First-tier Tribunal (Tax)

The Issue

(a)  Have HMRC proved the chain of transactions in question?

(b) Have HMRC proved a tax loss in the chain?

(c)  Have HMRC proved the tax loss was caused by fraud?

This is to be done on the civil standard of proof, i.e. the balance of probability.

Structure of Decision

7.    The structure of this decision is as follows:

(a)  Introduction Paras 1-2

(b) Issue Paras 3-6

(c)  Structure Para 7

(d) Abbreviations and Dramatis Personae Para  8

(e)  Course of the Hearing Paras 9 -18

(f)   The Law Paras 19 - 24

(g)  Evidence Paras 25 - 45

(h)  Findings of Fact Paras 46-195

(i)   Submissions of the Parties Paras 196 -208

(j)   Discussion Paras 209-269

(k)  Conclusion Paras 270-272

Abbreviations and Dramatis Personae

8.       The following abbreviations and references to persons are used in this decision but as ever are subject to the requirements of the context.

“A1 Inspections   a company incorporated in the UK employed by DCL to provide

Limited” inspection services

“AFI” the freight forwarder in France to whose premises the DVD players are accepted by the parties as having been delivered.

“AFI Logistics a company incorporated in the UK which was the freight forwarder (UK) Limited” involved in the transaction 

“Clarions” 300 Clarion VRX 746 VD In Car DVD player AM/FM DVD player

LCD panel

 “CMR” a CMR Note in s standard design in a four part NCR under the Convention on the Contract for the Carriage of Goods by Road

“DCL” Dynamic Corner Limited, the Appellant, a company incorporated in

the UK

“Fairbairn” Fairbairn Private Bank, an Isle of Man Bank

“HMRC” Her Majesty’s Revenue and Customs, the Respondents

“ICICI” ICICI Bank UK PLC, a wholly owned subsidiary of ICICI Bank

Ltd., India

“IMEI” International Mobile Equipment Identity Number - unique

electronic designation for a mobile phone and certain other electronic equipment that can be scanned electronically

“ITP” IT Players UK Limited, a company incorporated in the UK

“Jafton” Jafton Limited, a company incorporated in the UK

“Kenwoods” 200 Kenwood DDX 6039 In Car DVD player DVD/ VIDEO/WMA/MP3 receiver

 “Lexus” Lexus Telecom Limited, a company incorporated in the UK

“MTIC” Missing Trader Intra Community Fraud

“Nordisk” Nordisk Tradex ApS, a company incorporated in Denmark and carrying on business outside the UK

“PCB2” PCB2 Limited, a company incorporated in the UK

“SPTL” Silver Pound LPA, a company incorporated in Portugal

“STL” STL Synergi-Tec Limited, a company incorporated in the UK

“the Taxpayer” DCL

“TLS” TLS UK and TLS LLP and, where appropriate, associated enterprises

“TLS LLP” Total Logistic Solutions UK LLP

“TLS UK” Total Logistic Solutions UK Limited

“VAT” Value Added Tax

“VATA” Value Added Tax Act 1994

“VIES” VAT Information Exchange System

Course of the Hearing

“(1) The overriding objective of these Rules is to enable the Tribunal to deal with

cases fairly and justly.

(2)  Dealing with a case fairly and justly includes—

(a) dealing with the case in ways which are proportionate to the importance of the case, the complexity of the issues, the anticipated costs and the resources of the parties;

(b) avoiding unnecessary formality and seeking flexibility in the proceedings;

(c) ensuring, so far as practicable, that the parties are able to participate fully in the proceedings;

(d) using any special expertise of the Tribunal effectively; and

(e) avoiding delay, so far as compatible with proper consideration of the issues.

(3) The Tribunal must seek to give effect to the overriding objective when it—

(a) exercises any power under these Rules; or

(b) interprets any rule or practice direction.

(4) Parties must—

(a) help the Tribunal to further the overriding objective; and

(b) co-operate with the Tribunal generally”.

(a) This is a Tribunal hearing in the Tax Chamber not a court hearing and so is on a different basis of procedure and evidence as the Tribunal Rules apply and not the CPR;

(b) HMRC is a large organisation with many different responsibilities and issues to balance.

