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Cellular Solutions (T. Wells) Ltd v Revenue & Customs [2006] UKVAT V19903 (22 November 2006)

19903

REPAYMENT SUPPLEMENT – whether period exceeded or covered by period for raising and answering of reasonable inquiries – meaning of inquiry – determining the start date of inquiry – repayment made while inquiries continued – on the facts period exceeded in one case only

LONDON TRIBUNAL CENTRE

CELLULAR SOLUTIONS (T. WELLS) LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: DR JOHN F AVERY JONES CBE (Chairman)

ROY JENNINGS FCA FTII

Sitting in public in London on 30 and 31 October 2006

Michael Patchett-Joyce, counsel, instructed by Hassan Khan, for the Appellant

Mario Angiolini, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1. This is an appeal against a decision letter of 28 January 2005 refusing repayment supplement in relation to the returns by Cellular Solutions (T. Wells) Limited for the periods 08/04, 09/04 and 10/04. The amounts claimed are £47,820.68, £21,091.83 and £11,337.09 respectively, being 5 per cent of the full amount of the repayments for each period. Since some of the part repayments were made after the decision letter we permitted Customs to update their decision letter as if made at the date of the hearing and for the Appellant to appeal against it. There is therefore no argument about jurisdiction in relation to the whole amounts claimed. The Appellant was represented by Mr Michael Patchett-Joyce, and Customs by Mr Mario Angliolini.
2. Essentially the issue in the appeal is the extent to which Customs' inquiries can be left out of account in determining whether the period for making repayments exceeded 30 days.
3. We start by setting out section 79 of the VAT Act 1994, which provides for repayment supplement:

79 Repayment supplement in respect of certain delayed payments or refunds

(1) In any case where—

(a) a person is entitled to a VAT credit,…

and the conditions mentioned in subsection (2) below are satisfied, the amount which, apart from this section, would be due by way of that payment or refund shall be increased by the addition of a supplement equal to 5 per cent of that amount or £50, whichever is the greater.

(2) The said conditions are—

(a) that the requisite return or claim is received by the Commissioners not later than the last day on which it is required to be furnished or made, and

(b) that a written instruction directing the making of the payment or refund is not issued by the Commissioners within the relevant period, and

(c) that the amount shown on that return or claim as due by way of payment or refund does not exceed the payment or refund which was in fact due by more than 5 per cent of that payment or refund or £250, whichever is the greater.

(2A) The relevant period in relation to a return or claim is the period of 30 days beginning with the later of—

(a)  the day after the last day of the prescribed accounting period to which the return or claim relates, and

(b)  the date of the receipt by the Commissioners of the return or claim.

(3) Regulations may provide that, in computing the period of 30 days referred to in subsection (2A) above, there shall be left out of account periods determined in accordance with the regulations and referable to—

(a) the raising and answering of any reasonable inquiry relating to the requisite return or claim…

(4) In determining for the purposes of regulations under subsection (3) above whether any period is referable to the raising and answering of such an inquiry as is mentioned in that subsection, there shall be taken to be so referable any period which—

(a) begins with the date on which the Commissioners first consider it necessary to make such an inquiry, and

(b) ends with the date on which the Commissioners—

(i) satisfy themselves that they have received a complete answer to the inquiry, or

(ii) determine not to make the inquiry or, if they have made it, not to pursue it further,

but excluding so much of that period as may be prescribed; and it is immaterial whether any inquiry is in fact made or whether it is or might have been made of the person or body making the requisite return or claim or of an authorised person or of some other person.

(5) Except for the purpose of determining the amount of the supplement—

(a) a supplement paid to any person under subsection (1)(a) above shall be treated as an amount due to him by way of credit under section 25(3)….

(6) In this section "requisite return or claim" means—

(a) in relation to a payment, the return for the prescribed accounting period concerned which is required to be furnished in accordance with regulations under this Act…

(7) If the Treasury by order so direct, any period specified in the order shall be disregarded for the purpose of calculating the period of 30 days referred to in subsection (2A) above.

VAT credit is explained in s 25(3):

"(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'."

Section 96 provides:

"authorised person" means any person acting under the authority of the Commissioners;

Regulations 198 and 199 of the VAT Regulations 1995 provide:

198. In computing the period of 30 days referred to in section 79(2)(b) of the Act, periods referable to the following matters shall be left out of account—

(a) the raising and answering of any reasonable inquiry relating to the requisite return or claim…".

