20634
VAT INPUT TAX input tax on an inward supply of mobile phones input tax claim originally denied because the disputed supply formed part of a chain of supplies involving a missing trader following ECJ decision in Optigen Limited and others input tax claim still denied but for an additional reason namely no onward supply of mobile phones took place Respondents conceded that the Appellant was honest and an unwitting party to a fraud found that the Appellant intended to make an onward supply but no supply took place because of a fraud committed by others applying the principles in Optigen satisfied that the input tax on the inward supply was attributable to a taxable supply Appeal allowed.
LONDON TRIBUNAL CENTRE
ROSS PHARMACY LIMITED Appellant
- and -
HER MAJESTY'S REVENUE and CUSTOMS Respondents
Tribunal: MICHAEL TILDESLEY OBE (Chairman)
SHEILA WONG CHONG FRICS (Member)
Sitting in public in London on 7, 8, 9 November and 18 December 2007
Andrew Young counsel instructed by Needleman Treon Solicitors for the Appellant
Nicola Shaw, counsel instructed by the Solicitor for HM Revenue & Customs, for the Respondents
© CROWN COPYRIGHT 2008
DECISION
The Appeal
The Dispute
(1) The Appellant was not dishonest.
(2) The Appellant was an unwitting participant in a fraud.
(3) This Appeal was not a means of knowledge case.
(4) No challenge was made to the authenticity of the documents evidencing the supply of mobile telephones from Ravjani Corporation Limited to the Appellant dated 23 June 2003. The Respondents did not dispute the Appellant's claim for input tax on the basis of the documentary evidence. However, they did not accept that the documentary evidence on its own demonstrated that the Appellant purchased 2,500 Nokia 7250 phones, but they did not take the point.
The Hearing
(1) The events giving rise to the Appeal were over four years old.
(2) The history of the proceedings, in particular the Tribunal directions released in May 2007 which ordered an expedited hearing of the Appeal.
(3) The Respondents arranged for their crucial witness, Officer Roosen of the Netherlands Tax Authorities, to give evidence on 9 November 2007. The Tribunal was aware that the Netherlands' Authorities were reluctant to sanction the attendance of their Officers at overseas civil proceedings, which posed significant difficulties in finding new dates for the hearing.
(4) The Tribunal was not convinced that Officer Birchfield's evidence was critical to the Appeal, particularly as two of the investigating Officers were present. In any event it was likely that the Appeal would go part-heard in which case the hearing could be resumed on a date convenient to Officer Birchfield.
The Background
The Facts Found
The Appellant's Business
Due Diligence
Ravjani Corporation Limited
YM International BV
(1) Requests from HM Revenue and Customs to investigate various consignments of old mobile phones from YM International BV which had been intercepted by the United Kingdom Authorities.
(2) Information from the Operations Manager of Allsafe Storage Unit about one of its customers, YM International BV, which was unloading consignments of old mobile phones on a daily basis from United Kingdom registered vehicles.
(3) An audit of the accounting records of YM International BV by officers of the Netherlands Tax and Customs Administration which showed that sales of goods took place before they were purchased, and that third parties rather than the named customer were paying the sales invoices of YM International BV.
Appellant's supply to YM International BV
(1) The contrasting figures for the weight of the mobile phones in the stock control report issued by First Issue Limited and the CMR produced by the Appellant for which Mr Dharras offered no explanation.
(2) The stock control report and the CMR when taken together portrayed an implausible journey for the goods which involved First Issue Limited collecting the mobile phones at Wembley, carrying them north to Cheadle, Staffordshire to perform the stock check, and then returning south with the mobile phones to Harwich for the trip to Holland. Mr Dharas' initial response in cross-examination was that the phones were not collected from Wembley but were already with First Issue Limited at their premises in Cheadle. When the contents of his witness statement and the CMR were drawn to his attention, Mr Dharas stated that he believed that the phones were at Cheadle but he could not now be sure 100 per cent.
(3) First Issue Limited invoiced the Appellant for the IMEI scans of 2,500 mobile phones despite the Appellant only receiving scans for 2,100 phones. Mr Dharas was unable to explain this inconsistency.
(4) The vehicle registration number recorded in the invoice of First Issue Limited for freight charges was different from the registration number in the CMR. The difference was slight on the face of it: FM51EJU against FM52 EJU which Mr Dharas put down to a typographical error. This inconsistency, however, when taken with the other inconsistencies between the documents formed part of the jigsaw which in our view undermined the reliability of the documentary evidence adduced by the Appellant.