The Law

Statute

“24. (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…

(6) Regulations may provide—

(a) for VAT on the supply of goods or services to a taxable person, VAT on the

acquisition of goods by a taxable person from other member States and VAT

paid or payable by a taxable person on the importation of goods from places

outside the member States to be treated as his input tax only if and to the

extent that the charge to VAT is evidenced and quantified by reference to such

documents as may be specified in the regulations or the Commissioners may

direct either generally or in particular cases or classes of cases;...”

 “25.(1) A taxable person shall—

(a) in respect of supplies made by him, and

(b) in respect of the acquisition by him from other member States of any

goods,

account for and pay VAT by reference to such periods (in this Act referred to

as "prescribed accounting periods") at such time and in such manner as may

be determined by or under regulations and regulations may make different

provision for different circumstances.

(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.

“26. (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”.

24.    Regulation 29 of the VAT Regulations 1995 provides:

“29. (1) Subject to paragraph (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 became

chargeable.

(2) At the time of claiming deduction of input tax in accordance with paragraph

(1) above, a person shall, if the claim is in respect of—

(a) a supply from another taxable person, hold the document which is required

to be provided under regulation 13;…

provided that where the Commissioners so direct, either generally or in relation

to particular cases or classes of cases, a claimant shall hold, instead of the

document or invoice (as the case may require) specified in sub-paragraph

(a)… above, such other documentary evidence of the charge to VAT as the

Commissioners may direct”.

29.    There was also, as had been directed, a list of agreed matters and a list of matters and issues not agreed. These would, of course, be available to any tribunal or court if the matter were to proceed further. These were of considerable use and we are grateful for the time spent in producing them.

30.    We record, as we were asked to by DCL, that DCL makes no admission as to alleged fraud. Accordingly, we record this matter here.

Inferences and the evidence adduced by DCL

31.    HMRC invited us to draw adverse inferences in respect of Mr Soni’s evidence and DCL’s decision as to what witnesses to call.

“6. From its range of officers, DCL chose to call evidence from M Soni alone, also calling evidence from Mr Saleem as to pre-2006 events, and its advisor Mr Hobson (after his instruction) as to post-2008 events.

7. HMRC submits that the Tribunal is entitled to draw adverse inferences from the fact of DCL’s choice to not call [sic] its other officers, nor S Soni, to give any evidence, and also from the fact that no officer or family member chose to support evidentially the Appellant’s appeal.

8. DCL’s M Soni was subject to cross-examination. In response to questions, he was hazy on certain dates but appeared by contrast to be certain about other matters. For example, he replied “I don’t recall” many times (e.g. Transcript 21 June page 51 line 16, page 76 line 18;page 147 line 13) by contrast with his being certain that contemporaneous letters and conversations were in fact wrong (see Transcript 22 June 2012, page 185, lines 6-25 and page 186 lines 1-8)”.

33.    We note in this context that we were told that Mr Soni’s baby had been taken into hospital during the second hearing.

34.    On 17 June 2012 an email was sent from Mr Soni’s Advisers. It read:

“Dear Judge, yesterday I was told by Mr Soni that his 8 week old son was taken to hospital and underwent tests for internal bleeding. The family were there until midnight last night and have been asked to return today for further tests. The position is, at present, uncertain but is certainly of great concern to all. 

I have passed news of this development to both Counsel for the Appellant and out of courtesy to the Tribunal and all parties it has been suggested that raise we alert the Tribunal to the current position at the earliest opportunity.

Mr Lucraft has suggested that the following take place tomorrow:

·     That Mr Soni be allowed to remain with his family and not attend tomorrow given the uncertainty of his son’s medical condition. We would anticipate his arrival back to London on Tuesday.

·     …

As ever, I am very happy to assist the Tribunal at any time.

Kind regards

Keith Hobson

Partner

iTax UK LLP”

“… Whilst not wanting to pre-empt anything, at first blush Mr Lucraft QC’s suggestion seems a sensible one to adopt.

If the Respondents do not have any objections I would suggest that we adopt the course of action suggested in the first place. The position can be reviewed after we have heard the evidence by video link.

I am of course happy to receive any representations and suggestions”.

“… I confirm that the Respondents agree with this approach. .. We echo your hope for a speedy recovery for Mr Soni's son.

Regards”

Findings of Fact

46.    From the evidence we make the following findings of fact.

Dynamic Corner Limited

a.     Mr Billal Soni was the director of DCL; and

b.     Mr Mohammed Soni was the company secretary.