199. For the purpose of determining the duration of the periods referred to in regulation 198, the following rules shall apply—

(a) in the case of the period mentioned in regulation 198(a), it shall be taken to have begun on the date when the Commissioners first raised the inquiry and it shall be taken to have ended on the date when they received a complete answer to their inquiry…".

4. We had a ring-binder of documents and heard evidence from the officer responsible for the Appellant, Mr Gordon Goodall, and from the MTIC VAT Fraud Co-Ordinator for South Region, Mr Andrew Tromans. We find the following facts:

(1) Extended verification of certain identified transactions comprised in a return requires the approval of the MTIC VAT Fraud Co-Ordinator for the region, here Mr Tromans or his predecessor Mr Stone. This approval was given for 12 deals in relation to the return for the period 08/04, for 5 deals for period 09/04 and for one deal for period 10/04.

(2) The steps taken in relation to an extended verification are recorded in a MTIC Case Decision Log containing dates and a description of the event and a space (mostly left blank) for notes. Information about the deal is recorded on a spreadsheet containing 15 columns for the customer, the invoice number, date, goods, quantity value, VAT registration number, freight forwarder, bank sort code, account number, amount, outcome and notes.

(3) The returns were received by Customs as follows: period 08/04 on 8 September 2004; period 09/04 on 11 October 2004; period 10/04 on 8 November 2004. Because there was an outstanding investigation into the return for period 06/04 all repayments for subsequent returns are automatically inhibited, which will cause the officer responsible for the trader, here Mr Goodall, to check the returns. Mr Goodall first contacted the Appellant on 20 September 2004, 27 October 2004 and 23 November 2004 respectively. The decision letter and Statement of Case takes these dates as the starting date of Customs' inquiries (although Mr Angiolini now contends for a different date). Payments were initiated as follows:

(a) Period 08/04 12 October 2004 £219,549.51; 15 December 2004 £676,576.69 (deals 1, 2 and 4 to 12); 10 February 2005 £60,287.50 (deal 3).

(b) Period 09/04 4 November 2004 £210,019.10; 15 December 2004 £24,850.09 (deal 1); 15 December 2004 £129,150.00 (deal 5); 21 January 2005 £30,318.75 (deal 4); 15 February 2005 £27,498.80 (deal 2)

(c) Period 10/04 8 December 2004 £171,857.83; 25 February 2005 £54,775.00.

(4) The types of inquiry presented in this case fall into three categories. The first is where an inquiry is made relating to one country though the CCT [we were not told and have not been able to discover what this stands for] officer for that country which remains outstanding even after the repayment is made. Later a similar inquiry is made of another country which on being answered results in the repayment being authorised. The second category is where funds are released without any replies to inquiries being received. The third category is where funds are released immediately but inquiries continue thereafter.

(5) An example of the first category is deal 1 for period 08/04. The log starts on 6 October 2004 with a record of Mr Stone approving extended verification of 12 deals. Next the spreadsheet was started. Deal 1 concerned 1,000 Sony Ericsson P900 mobile phones with this quantity deal with at each stage in the chain except that one immediate supplier to the Appellant (S&I) sold 400 (this transaction is deal 2) and another (Celex UK) 600 phones previously comprised in the 1,000 phones (deal 1). As the Appellant's customer was in Germany, on 11 October 2004 Mr Goodall forwarded the spreadsheet to the CCT officer for Germany. Information was obtained by email or telephone on 12 October 2004 from other officers identifying the suppliers in the chain before the Appellant (working backwards) as Celex UK, Svensson Commodities, Calltel Telecom, Rowanwind Limited and Nu-Communications UK Limited (whose VAT number Rowanwind's officer believed to have been hijacked). At this stage therefore seven previous transactions in the chain had been identified. On 14 October 2004 the extended verification was reviewed with Mr Stone, who authorised its continuation. On 18 October 2004 an email from Nu-Communications' officer confirmed that that company knew nothing of the transaction and that the style of invoice was wrong. On the same day Rowanwind's officer was asked for copies of payment details, which were received on 20 October (relating to the customer) and 26 October 2004 (relating to the supplier). On 3 November 2004 the verification was again reviewed with Mr Stone, who authorised its continuation. On the same day an email was sent to the officers dealing with the freight forwarders involved. The situation was again reviewed on 12 December 2004, this time with Mr Tromans. On 14 December 2004 enquiries were made of the CCT officer for Spain and Ireland, we infer as a result of the review by Mr Tromans. These countries are relevant because the payment information showed that that Rowanwind had made payments to Pagecom Wireless Limited (an Irish company) and Bustabel Enterprises SL (a Spanish company). On the same day, the CCT officer provided Dunn & Bradstreet information showing Bustabel to be an active company. The case was reviewed with Mr Tromans again on 15 December 2004 at which he agreed that no circularity had been shown and authorised the release of the input tax relating to this deal, which was paid on 16 December 2004 (together with amounts from other deals). The log continues with a further review noting on 5 January and 3 February 2005 that information had still not been received from Germany, and that on 4 February 2005 information had been received from CCT that Bustabel was being de-registered by the Spanish authorities.