(1) The Appellant adduced no direct evidence that the supply of the 25 June 2003 actually took place.
(2) The documents relied upon by the Appellant to evidence the supply were unreliable. When looked at together they contained irreconcilable inconsistencies which could not be explained by the Appellant.
(3) The timing of the payment of £669,773 by YM International BV which was on the same day as the delivery of the old and broken mobile phones. The Appellant's explanation for YM International BV purporting to pay for the Nokia 7250 mobile phones before it received them was unrealistic.
(4) The compelling evidence of Officer Roosen which demonstrated that YM International BV was involved in the fraudulent trade of old and broken phones masquerading as supplies of high value mobile phones.
Overall Conclusion on the Findings of Fact
The Legal Argument
(1) The Appellant's supply of 2,500 Nokia 7250 mobile phones to YM International did not take place.
(2) The Appellant did not take every reasonable measure to ensure that the onward supply of Nokia 7250 mobile phones to YM International BV was made.
(3) The VAT incurred on the inward supply of the Nokia mobile phones from Ravjani Corporation was not attributable to a taxable supply made by the Appellant.
(1) The first subparagraph of article 28a(3) and the first subparagraph of article 28c(A)(a) of the Sixth Directive, were, having regard to the term 'dispatched' in those two provisions, to be interpreted as meaning that the intra-Community acquisition of goods was effected and the exemption of the intra-Community supply of goods would become applicable only when the right to dispose of the goods as owner had been transferred to the purchaser, and the supplier had established that those goods had been dispatched or transported to another Member State and that, as a result of that dispatch or that transport, they had physically left the territory of the Member State of supply.
(2) The first subparagraph of article 28c(A)(a) of Sixth Directive, was to be interpreted as precluding the competent authorities of the Member State of supply from requiring a supplier, who had acted in good faith and submitted evidence establishing, at first sight, his right to the exemption of an intra-Community supply of goods, subsequently to account for value added tax on those goods where that evidence was found to be false, without the supplier's involvement in the tax evasion being established, provided that the supplier took every reasonable measure in his power to ensure that the intra-Community supply he was effecting did not lead to his participation in such evasion.
(3) The fact that the purchaser had made a declaration concerning intra-Community acquisition, such as that in question in the main proceedings, to the tax authorities of the Member State of destination, might constitute additional evidence tending to establish that the goods had actually left the territory of the Member State of supply, but that did not constitute conclusive proof for the purposes of the exemption from value added tax of an intra-Community supply.
"Moreover, according to the Court's settled case-law, which is applicable to the main proceedings by way of analogy, it would not be contrary to Community law to require the supplier to take every step which could reasonably be required of him to satisfy himself that the transaction which he is effecting does not result in his participation in tax evasion (see, as regards 'carousel' type fraud, Federation of Technological Industries and Others, paragraph 33, and Kittel and Recolta Recycling, paragraph 51)".
"Furthermore, the right to deduct provided for in article 17 et seq of the Sixth Directive was an integral part of the VAT scheme and in principle could not be limited. It had to be exercised immediately in respect of all the taxes charged on transactions relating to inputs. The question whether the VAT on the earlier or later sale of the goods concerned to the end-user had or had not been paid to the public purse was irrelevant to the right of the taxable person to deduct input VAT. Accordingly, transactions such as those at issue, which were not themselves vitiated by VAT fraud, constituted supplies of goods or services effected by a taxable person acting as such and an economic activity within the meaning of articles 2(1), 4 and 5(1) of the Sixth Directive where they fulfilled the objective criteria on which the definitions of those terms were based, regardless of the intention of a trader other than the taxable person concerned involved in the same chain of supply and/or the possible fraudulent nature of another transaction in the chain, prior or subsequent to the transaction carried out by that taxable person, of which that taxable person had no knowledge and no means of knowledge. Moreover, the right to deduct input VAT of a taxable person who carried out such transactions could not be affected by the fact that in the chain of supply of which those transactions formed part another prior or subsequent transaction was vitiated by VAT fraud, without that taxable person knowing or having any means of knowing.
Decision
MICHAEL TILDESLEY OBE
CHAIRMAN
RELEASE DATE: 31 March 2008
LON 2004/0744
Note 1 IMEI stands for Independent Mobile Equipment Identity which is a unique 15 digit number given to every single mobile phone. [Back] Note 2 Copy invoice exhibited (LAM 2d) to Officer Lams witness statement. [Back]