DCL’s Business

DCL Bank Accounts

DCL’s Turnover

Visits

[a]  “On 13/06/05 there was a preregistration visit made by Officer Sharp and Officer Picket .

[b]  During a further interview between Mr. Sohel Soni and Mr. Mohammed Soni and Officer Sharp and Officer Foster on 16/08/05 it was confirmed that the company was supplying businesses with mobile phone contracts. 

[]  On 09/01/06 Officer Sharp and Officer Webster visited the premises of Mr. Chopdat, the accountant.  Mr. Chopdat presented the sales invoices relating to [DCL’s] previous business activity.

[d]  On 15/11/06 the Appellant was visited by Officer Morgan and Officer Mitchell .  The principal individuals present were Mr. Billal Soni, Mr. Mohammed and Mr. Sohel Soni.  The interview took place at [the principal place of business] .

[e]  During the interview on 15/11/06, Mr. Mohammed Soni was asked why there had been a reduction in trading, as witnessed by the difference in the value of sales declared in VAT return for periods 05/06 (£686,500.00) and 08/06 (£309.00).  Mr. Mohammed Soni confirmed that although the Appellant Company had not traded since the end of August, it managed to survive on the profits made on previous wholesale of mobile phones and it had sufficient funds in place to survive for a while longer.  Mr. Mohammed Soni stated that the initial funding came from his own savings and his family’s and totalled around £50,000.

[f]  The Appellant had received Notice 726 prior to the deal in question.

[g] Mr Sohel Soni had used email name “Adam Parr””.

Synergi-Tec Limited

PCB 2

ITP

Lexus

Nordisk

Total Logistics Solutions

a) applied for VAT registration on 13th April 2006 and on 10th August 2006;

b) was only registered for VAT on 10th August 2006; and

c) never submitted any VAT returns to HMRC; B1/15/41;

Subsequently, TLS was deregistered as a missing trader as of 7th February 2007.

There was nothing to show DCL knew this in November 2006.

Insurance

Financial risk

Due Diligence Real or Sham?

“(1) In respect of Lexus Telecom UK Limited, the immediate supplier to the Appellant, … the supplier’s premises were visited by the director, Mr Soni. In addition the Appellant produced photographs of the Lexus building, Redhill verifications of the supplier’s VAT registration number, a supplier declaration signed by the supplier which identified it and inspection reports of A1 Inspections Limited.

(2) In relation to Nordisk Tradex APS, the customer of the Appellant, the Appellant provided verification requests to Redhill to verify the VAT registration number of the customer.”

“Due Diligence

[39] On 25/07/05 HMRC issued a standard letter to the Appellant advising of the procedures necessary regarding verification of the VAT registration status of any new customers or suppliers to be used with HMRC’s offices at Redhill.

[40] On 13/01/06 a letter was issued to the Appellant advising that although enquiries were still continuing with aspects of the claim for VAT return 11/05, payment would be released without prejudice to any further action which might be taken.

[41] On 08/02/06 a letter was issued to the Appellant confirming a discussion held with Officer Shah on 09/01/06 reiterating the importance of due diligence checks and the use of Redhill clearance procedures.

[42] The Appellant visited Lexus Telecommunications Limited, Lexus House in mid-2006......

[44] The Appellant carried out some due diligence on its supplier and customer.  The Appellant did the following:

[44.1] Some Redhill checks in respect of the VAT status of the supplier and customer;

[44.2] Collection of company documentation from Nordisk;

[44.3] Mr Soni met with a representative of Nordisk at a trade show in Dubai in 2005.”

Due Diligence - Lexus

Due Diligence - Nordisk

Due Diligence - Redhill

A1 Inspections

Matched Deals

CMR’s

Lexus FBIB Account

a.   IT Players had an FCIB Bank Account (as was known to Lexus Telecommunications Limited by reason of its provision of the information on request to Mr Hobson).

b.   On 5th September 2006, this Bank was subject to a Dutch finance investigation visit due to money laundering announced in the press on 5th October 2006.

c.   Lexus must have known - by reason of IT Player’s use of FCIB and the occurrence of the investigation of that Bank - of a risk to it when it transacted with IT Players on 29th November 2006;

Phone call

Inferences

(a) STL was the EU acquirer;

(b) SPTL the supplied STL but STL did not pay VAT by reason of fraud;

(c) The goods allocation gives the inference of artificiality;

(d) STL was "…  Part of a deliberately contrived scheme in ... which [STL] intentionally failed to account for the VAT due…  Not  under ordinary commercial conditions, but were artificially contrived is of a scheme to defraud [HMRC]" .

