United Kingdom VAT & Duties Tribunals (Excise) Decisions

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URL: http://www.bailii.org/uk/cases/UKVAT/Excise/2008/E01118.html
Cite as: [2008] UKVAT(Excise) E01118, [2008] UKVAT(Excise) E1118

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KMC Trading Ltd v Revenue & Customs [2008] UKVAT(Excise) E01118 (06 June 2008)

E01118

Registration under the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 - application of Appellant refused by Customs - decision within discretion of Customs - invoices considered - associated companies - appeal dismissed

MANCHESTER TRIBUNAL CENTRE

KMC TRADING LTD Appellant

and

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Elsie Gilliland (Chairman)

Mohammed Farooq (Member)

Sitting in Birmingham on 15 April 2008

No appearance by or on behalf of the Appellant

David Mohyuddin, Counsel, instructed by the Acting Solicitor of HM Revenue and Customs for the Respondents

DECISION

The appeal before the Tribunal was that of KMC Trading Ltd. (the Appellant) against a decision of Customs to reject the application of the Appellant made on 23 March 2007 for registration under the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 (WOWGR).

There was no attendance by or on behalf of the Appellant and the tribunal determined to proceed under Rule 26(2) of the Value Added Tax Tribunals Rules 1986 (as amended).

Counsel for Customs produced a skeleton argument to which he had attached a chronology of events. Apart from the documentation produced, the only other evidence before the Tribunal was that of Paul Dominic Simpson (Mr. Simpson), the officer of Customs who had recommended the refusal of the application and which had been communicated to the Appellant by a letter dated 2 May 2007 signed by another officer of Customs, Nicholas H. Dyer, and that of Geoff Cuthbert (Mr. Cuthbert), the officer of Customs who had reviewed the decision to refuse registration. Strictly, the review of the decision to refuse registration was a deemed refusal because Mr. Cuthbert had been unable to complete the review by the due date of 28 June 2007 and by a letter of that date Mr. Cuthbert had notified the Appellant that under s. 15 (2) of the Finance Act 1994 the decision to refuse registration had been deemed to have been upheld. Mr. Cuthbert informed the Appellant of its right to appeal to the Tribunal. In fact Mr. Cuthbert continued with the review and by a letter dated 12 July 2007 he informed the Appellant that the decision to refuse registration was confirmed. The letter dated 12 July sets out the reasons for confirming the refusal to register the Appellant. Mr. Simpson and Mr. Cuthbert each produced a witness statement and gave evidence before the Tribunal. Mr. Simpson confirmed the contents of his witness statement on affirmation and Mr. Cuthbert confirmed the contents of his witness statement on oath Mr. Simpson and Mr. Cuthbert also answered questions put to them by the Tribunal. We were informed by Counsel and we accept that there is no further information before the tribunal which had not been available to the officers.

The Appellant appealed the original decision dated 2 May 2007 and the review decision dated 12 July 2007 by a Notice of Appeal dated 6 August 2007. No objection has been taken that strictly the review decision dated 12 July was out of time and we are content to proceed on the basis that the appeal is also to be treated in so far as may be necessary as an appeal against the deemed refusal.

In a letter headed with the Appellant's name and address dated 6 August 2007 and signed by Garry Cheung director accompanying the Notice of Appeal the grounds of appeal were set out as follows:

" I wish to appeal against the decision to decline the application of KMC trading to become WOWGR registered. I wish to appeal on the grounds that the application could not have been properly looked into. An example of this is the first point for declining the application in the letter from MR Dyer:

WOWGR approval is being sought for business activity that thus far has taken place entirely outside the UK in a French warehouse.

This is because KMC cannot trade under bond in the UK without becoming WOWGR registered this is a point both MR Dyer & MR Simpson should know and it is absurd to suggest that because KMC has only traded under bond in France (KMC cannot trade under bond in the UK as it is not WOWGR registered) WOWGR registration will be declined".

The decision of Customs to register or to refuse registration under WOWGR is under s. 100G of the Customs and Excise Management Act 1979 (as amended) a discretionary one and the exercise by Customs of its discretion accordingly must satisfy the Wednesbury principles as to reasonableness in that all relevant matters must have been taken into account, no irrelevant matters given weight and the law must be properly applied. In a letter dated 26 March 2007 the Appellant was notified of the discretionary nature of the registration and the policy of Customs was stated to be to approve an application only where the applicant was considered to be fit and proper to carry on an excise business and where the business and the need for approval were genuine. In particular it was stated that it was the policy of Customs to refuse applications if the applicant for registration could not demonstrate a genuine business need for the registration or if the proposed business was not commercially viable, or if sufficient information to support the application was not provided.