(6) In summary therefore, information about Rowanwind's payments showing payments to Irish and Spanish companies was in Mr Goodall's hands by 26 October 2004 but was not acted upon until 14 December 2004, as we have inferred, as a result of prompting by Mr Tromans. A reply about Spain was received on the same day, and on the following day Mr Tromans agreed to release the funds, we infer in the light of this information. However, the inquiry of the German authorities made on 11 October 2004 was still unanswered when the funds were released, but no decision had been made not to pursue the German inquiry because further entries in the log were made relating to it after the funds had been released.

(7) The following are other examples of the first category. Rather than summarise the entire investigations we set out the relevant events as follows:

(a) Deal 4 of period 08/04. An inquiry was sent to the CCT for Germany on 11 October 2004 which had not been replied to when the funds were agreed to be released on 15 December 2004. By 3 November 2004 Mr Goodall knew about third party payments to Pagecom and Bustabel but no inquiry was made until prompted by Mr Tromans on 13 December, with answers being obtained on 14 December and Mr Tromans agreed to release the funds on 15 December 2004.

(b) Deals 5 and 6 of period 08/04 (deal 6 is a variation of deal 5 in which part of the goods were supplied by the Appellant to another company). An inquiry was made to the CCT officer for France on 11 October 2004 which was not answered by the time the funds were released. The relevant dates relating to enquiries of Bustabel and Pagecom are identical to those in deal 1.

(c) Deals 7 and 8 of period 08/04 (deal 7 is a variation of deal 8 where part of the total goods were supplied to the Appellant by a different company). The dates are identical to deal 1 except that the information about third party payments was received on 28 October 2004.

(d) Deal 9 of period 08/04. The dates are identical to deal 1 except that the inquiry was made of the CCT officer for Denmark.

(e) Deal 10 of period 08/04. The inquiry was made of the CCT officer for France on 11 October 2004, which had not been answered by the time the funds were released. Information was available about third party payments on 9 November 2004 which was not acted upon until 13 December 2004. The answer was received on 14 December 2004 and Mr Tromans agreed to release the funds on 15 December 2004.

(f) Deal 11 of period 08/04. The dates are identical to deal 10 except that the information was available on 8 November 2004.

(g) Deal 12 of period 08/04. The dates are identical to deal 10 except that the information was available on 25 October 2004.

(h) Deal 4 of period 09/04. The inquiry was made of the CCT officer for Austria on 8 November 2004, which had not been answered by the time the funds were released. Information was available about third party payments on 11 November 2004 which was not acted upon until 13 December 2004. It is not clear when the answer was received. Mr Tromans agreed to release the funds on 21 January 2005.

(i) Deal 1 of period 10/04. The inquiry was made of the CCT officer for France on 1 December 2004, which had not been answered by the time the funds were released. On 14 December an inquiry was made of the officer for Ashcor. A reply was received on 28 January 2005 showing its supplier was a company in liquidation; the liquidator was approached on 3 February 2005. The release of funds was initiated on 2 March 2005 without any reply being received from the liquidator.