(e) "By reason of DCL’s purchase of the goods from Lexus Telecommunications on 29th  November, and on its own subsequent dispatch of the goods to the EU mainland, DCL was connected with fraudulent evasion of VAT”.

(f) The due diligence was a sham.

The Chain

Introduction

(a) only one chain is involved; and

(b) it concerns DVD players for cars rather than mobile phones or CPU’s.

The Chain in Outline

Introductory

(a) STL sells to PCB 2 ;

(b) PCB 2 sells to ITP;

(c) ITP sells the Lexus;

(d) Lexus sells to DCL;

(e) DCL sells to Nordisk.

STL sells to PCB 2

PCB 2 sells to ITP

ITP sells the Lexus

Lexus sells to DCL

DCL sells to Nordisk

“[25] The deal in question took place during VAT accounting period 01/09/06-30/11/06.  On 29 November, 2011 the appellant purchased 300 Clarion VRX 746 VD In Car DVD player AM/FM DVD player LCD panel and 200 Kenwood DDX 6039 In Car DVD player DVD/ VIDEO/WMA/MP3 receiver from Lexus Telecom Limited and sold the goods to Nordic Tradex ApS.

[26] The Appellant’s purchases orders and sales invoices are dated on the same day as where its customers and suppliers.  The purchases and sales were in the same quantities.

[27] The Appellant chose Total Logistics Solutions UK Ltd.  (“Total Logistics”),… of…  Slough to act as their freight forwarder.  Total Logistics Solutions UK Ltd.  was registered for VAT on 10/08/06 and was deregistered six months later with effect from 07/02/07.

[28] The goods were sent to the customer as “ship on hold”.

[29] No written contract existed between the appellant and or supplier Lexus telecom limited or their customer Nordiques Tradex ApS and Denmark other than in the terms on invoices or supplier tax declarations.

[30] The Appellant did not take physical possession of the goods.

[31] The Appellant asked Total Logistics to insure the goods on its behalf.

[32] Total Logistics did not cash any cheque sent by the Appellant in relation to this deal.

[33] The Appellant asked Total Logistics to send the completed CMR.  Total Logistics did not send the Appellant the completed CMR for this deal.  At the time of the request it had been uplifted by HMRC in December 2006.

[34] Payment was made for the goods as follows:

[34.1] Item –Clarion car DVD –the customer, Nordisk Tradex ApS, paid Dynamic Corner Limited in full on 18/12/06 and one day later on 19/12/06 Dynamic Corner Limited paid the supplier, Lexus Telecom Limited in full.

[34.2] Item – Kenwoods car DVD – the customer, Nordisk Tradex ApS paid Dynamic Corner Limited in full on 16/01/07 and one day later on 17/01/07 Dynamic Corner Limited paid the supplier, Lexus Telecom Limited in full

[35] Mr. Chopdat, the Accountant acting on behalf of the appellant wrote to HMRC on 14/12/07 regarding payment for the deal.

[36] Serial numbers would not recorded.

[37] Inspection of the goods was carried out on the consignments by A1 Inspections of Greenford Middlesex at the freight forwarders premises.  Prior deals had been inspected by the Appellant itself.

[38] The Appellant’s invoices relating to this deal are the only deal in this tax period”.

Submissions of the Parties

The Taxpayer`s submissions in outline

196. In essence, DCL argued that it was not concerned in a fraudulent transaction or one which it ought to have known was connected to fraud. Accordingly, the denial of input tax was not properly made.

