the Solicitor's Office to substantiate the information contained in the report of August 2006. Mr Ridsdel contacted the officer who had prepared the report and double checked the references which she provided to him. The double check revealed that the references had nothing whatsoever to do with any detention at Heathrow. Mr Ridsdel advised the Solicitor's Office of this and recommended the amendment of the Statement of Case to delete the Heathrow detention as one of the grounds upon which security was required. This was duly done.

In his oral evidence, Mr Ridsdel accepted that the information he had about the Heathrow detention was incorrect and should not therefore have been a factor which was taken into account. He did, however, say that even without that factor, his decision would have been identical and the removal of this information would not have led him to any different conclusion. In cross examination, Mr Rayner asked whether Mr Ridsdel accepted that it was possible for companies to go into inevitable liquidation, to which Mr Ridsdel replied "Yes" and he also accepted that cases did come before him when there had been earlier liquidations and in which he did not seek security. In answer to questions from the Tribunal, Mr Ridsdel stated that it was quite typical to require security in cases where previous companies had gone into liquidation and no other factors were involved. In the case of the Appellant, he attached "the lion's share of weighting" to the failed companies but it was not the policy of the Commissioners to attach particular percentages to various factors. He concluded by saying that in this case, even without any other factors, the failed companies would have been sufficient to merit the requirement for security.

Mr Ridsdel was later recalled to give evidence after Mr Iqbal had given his evidence and we deal with that aspect of Mr Ridsdel's evidence later in this decision.

Mr Iqbal, in his evidence, outlined the trading history of his two failed companies. Miss Siama had been a retailer in fashion goods. At its height, this company had some 15 outlets but had been badly hit by the spread of the large multiples, the increasing importation of cheap goods from China and high rents. He was left with no alternative but to liquidate.

In relation to the Heathrow incident, he confirmed that he had told the visiting officers about the seizure of his imported goods at Heathrow and that was what he had confirmed to them not the fact of his detention. The goods had been seized because the importing company had not been registered and that was why Diamond Jewellers, who were a registered company, had to make the purchase on his behalf.

Mr Iqbal described in some detail the circumstances of the robbery. He had told the visiting officers about the robbery because it is one of the factors which had been relevant in the liquidation of MI Jewellers

He told us the robbery had taken place in 2002 or 2003. The company had been expecting a delivery of jewellery. The supplier had been held up and arrived at the premises as the shop was closing and after the safe had gone into timelock which could not be manually overridden and Mr Iqbal and his nephew who were at the premises awaiting the delivery were not therefore able to open the safe to store the goods. It was therefore decided that the nephew would take the goods home with him overnight. During the night, a robbery took place at the nephew's house when the delivery was stolen. The robbers kidnapped the nephew and his wife, held the wife at gunpoint, whilst the nephew was driven back to the shop to unlock it and handover the display goods. The nephew was himself badly injured in the robbery. Mr Iqbal was asked by both Mr Rayner and Mr Mansell about the differing versions of events which he had given to the officers and in the Statement of Affairs. Mr Iqbal explained that in both cases it was the fact that there had been a robbery which was important and he attached no importance to the actual circumstances of the robbery in conveying this information. How it had occurred was not relevant in the context in which the information was supplied. In cross-examination, Mr Iqbal accepted that he was the person responsible for dealing with the VAT affairs of both the failed companies. He could not recall why VAT returns had not been submitted and neither could he recall Miss Siama being assessed to surcharges.

Until Mr Iqbal gave his evidence, the Commissioners had not been made aware of the facts of the robbery and Mr Ridsdel was therefore recalled. He said that he accepted the truthfulness of Mr Iqbal's explanation of the robbery and that it had happened as Mr Iqbal described. He also accepted that both of the statements regarding the robbery which he had taken to be in conflict with each other, were in fact consistent with the circumstances. He went on to say that he would now eliminate from his thinking the different versions of the robbery. It no longer raised in his mind an issue of Mr Iqbal's credibility and was not a factor which he would have taken into account had he known the circumstances.

Case Law

We were referred by Mr Mansell to the following two cases:

Commissioners of Customs and Excise v Peachtree Enterprises Ltd QB 1994 STC 747

Commissioners of Customs and Excise v John Dee Ltd CA 1995 STC 941

Submissions

Mr Mansell submitted that the Commissioners had acted entirely reasonably in raising the requirement. They conceded the Heathrow detention as a factor as soon as they were made aware of the facts but had not been told the true story of the robbery until the day of the hearing. The tribunal should limit itself to considering the information which Mr Ridsdel had in front of him. The information which Mr Risdal had about the robbery reflected doubt and inconsistency. There was the issue of the failed companies and the fact that Mr Iqbal was unable to say why he had not put in any returns. In all the circumstances, the Respondents' decision had been reasonable.

Mr Rayner contended that with the Commissioners conceding that the Heathrow factor had been erroneous, that left the failed companies and the robbery. If the only issue had been the liquidation of Miss Siama, it is unlikely that a security demand would have been made and therefore the Commissioners' case came down to the theft. As Mr Ridsdel accepted Mr Iqbal's evidence on this, that factor should be taken out of account. In all these circumstances, the Commissioners had not acted reasonably.

Conclusions

The tribunal is limited in jurisdiction to considering whether the Commissioners had acted in a way in which no reasonable panel of Commissioners could have acted or whether they had taken into account some irrelevant matter or had disregarded something to which they should have given weight. The tribunal cannot exercise a fresh discretion. The limit of our jurisdiction is therefore to consider whether or not the Commissioners in raising the request for security against the Appellant acted reasonably.