(8) Deal 3 of period 08/04 is an example of the second category in which the money was released without full answers to the inquiries ever being received. This investigation started on 6 October 2004. The chain of supplies was (in order) Bustabel Enterprises SL [Spain], Xtreme Computers Ltd, PAS Trading Limited, Vantage Link Corporation Limited, Ashcor Associates Limited, the Appellant, Unique Distributions Limited, Sunico A/S [Denmark], Bustabel. On 11 October 2004 the spreadsheet was forwarded to the CCT officer for Denmark. By 29 November 2004 Mr Goodall had received the invoice instructions and invoice for the sale by Bustabel to Xtreme. Progress was reviewed with Mr Tromans on 13 December 2004 who advised Mr Goodall to make enquiries of CCT in respect of third party payments made by Xtreme. On 14 December 2004 an email was received by Mr Goodall that information from Denmark was in the post. This was received on 30 December 2004 and showed that the goods were sold to Bustabel [Spain] and then back to the UK. On 24 November 2004 Mr Goodall sent an email asking for further information from the officers for Ashcor and Vantage Link. The officer for Ashcor replied saying that there was a meeting with the former officer on 21 December 2004. On 5 January 2005 Mr Goodall reviewed the case and chased the information from Ashcor. It was reviewed with Mr Tromans on 21 January 2005 who asked him to chase up the Ashcor evidence. The officer for Ashcor promised the information for 24 January 2005. The case was reviewed on 3 February 2005 and the information from Ashcor was chased on 4 February. The case was reviewed on 8 February with Mr Tromans who asked him to chase up the Ashcor information as a matter of urgency. It was reviewed again on 10 February 2005 when Mr Tromans decided to release the funds on a "without prejudice" basis due to the time it has taken to get the evidence from Ashcor.

(9) In summary, an inquiry was made of the CCT officer for Denmark on 11 October 2004 and answered on 30 December 2004. Ashcor was the immediate supplier to the Appellant and so its existence was known to Mr Goodall from the start but no inquiry was made until 24 November 2004 and, despite chasing, the answer had still not been received by 10 February 2005 when Mr Tromans decided to give up and repay the money, even though Customs had identified a circular transaction by 30 December 2004.

(10) The following are other examples of the second category. As before, rather than summarise the entire investigations we set out the relevant events as follows:

(a) Deal 1 for period 09/04. The inquiry was made of the CCT officer for Austria, Denmark and France on 4 November 2004, which had not been answered by the time the funds were released. Information about the chain was complete on 25 November 2004 and funds were released by Mr Tromans on 10 December 2004.

(b) Deal 2 of period 09/04. The inquiry was made of the CCT officer for Austria, Germany and Denmark on 4 November 2004, which had not been answered by the time the funds were released. Information about the chain was complete by 24 January 2005 and funds were released by Mr Tromans on 15 February 2005.

(c) Deal 5 of period 09/04. The inquiry was made of the CCT officer for Austria, Germany and Denmark on 4 November 2004, which had not been answered by the time the funds were released. Information about the chain was complete by 8 December 2004 (although the officer for the supplier to the Appellant was still trying to obtain the copy invoice from its supplier, which was obtained on 30 December 2004) and release of the funds was authorised on 15 December 2004.

(11) The only example of the third category is deal 3 for period 09/04 for which no input tax was withheld and Mr Goodall's first witness statement states that this deal is irrelevant. However, his second witness statement, provided to the Appellant on the first day of the hearing, and which was objected to by the Appellant, but which we agreed to admit, subject to the deletion of one paragraph, gives details of inquiries that were made relating to the export evidence ending with an inquiry of the Appellant by letter of 8 February 2005. There was a dispute about whether this inquiry had been answered and we are unable to make any finding on this. Our reason for admitting the evidence was that Customs were contending (following the Appellant's contention that repayment supplement was payable on the whole amount if payment of any part was made outside the 30 days as extended), that the relevant period continued after the repayment and we wanted to have a full picture of the facts when considering this contention.

5. Mr Patchett-Joyce, for the Appellant, contends:

(1) The periods from receipt of the return until the start of the inquiries on the date when Customs first contacted the Appellant, which Customs accept in the decision letter as a less stringent test than the law allows count towards the 30 days.

(2) The decision of the European Court of Justice in Bond House and related cases established the law as it always was. Customs' inquiries aimed at establishing circularity made in the light of the Tribunal decision in those cases were based on a misreading of the law. Customs' inquiries were therefore unreasonable. The Tribunal's decision in Olympia Technology (No.2) v HMRC (2006) VAT Decision 19647 was wrong in deciding the contrary.

(3) Either all the inquiries were unreasonable and so the extension of the relevant period never started to run, or Customs delayed in making inquiries and the clock stopped during the delays. The latter is the interpretation given by Customs in Notice 700/58: "The clock may re-start during this period if we delay unduly in resolving the query."

(4) If any repayment of part of the input tax claimed in a return is made outside the relevant period as extended, repayment supplement is payable on the whole repayment relating to that return.

6. Mr Angiolini, for Customs, contends:

(1) The essential questions to be answered were: (a) were the inquires reasonable enquiries? (b) on what date did Customs first consider it necessary to make such inquiries? and (c) On what date did Customs either satisfy themselves that they had received a complete answer or determine not to make an inquiry or determine that such inquiry should not be pursued further?