HMRC`s submissions in outline

General

(1)    The chain could be traced back to a defaulting trader STL;

(2)    Accordingly there was a tax loss in the chain courts by fraud as STL had not accounted for its VAT;

(3)    DCL knew or should have known of the risks of MTIC fraud generally and as regards its own business;

(4)    HMRC were entitled to expect “… the Appellant to take every precaution which could reasonably be required of it to ensure that its transactions were not connected with fraud.  This high standard means that the Appellant is under a positive duty to take precautions, which includes carrying out due diligence to check on suppliers and customers where the indicators of risk were presented to it”;

(5)    DCL did not meet the standard in what it did and failed to do;

(6)    DCL did nothing to confirm by third party checks and/or reports that its supplier and customer were credible, solvent businesses able to meet their trading commitments and failed to carry out due diligence on its freight forwarder;

(7)    The transactions were on a Back-to-Back basis and left DCL with no stock;

(8)    Although the customer is located in Denmark the goods were delivered to France;

(9)    The Appellant did not retain the serial numbers of the goods or carry out IMEI checks or their equivalent;

(10)             DCL was not required to pay its supplier until it had been paid in full by its paying customer;

(11)             DCL said the goods were insured from the time they were held in the UK freight forwarders until delivered to the final destination.  As the premium was not made this cannot be the case;

(12)             On the basis of this and all the other relevant circumstances the Tribunal must be satisfied on the civil burden of proof that the transaction formed part of a transaction chain which was connected with the fraudulent evasion of VAT and the Appellant knew or should have known of this.

Discussion

Introduction

(a) Have HMRC proved the chain of transactions in question?

(b) Have HMRC proved a tax loss in the chain?

(c) Have HMRC proved the tax loss was caused by fraud?

Case Law

“[25] The principle of legal certainty requires that the application of Community legislation is foreseeable by those subject to it (see, egg, the Advocate General's opinion in Optigen, para 42). The principle demands that when a taxable person enters into a transaction he should know that the transaction is within the scope of VAT and that his liability will be limited to the amount by which the output tax on his supply exceeds the input tax he has paid. In Optigen the court set out the criteria which identify the scope of VAT (see paras 38 – 41). It emphasised the importance of the objective nature of those criteria (paras 44 – 46). Once a transaction meets those criteria, it follows that the right to deduct for which art 17 provides must be recognised (paras 52-53).

[26] The right to deduct input tax is integral to the system of VAT. It may not “in principle” be limited (para 53). It is integral to the system because it ensures the principle of fiscal neutrality which lies at the heart of the system of VAT.

[27] It is necessary to recall the importance of that principle since it explains why the jurisprudence of the ECJ has been so resistant to attempts to combat fraud by encroaching upon the right to deduct in the case of traders who are not themselves participants in the fraud.

[28] Since the right to deduct is fundamental to the system of VAT because it ensures that the charge is limited to the value added at each stage of the supply and because it ensures fiscal neutrality, it may not, in principle, be limited; any derogation from the principle of the right to deduct tax must be interpreted strictly (see Case C-414/07 Magoora [2008] ECR I-000). Moreover, the right must be exercisable immediately in respect of all taxes charged on input transactions. Since the right arises immediately the taxable person pays tax (input tax) to his supplier, the principle of legal certainty demands that he knows when he enters into the transaction that it is within the scope of the tax and that his liability will be limited to the amount by which any output tax he may be liable to pay, on making a supply, exceeds the input tax he has paid. The objective criteria determine both the scope of the tax and the circumstances in which the right to deduct arises”.

“[60] The true principle to be derived from Kittel does not extend to circumstances in which a taxable person should have known that by his purchase it was more likely than not that his transaction was connected with fraudulent evasion. But a trader may be regarded as a participant where he should have known that the only reasonable explanation for the circumstances in which his purchase took place was that it was a transaction connected with such fraudulent evasion”.

“[75] The ultimate question is not whether the trader exercised due diligence but rather whether he should have known that the only reasonable explanation for the circumstances in which his transaction took place was that it was connected to fraudulent evasion of VAT. The tribunal might have concluded that Mr Peters should have known that the transactions into which he entered were connected with fraud, by reference to the unconventional nature of those circumstances (a finding it came close to making at para 228). But it was not the only decision within the bounds of reasonable conclusion”. [emphasis supplied].

“[77] There remains only the case of Mobilx. For the reasons I have given, both the tribunal and Floyd J applied the wrong test. The question was not whether Mobilx should have known that its transactions were more likely than not to be connected with fraud (the test applied by the tribunal at para 108 and by Floyd J at para 88). The correct question is whether it should have known that its transactions were connected with fraud. That, as I have said, could be established by demonstrating that it ought to have known that the only reasonable explanation for the circumstances in which the transactions in question were undertaken was that they were connected with fraud. In my judgement, although the tribunal applied the wrong test, the primary facts found by the tribunal did establish that the only reasonable explanation for the transactions in respect of which Mobilx claimed repayment of input tax, in their returns between April and June 2006, was their connection with fraudulent evasion of VAT”.