In concluding that there was a sufficient risk to the Revenue to justify a demand for security, Mr Ridsdel took into account three factors namely the Heathrow detention, the differing versions of the circumstances of the robbery, and the two failed companies. Different considerations apply to each of these factors and we therefore take them in turn. Starting with the Heathrow detention, Mr Ridsdel personally cannot in any way be blamed for including this as one of his factors. He had a report from fellow officers which quite clearly recited it. He took this statement at face value, having no reason to doubt it. As soon as a question as to the accuracy of the statement arose, he double checked, found it to have been incorrect and on his recommendation it was removed from the Statement of Case. Clearly, to merely delete it from the Statement of Case does not delete it as a factor in Mr Ridsdel's thought process and although Mr Ridsdel cannot personally be blamed, the Commissioners as a body are quite obviously to blame in that a clearly incorrect statement should not have been made. It follows therefore that the Commissioners were in error in including this as a factor. The information upon which Mr Ridsdel relied was quite simply wrong and he took into account an incorrect fact.

With regard to the robbery, Mr Ridsdel now accepts that the conclusion which he drew was not one which he would now draw had he known at the time the true circumstances of the robbery. Once he had heard Mr Iqbal's evidence, the statements which he had regarded as having been in conflict with each other, whilst remaining conflicting, did not raise in his mind any doubt as to Mr Iqbal's credibility, both statements being consistent with Mr Iqbal's evidence. The question arises, however, how far we the tribunal can take the new evidence into account in judging the reasonableness of Mr Ridsdel's decision. Referring ourselves to the judgment of Dyson J in Peachtree, we note the following extract:

"In my judgment, in exercising its supervisory jurisdiction the tribunal must limit itself to considering the facts and matters which existed at the time the challenged decision of the Commissioners was taken. Facts and matters which arise after that time cannot in law vitiate an exercise of discretion which was reasonable and lawful at the time that it was effected."

Dyson J further went on to say:

"Turning to principles of administrative law, there is no authority to support the proposition that a court in exercising supervisory jurisdiction in public law may assess the reasonableness of a decision by having regard to facts and matters arising subsequent to the taking of the decision. In fact, the conditions are very circumscribed in which fresh material, relevant to matters which existed at the time of the decision (but unknown to the decision-maker) may be admitted on judicial review (see R v Secretary of State for the Environment, ex p Powis [1981] 1 WLR 584 at 595–597, and, in particular, the citations (at 596–597) from Secretary of State for Education and Science v Tameside MBC [1977] AC 1014 at 1052, 1076, which emphasise that the only relevant material is that existing at the time of the decision). The case where matters only come into being after the taking of the decision is plainly a fortiori the case where matters exist at the time of the decision but are unknown to the decision-maker. It would, in my judgment, be quite contrary to principle to allow a person seeking to impugn a decision by invoking the supervisory jurisdiction of a tribunal to rely on matters which the decision-maker cannot be criticised for not having taken into account."

It is clear from this judgment that we are limited to considering the facts and matters which were known to Mr Ridsdel when he made the decision. We cannot attribute to him information which later came to light or judge him in the light of information which he only later learnt. We have to judge the reasonableness of the view he took on the basis of the facts, material and information known to him at the time he took the decision. He had not then had the benefit of hearing Mr Iqbal. He had before him two statements which he quite understandably believed to throw up conflicting versions of the robbery and, in our view, he cannot be faulted for forming the view that the statements were in conflict or in concluding from the apparent conflict that an issue of credibility arose. Further, it is clearly an entirely relevant matter in a decision over security to consider the credibility and truthfulness of the officers of the company. It follows that Mr Ridsdel's reliance upon this as a factor and his interpretation of this were both, in our view, fully reasonable.

There remains the matter of the failed companies. Mr Rayner sought to argue that the liquidation of the two companies was inevitable. A liquidation can certainly be inevitable but to fail to render returns is not an inevitability. Further there was no compelling evidence before us as to why it was inevitable that the companies should go into liquidation owing the Commissioners a not insubstantial sum of money. The facts of these two failed companies were not in dispute and it was again an obvious and reasonable factor for Mr Ridsdel to take into account.

The remaining issue before us is whether or not the Commissioners' obvious error in relation to the Heathrow detention renders Mr Ridsdel's decision fatally flawed. In our view, it does not. To Mr Ridsdel it was far from the major factor in his thinking and his evidence was that even without either the Heathrow incident or the robbery, there was, in his view, sufficient evidence to warrant security in the fact of the failed companies alone. In line with John Dee, we believe that even without the Heathrow incident, Mr Ridsdel's decision would inevitably have been the same. This therefore allows us to dismiss the appeal, notwithstanding the Commissioners' error. We would add that even if Mr Ridsdel could have been criticised for the view he took over the robbery, leaving only the failed companies as a valid factor, we are still of the view that his decision would inevitably have been the same. We found Mr Ridsdel to be a straightforward and very fair witness. His evidence was to the effect that the failed companies alone would have justified a decision to require security. We have no reason to disbelieve that and such a view would be reasonable.

Mr Ridsdel reduced the original amount of security required down to £7,200 on receipt of the first long period VAT return, the amendment being based upon the figures contained in the return. Mr Rayner did not challenge the amount required.

The appeal is therefore dismissed. Mr Mansell made no application for costs and we make no order.

LADY MITTING

CHAIRMAN
Release Date: 22 October 2007

MAN/06/0785