(2) Inquiries ended on 10 February 2005 (period 08/04), 11 May 2005 (09/04) (which is after the date of the final payment), and 25 February 2005 (10/04).

(3) All the claims were paid within the 30 day period as extended.

(4) If any part were paid outside the period repayment supplement is payable only on that part, as decided by the Tribunal in Olympia Technology (No.2) and as a matter of common sense.

(5) The reasonableness of inquiries must be based on the view of the law as it was at the time of the inquiries. If this were not the case the Tribunal would be deciding that Customs should have ignored the Tribunal's decisions in Bond House and Optigen.

(6) In spite of the starting date for the inquiries in the decision letter Customs now contend for the date of the submission of the returns.

(7) The manner in which the Commissioners conducted their inquiries and, in particular, the speed with which they did so is immaterial. The clear intention of s 79(4) is to allow the Commissioners to raise an inquiry, do nothing and then abandon it, see Purple International Ltd v Customs and Excise Commissioners (2003) VAT Decision 18243 at [29] endorsed by Lightman J in R (on the application of UK Tradecorp Ltd) v Customs and Excise Commissioners [2005] STC 138 at [14].

Reasons for our decision

7. Since section 79 is not one of the sections listed in s 83 for which an appeal lies to this tribunal, we assume that our jurisdiction derives from the treatment of repayment supplement as a VAT credit (the excess of input tax credit over output tax) and so we are indirectly determining the amount of input tax credit for which we have jurisdiction under s 83(c).
8. The statute and the Regulations fit together oddly. Section 79(4) was added by the Finance (No.2) Act 1992 effectively to enlarge the meaning given by Customs and Excise Commissioners v L Rowland & Co (Retail) Ltd [1992] STC 647. That subsection (that the period begins when Customs considers it necessary to make an inquiry, and ends when they have satisfied themselves that they have received a complete answer to the inquiry, or determine not to make the inquiry, or not to pursue it further) is completely inconsistent with Regulation 199 (that the period begins when Customs first raise the enquiry and ends when they receive a complete answer), and Regulation 198 (which also envisages that the inquiry is actually raised and answered), even though the Regulation was made (or re-made) later, in 1995. We follow the Tribunal in Purple International Ltd v Customs and Excise Commissioners (2003) VAT Decision 18243 at [23] that "…the subsection [(4)] applies in its entirety to determining (sic) for the purposes of all the regulations referred to in subsection [(4)], ie regulations 198 and 199." We therefore read s 79(4) as overriding the Regulations and so there is to be left out of account the period between Customs considering it necessary to make an inquiry and (a) their being satisfied that they have received a complete answer to the inquiry, or (b) their determining not to raise the inquiry after all, or (c) if they have raised it, determining not to pursue it further.
9. The first issue of interpretation of s 79 is the meaning of inquiry. The ordinary meaning of the words at the end of subs (4) ("whether it [the inquiry] is or might have been made of the person or body making the requisite return or claim or of an authorised person or of some other person") seems to indicate that inquiry means a single question to a particular person, rather than the income tax sense of a more general enquiry (with an e) into a tax return (s 9A Taxes Management Act 1970).
10. This was the interpretation given in the Rowland case in which Auld J said:

"In my judgment, the protection to the taxpayer, such as it is, and the spur to efficiency on the part of the commissioners are not to be found in giving the word 'inquiry' in this context the broad meaning contended for by the commissioners and then seeking to qualify it in time, as well as in nature, by the word 'reasonable'. It is to be found in the ordinary and natural meaning of the word 'inquiry' in its context, namely 'periods … referable to … the raising and answering of any reasonable inquiry relating to the requisite return or claim' (see s 20(3)(a) and reg 41(a)). The inquiry contemplated by these words is not a general one in the sense of a general investigation. It is an inquiry relating to a particular return in respect of which a supplement may be payable if the claim in it for repayment is not dealt with promptly. The combination of the words 'the raising and answering of any … inquiry' also indicates that the word 'inquiry' is used in the sense of a question or questions put to the taxpayer for him to answer, not an inquiry in the sense of an investigation concluded by a report. The word 'raising' itself in this context is clearly used in its ordinary and natural meaning of putting an inquiry or question to, or making an inquiry of, the taxpayer about his claim for repayment. As Mr Heim, the tribunal chairman in the Five Oaks Properties case, observed (at 324), 'it implies the act of enquiring'. It certainly does not fit readily into the notion of a decision by a body remote from the taxpayer, like the Value Added Tax Central Unit, to instigate an inquiry in the sense of an investigation, as the commissioners contend."