The evidence before the Tribunal shows that the Appellant was incorporated on 18 January 2007 and that it became registered for VAT on 1 April 2007 although we have been informed by counsel that it has subsequently been deregistered. From the sales and purchase invoices produced by the Appellant the Appellant commenced trading on 22 January 2007 when it purchased (in 2 lots) from Star Sales Limited 1,980 cases of 24 x 500ml. of Carling at £6.48 per case for cash and sold them in one lot on the same day to Planet Wine Limited at £6.50 per case. This was followed on 29 January 2007 by 4 further purchases totalling 3779 cases of Carling from Star Sales Limited at £6.48 per case and these were sold on on the same day in 2 lots to Planet Wine Limited at £6.50 per case. On 14 February 2007 the Appellant purchased from Star Sales Limited in 2 lots a further 1980 cases of Carling at £6.48 per case which it sold on on the same day to SFE Trading Ltd. at £6.50 per case. On 16 February 2007 1800 cases of Carling in 2 lots were purchased from Star Sales Limited and a further 180 cases of Carling were purchased from GC Sales Limited. These were sold on on the same day to Planet Wine Limited. Copies of these invoices were supplied to Mr. Simpson by the Appellant under cover of a letter dated 4 April 2007. We are satisfied that these invoices were provided as a result of Mr. Simpson's fax of the same date in which he had requested a complete listing of all sales and purchases made by the Appellant. Mr. Simpson was the officer who was considering the Appellant's request for registration and he had been provided on 28 March 2007 with an electronic copy of the Appellant's application dated 23 March 2007.

The director acting on behalf of the Appellant at all material times was Mr. Garry Cheung. We accept Mr. Simpson's evidence that Mr. Cheung is also a director of Star Sales Limited and of GC Sales Limited and that both companies are registered as having the same address as the Appellant. Indeed as appears from the invoices all 3 companies also have the same telephone and fax numbers. Mr. Cheung is also a director of another company, Priceright Limited. We also accept Mr. Simpson's evidence that when on a visit on 7 March 2007 to GC Sales Limited, Mr. Cheung told Mr. Simpson that GCSales Limited purchased excise goods from Priceright Limited and sold them to Star Sales Limited in the French warehouse of Wybo Transports sarl. and that Star Sales Limited then sold the goods on to the Appellant which in turn sold them on to the ultimate purchaser. We also accept his evidence that Mr. Cheung had also said that the Appellant was only present in that supply chain until Star Sales Limited had finalised the opening of its own bank account. We also accept Mr. Simpson's evidence that earlier applications for registrations by companies with which Mr. Cheung had been involved had been refused because of a failure to provide information which had been requested (Product Holdings Limited, Eurotrader Limited and Priceright Limited), Priceright Limited and Eurotrader Limited being trading names of Product Holdings Limited. A further application by a French company associated with Mr. Cheung had been refused because it was not a UK company. It was these considerations which led Mr. Simpson to recommend the refusal of the Appellant's application for registration. It is clear in our view that Mr. Dyer in writing to confirm the refusal of registration on 2 May 2007 accepted Mr. Simpson's recommendation. In the letter dated 2 May 2007 Mr Dyer wrote that Customs had taken into account (1) that registration was being sought when the business activity had thus far taken place in France (2) that Mr. Simpson had been told on his previous visit that the Appellant was only involved in the supply chain to facilitate the end customer's trading with another of Mr. Cheung's companies Star Sales Limited and that the paperwork showed that the Appellant was supplied almost solely by Star Sales Limited and that once the Appellant was taken out of the supply chain, the Appellant would be involved in little or no business and (3) that Mr. Cheung had in a number of previous applications by other companies with which he was associated failed properly to address issues such as the funding of the companies and the method of obtaining customers. Mr. Dyer's conclusion was that the Appellant had not demonstrated a genuine business need for the Appellant to be registered.

By an undated letter received by Mr. Cuthbert on 14 May 2007, Mr. Cheung stated that he wished to appeal against Mr. Dyer's decision and he gave 3 reasons. This letter was clearly treated by Customs as a request for a review and was considered by Mr. Cuthbert along with further information supplied by Mr. Cheung. The first point made by Mr. Cheung was that it was absurd to use the fact that the majority of the Appellant's trade had been under bond in a French warehouse as a reason for refusing to register the Appellant in the UK. He said that he had not been asked about this. The second point was that he did not understand why Mr. Simpson would assume that the Appellant was going to be removed from the supply chain and that the fact that the Appellant had traded with another company of which he was a director could not be a valid reason for refusal of registration. Mr. Cheung said that the Appellant had traded a further £30,000 of stock since the application had been submitted, that a list of potential customers/traders under bond had been supplied which could allow the Appellant to build a successful future but that as it could not trade under bond in the UK where the majority of its trade would be, the Appellant would be at a commercial disadvantage. Mr. Cheung wrote that this was something which Mr. Simpson had not consulted him or visited him about. He also said that Mr. Simpson had seemed to have failed to read the Appellant's business plan. A copy of the business plan appears at pp. 4/6 in the bundle attached to Mr. Cheung's letter. Copies of under bond prices from Planet Wine Limted and other companies were also supplied. The third point made by Mr. Cheung was that the previous applications for registration were by other companies which were separate entities and that the Appellant's funding proposals were set out in the business plan. Mr. Cheung also said that the Appellant's method of finding customers had been explained and was based on free website advertising as well as contacting other website advertisers and mail (and email) shots.