[84] “Such circumstantial evidence…, will often indicate that a trader has chosen to ignore the obvious explanation as to why he was presented with the opportunity to reap a large and predictable reward over a short space of time. In Mobilx, Floyd J concluded that it was not open to the tribunal to rely upon such large rewards because the issue had not been properly put to the witnesses. It is to be hoped that no such failure on the part of HMRC will occur in the future.

His Lordship noted “...[85] the warning given in HMRC's Public Notice 726 in relation to the introduction of joint and several liability. In that Notice traders were warned that the imposition of joint and several liability was aimed at businesses who “know who is carrying out the frauds, or choose to turn a blind eye” (3.3). They were warned to take heed of any indications that VAT may go unpaid (4.9). A trader who chooses to ignore circumstances which can only reasonably be explained by virtue of the connection between his transactions and fraudulent evasion of VAT, participates in that fraud and, by his own choice, deprives himself of the right to deduct input tax”.

(a) Have HMRC proved the chain of transactions in question?

(b) Have HMRC proved a tax loss in the chain?

(c) Have HMRC proved the tax loss was caused by fraud?

Has the chain been proved?  To where?

“On 29^th November 2006 an Officer of HM Revenue and Customs Lydia Ndoinjeh visited a freight forwarder by the name of AFI Logistics (UK) Ltd as part of the MTIC strategy to identify goods that had been sent from the European Union and were being acquired within warehouses in the UK  by companies registered for VAT in the UK.  The goods identified by the officers were those which they believed to be acquired by potential defaulting traders would be inspected and the paperwork audited to enable the acquirer to be identified.  During the visit the officer identified goods which she believed may be tainted by MTIC fraud.  An inspection of the relevant paperwork showed that in four transaction chains Synergi-Tec Ltd were acquiring goods from Silver Pound Trading LDA.  A copy of the officer’s report I produce as “TM-1”.  Silver Pound Trading LDA is a company based in Portugal, Lydia Ndoinjeh contacted a gentleman from Synergi-Tec Ltd who said he was Kadir and confirmed that  Synergi-Tec Ltd were acquiring the goods in the warehouse and had purchased the goods from Silver Pound Trading LDA.  A copy of the summary of the telephone conversation that was captured to the Electronic Folder system of HM Revenue and Customs I produce as “TM-2”.”

Was there a tax loss proved?

Was that tax loss caused by fraud?

(a) The amount of the VAT not accounted for has not been shown.  In particular, the amount of input tax if any has not been shown.  This makes it harder to conclude that any tax losses caused by fraud.

(b) The chain above STL has not been proved.  The DVD players could have been acquired from SPTL, Jafton or some other person.

“Ought to have known”

General

DCL did not meet the standard in what DCL did.

We do not consider that this of itself makes the chain fraudulent nor did the fact that the customer was located in Denmark but the goods were delivered to France. 

259. We agree that it would have been prudent for the Appellant to retain the serial numbers of the goods. However, in the circumstances of this case alone or otherwise it does not show fraud as the only explanation for the transactions.

That DCL was not required to pay its supplier until it had been paid in full by its own customer does not of itself show that the transactions were part of a fraudulent chain nor that the only explanation was fraud.

260. We accept that DCL said the goods were insured from the time they were held in the UK freight forwarders until delivered to a final destination.  As the premium was not made this cannot be the case. Again this alone or otherwise does not show fraud as the only explanation for the transactions.

261.  HMRC said that on the basis of this [set of facts] and all the other relevant circumstances the Tribunal must be satisfied on the civil burden of proof that the transaction formed part of a transaction chain which was connected with the fraudulent evasion of VAT and the Appellant knew or should have known of this.

Costs

Conclusion

a.        a chain established from STL to Nordisk;

b.       not established who supplied STL nor whether it was from the UK or abroad;

c.        a loss in the chain in that STL did not account for VAT but the amount of this loss was not established;

d.       a tax loss but how it was caused was not established and certainly not that it was established that it was caused by fraud, directly or by inference;

e.        a transaction for which fraud was not the only reasonable explanation.

ADRIAN SHIPWRIGHT

TRIBUNAL JUDGE

RELEASE DATE:  29 April 2013