This must now be read as extending to inquiries of persons other than the taxpayer in view of the later-added concluding words of s 79(4).

11. The Tribunal in Purple quoted this passage and then at [26] applied the term "inquiry" to mean an examination of 14 of the transactions that were included in the return. At [29] the Tribunal used the expression "single composite inquiry involving component parts of the inquiry being directed at different persons." We regard this as treating a number of separate inquiries together.
12. In Olympia Technologies (No.2) the Tribunal dealt with a contention by Customs that each transaction that made up the return represented a separate VAT credit and gave rise to separate inquiries concluding with a particular part-payment being authorised. The context was that the taxpayer was claiming that if any inquiry exceeded the relevant period then repayment supplement was payable on the whole VAT credit in the return. Customs claimed support for their interpretation from the use of "periods" (in the plural) in subs (3). The Tribunal disagreed, saying:

15. We should mention that the Customs draw support for their argument (that each transactions covered by the 10/03 return represent a separate claim for a credit) from the words of section 79(3). These direct that in computing the 30 day period "there shall be left out of account periods … referable to the raising and answering of any reasonable inquiry relating to the separate return or claim". That, they say, implies that each transaction, being the basis of a separate claim for VAT credit, is capable of having its own inquiry period. We do not agree. It seems to us that the reference to "periods" in section 79(3) is a reference to successive rather than concurrent periods. Even if the exercise required by section 75 [which should presumably be 79] were an investigation into each, of what may be numerous, transactions in a return, there would still need to be a reference in section 79(3) to "periods". Thus the presence of that word does not advance the construction sought by the Customs.

The Tribunal said later:

"26. For the reasons given in relation to Olympia's primary argument, we think that the Customs' proposition is wrong. There is in our view one relevant period in relation to each claim. That period will be 30 days allowing for the clock to be stopped during the period of any such inquiry as falls within section 79(3)(a). Where section 79(3) refers to 'periods' referable to any reasonable inquiry it and subsection (4) are, as noted in paragraph 15 above, contemplating successive periods of inquiry each of which leads to a 'complete answer' falling within the relevant period."

This last sentence reads "inquiry" as a separate question, so that there can be successive inquiries (and therefore periods of inquiry) relating to a particular return. This comment was made in the context of Customs' contention that each transaction gave rise to a separate claim. Given their decision that this was not the case, it is, of course, possible to have multiple inquiries, whether successive or simultaneous, relating to particular period.

13. On the other hand, Lightman J in R (on the application of UK Tradecorp Ltd) v Customs and Excise Commissioners [2005] STC 138 at [14] seems to use "inquiry" in a different sense of the whole investigation:

"It should be noted that the tribunal has only limited jurisdiction to examine and determine the reasonableness of the investigation by the commissioners, for under the provisions of s 79(4) once a reasonable inquiry has started the means adopted by the commissioners in carrying it out cannot be questioned before the tribunal: see para 29 of the decision of the tribunal in Purple International Ltd v Customs and Excise Commissioners (2003) VAT Decision 18243."

If that is a correct reading of the decision, it is directly contrary to Rowland. We consider that we are obliged to follow Rowland, a case in which the interpretation of s 79 was directly in issue, rather than Tradecorp, a judicial review case, where s 79 was not in issue as the taxpayer was claiming guidance about the duties of Customs in investigating returns.