10. In the Appellant's business plan the intended business of the Appellant was stated to be the buying and selling of alcohol under bond in both the UK and in Europe, the importation of alcoholic products from Europe and elsewhere both under bond and duty paid, the export of alcoholic products from the UK, the removal of alcoholic products under bond for consumption in the UK and trading in energy drinks. So far as trading capital was concerned, it was stated that the Appellant was trading by way of stock on credit from Star Sales Limited but that trading capital would come in the form of an one year interest free director's loan from Priceright Limited of £50,000 and that if capital needed to be put in before registration, then this would be provided upon request "from WOWGR registrations". Under the heading of vision, the plan stated that it was hoped that within 5 years the Appellant would have a wealth of experience and knowledge of trading in the under bond market with a reasonable number of customers and suppliers worldwide. The plan also stated that the Appellant would rent office space, phone fax and computer from Priceright Limited for the first year and modest costs were given. The bonded warehouse for trading was given as that of Wybo Transports sarl. in France and of Edwards Beers at Leighton Buzzard.

In considering his review Mr. Cuthbert took into account Mr. Simpson's original recommendation to refuse registration - a copy appears at Appendix 5 in the bundle - and Mr. Simpson's further comments made in response to a request from Mr. Cuthbert (see: Appendices 6 and 7 in the bundle). Mr. Cuthbert then on 25 May 2007 contacted Mr. Cheung in order to verify the Appellant's position in the supply chain and the Appellant's funding. He was supplied on 26 May with copies of sales invoices and of the Appellant's bank statement from 23 January to 16 May. The invoices were those already referred to relating to the Appellant's under bond sales from the French warehouse and a purchase invoice for Carling from Hyperama (Appendix 8-4). The bank statement did show payments of over £50,000 to the Appellant from Priceright but these clearly related to the purchases by Priceright under the invoices referred to and were not the provision of working capital by way of loan, although it is fair to note that the business plan appears to suggest that the capital would only be provided following registration if requested. Mr. Cuthbert's evidence however was that he had specifically asked for the bank statement to show the Appellant's funding. Mr. Cuthbert's conclusion was that the Appellant's funding had not been satisfactorily explained, that the underbond sales of beer had been from France to UK customers and that the pattern was that of inter company sales and purchases between companies associated with Mr.Cheung and that there was no genuine business need for the Appellant to be registered. The point made by Mr.Cheung that the trading in France could not be a reason for refusing registration in our view misunderstands the point being made by Customs, namely that it was perfectly possible for the Appellant to trade without being registered in the UK. The effect of the refusal of registration is that goods within the UK would be subject to duty and if obtained from France any duty could be reclaimed. This drawback system of course affects the Appellant's cash flow but unless the Appellant is truly carrying on its own independent business, it does not follow that the Appellant needs to be registered or that it would be wrong to refuse registration to an otherwise fit and proper business.

In our view the conclusion that there was no genuine business need for the Appellant to be registered was a conclusion which both Mr. Simpson and Mr. Cuthbert were entitled to reach on the evidence in the documents and correspondence and on the information which had been supplied to them. The purchases by the Appellant in the invoices supplied showed (apart from 1 instance) purchases from associated companies Star Sales and GC Sales and the clear evidence of Mr. Simpson, which we accept, was that the Appellant had only been involved in the transactions with Star Sales Limited because Star Sales Limited did not have a bank account and Mr. Cheung had also told him that the Appellant would be present in the chain until Star Sales Limited had finalised the opening of its own bank account. The funding of the Appellant was also in our view unsatisfactory. It did not appear to have any independent capital and was merely trading on credit with the associated companies of Mr. Cheung or remitting almost immediately the proceeds of the sales less the difference in price to the associated seller. The Appellant did not have any independent premises or it would seem its own telephone or fax numbers. In so far as any expertise in trading was concerned, any expertise would seem to have been that of Mr. Cheung who was already a director of other companies engaged in the same line of business. The refusal of registration of course has an effect on the cash flow of the business because duty has to be paid and then claimed back. However the Appellant, although in law a separate entity, was in substance in our view not in truth an independent company carrying on its own business separate from that of Star Sales Limited or GC Sales Limited. We are satisfied that there was ample justification for Customs to conclude that there was no need for the Appellant to be registered.

The appeal is dismissed.

Customs have asked for their costs of £600 in the amount of Counsel's brief fee and expenses. Since the Appellant failed to attend we consider that Customs are entitled to the costs sought. We direct that the Appellant pay the Respondents' Counsel's costs summarily assessed in the sum of £600.

MAN /07/8055

ELSIE GILLILAND

CHAIRMAN

Release date: 6 June 2008