14. Accordingly, we interpret "inquiry" as meaning a question. Since here the Appellant is arguing that particular questions were unreasonable inquiries, we cannot take the composite view taken by the Tribunal in Purple of looking at a number of inquiries together.
15. As to the start date of inquiries, because there was an automatic inhibition on making repayments without investigation on all the returns, it is likely that Customs will be making inquiries. However, the start date in s 79(4)(a) is when Customs determine to make a particular inquiry ("such an inquiry"). We therefore consider that Customs were correct in their decision letter and Statement of Case to take the date on which Mr Goodall first contacted the Appellant as the start of the particular inquiry, rather than the date the return was received, as Mr Angiolini was now contending.
16. Another issue of interpretation is that s 79(4) assumes that the repayment will not be made by Customs until (as we have already summarised it) (a) their being satisfied that they have received a complete answer to the inquiry, or (b) their determining not to raise the inquiry after all, or (c) if they have raised it, determining not to pursue it further. Here the facts show that repayments were made without any of these occurring for all their inquiries. For category 1 (see paragraph 4(4)), in deal 1 for period 08/04, for example, the inquiry made through CCT of the German authorities was made on 11 October 2004, the funds were released on 16 December 2004 after a satisfactory reply in respect of the inquiry of Spain but the log still continues and notes on 3 February 2005 that information had still not been received from Germany and so it is clear that Customs were still not satisfied and had not determined not to pursue it further. The category 2 inquiries were all still continuing when the repayments were made. In category 3, deal 3 of period 09/04 shows an even more extreme example where no input tax was withheld, and so the repayment was initiated on 9 November 2004, but extended verification took place with all the inquiries made after the repayment, extending at least until Customs' inquiry of the Appellant of 8 February 2005. The draftsman clearly did not have the situation of repayments being made before the inquiries were complete. We consider that since s 79 deals with repayment supplement and is aimed at determining whether the repayment was made within the relevant period of 30 days, but leaving out of account periods referable to raising and answering of inquiries, it must be implied that once the repayment is made the relevant period cannot continue to run.
17. Mr Patchett-Joyce also raised the issue of whether if one part-payment was made outside the relevant period, repayment supplement was payable on the whole. This point was dealt with by the Tribunal in Olympia and we adopt their reasoning:

"17. We are satisfied that on its ordinary and unstrained meaning section 79(2)(b) can be read as recognizing part payments and part refunds of the VAT credit for the particular period, taking the VAT credit as a single amount. Thus where by the end of the prescribed period, extended because the clock has stopped to enable reasonable inquiries to be made, a part payment has (as here) been made to a taxable person, the amount of that part payment earns no repayment supplement.

18. It is argued for Olympia that such a construction defies the purpose of section 79 which, as Auld J observed in Customs and Excise Commissioners v L Rowland & Co (Retail) Ltd [1992] STC 647 at 655, was designed to act as a "spur to efficiency" on the part of the Commissioners. The Commissioners, faced with a multitude of different transactions covered by one return, might (Olympia observe) be tempted into deferring repayment of any amount until completion of all the different inquiries into all the transactions irrespective of whether they had already satisfied themselves in relation to particular transaction. We do not accept that. That sort of delaying action would violate the principles of proper administration. As Lightman J observed in paragraph 42 of his judgment in R (on the application of UK Tradecorp) v Customs and Excise Commissioners [2005] STC 138 –

"Community law obliges member states to proceed with an investigation of claims to input tax expeditiously and proportionately and to pay claims which are (or to the extent that they are) admitted or established, promptly …"

It follows that we are against Olympia on this primary point. Repayment supplement is not due on part payments of a VAT credit made during the relevant period."

18. In the light of this understanding of the interpretation of s 79 we consider the statements by Mr Angiolini in his skeleton: "the manner in which the Commissioners conducted their inquiries and, in particular, the speed with which they did so is immaterial" and "The clear intention of s 79(4) is to allow the Commissioners to raise an inquiry, do nothing and then abandon it." As to the first, we agree so long as it relates separately to each inquiry, with the consequence that the time at which the inquiry is made is relevant to its reasonableness. The second does not arise on the facts here and we agree that it is fully within s 79(4) for this to occur, but the reason for not pursuing the inquiry that Customs had originally considered it necessary to make would help to show the reasonableness of raising it (in the sense of considering it necessary to make it).
19. Before turning to the specific inquiries, we deal with Mr Patchett-Joyce's argument that all Customs' inquiries were unreasonable since they were directed to the law as it was thought to be at the time, rather than the law as it was later decided to be. The Tribunal in Olympia Technology (No.2) said:

"21. …'Unreasonable' used in this sense must mean that the decision to inquire has been based on a misconception of the law. We achnowledge that it is possible to envisage an obvious misreading of the law leading to an unnecessary and therefore unreasonable inquiry. But that is not the position here….

23. Whatever the correct legal analysis, the transactions upon which Olympia based its 10/03 claim needed investigating and verifying. For the claim to have related to an economic activity real transactions had to have taken place and the Customs had to have been satisfied that real consignments of real mobile telephones had been made….

We entirely agree. We would add that it seems obvious to us that whether something is reasonable has to be decided in the light of the then knowledge. The fact that the then knowledge of the law turned out to be wrong does not retrospectively make Customs' action unreasonable. There is nothing inconsistent about being wrong and reasonable. We would, however, go further than the Tribunal in Olympic Technology (No.2) at [23]. Carousel fraud is not limited to (and does not, from our reading of decisions in other appeals, normally involve) fictitious transactions in the sense of the goods not existing. Customs are investigating fraud which can equally involve real transactions where there is a missing or hijacked trader in the chain. The legal test identified by the European Court now requires showing that transactions somewhere in the supply chain were vitiated by fraud and that the taxable person knew or had means of knowing of the fraud. Essentially inquiries aimed at identifying whether there is fraud are just as necessary under the law as it is now known to be; the difference is that the taxpayer's knowledge is additionally relevant. Accordingly we find that in general terms it was reasonable for Customs to instigate inquiries into the returns, although we do not consider this to be the right question.

20. Accordingly applying our interpretation of "inquiry" to mean each separate inquiry made by Customs, whether of the taxpayer or, in accordance with the concluding words of s 79(4), or of an authorised person (any person acting under the authority of the Commissioners) or any other person, it seems to us that we must consider in relation to each one whether it represents "the raising and answering of any reasonable inquiry relating to the requisite return."

Period 08/04

21. The first repayment £219,549.51 was initiated on 12 October 2004, which is 36 days after the receipt of the return on 8 September 2004, and did not relate to the extended verification of any deals. However, an inquiry of the Appellant started on 20 September 2004, was continued by a further inquiry on 27 September which was answered on 5 October 2004. Excluding the time for those inquiries the repayment was within the 30 days.
22. In relation to deal 1 of period 08/04 we ask ourselves whether Mr Goodall raised a reasonable inquiry of the CCT officer, who is an authorised person, for Germany (where the Appellant's customer belonged) on 11 October 2004. We consider that it was. We ask ourselves the same question for the inquiries of the CCT officers for Ireland and Spain on 14 December 2004, when he had information in his hands on 26 October 2004 enabling him to do so. The context in which the question is asked is in relation to whether the 30 days given to Customs to inquire into the return should be extended to allow raising and answering of reasonable inquiries. It is a question where time is of the essence to determining the reasonableness of the inquiry. We conclude that the answer is no. We received no valid explanation of the reason why the inquiry was not made on or shortly after 26 October 2004. However, since the (reasonable) inquiry of the CCT officer for Germany began before the inquiry of the (unreasonable, in terms of time) inquiries of the CCT officers for Ireland and Spain, and the former continued until after the repayment, we do not consider that the unreasonableness of the latter is relevant to whether repayment supplement is due, even though it was the reply to the inquiries from Ireland and Spain that triggered the initiation of the release of funds on 16 December 2004. The same reasoning applies to deals 2 and 4 to 12 of period 08/04.
23. In relation to deal 3 for period 08/04 we ask ourselves whether Mr Goodall raised a reasonable inquiry of the officer for Ashcor, an authorised person, on 14 December 2004 asking for all relevant documents from Ashcor, when the investigation started on 20 September 2004 and the identity of Ashcor was then known to Mr Goodall since Ashcor was the immediate supplier of he goods to the Appellant. We conclude that the answer is no. We received no valid explanation of the reason why the inquiry was not made on or shortly after 20 September 2004. However, we find that a reasonable inquiry was made of the officer for Denmark on 11 October 2004, which was answered on 30 December 2004. This period does not count. We consider that the period 30 December 2004 to the initiation of the repayment on 15 February 2005 does not fall to be left out of account. Since the period exceeds 30 days we find that repayment supplement is due on the payment of £60,287.50 in respect of period 08/04.

Period 09/04

24. The return was received on 11 October 2004 and the inquiries started on 27 October 2004. In relation to deals 1, 2 and 5 (which we have described as category 2) we find that the inquiries made of various foreign authorities on 4 November 2004, which were never answered by the time funds were released, were reasonable. For deal 4 (category 1) we also find that the inquiry of the CCT officer for Austria on 8 November 2004 was reasonable. Deal 3 is irrelevant since we have decided that time cannot be counted after the repayment was made. The delays were from 11 to 26 October 2004 (15 days) and from the authorisation of the last payment on 15 February 2005 to its initiation on 17 February 2005 (2 days), which in total is less than 30 days. Accordingly no repayment supplement is due in respect of this period.

Period 10/04

25. The first repayment of £171,857.83 was initiated on 8 December 2004 which is 31 days after receipt of the return on 8 November 2004, and did not relate to the extended verification of any deals. However, an inquiry started on 23 November 2004 and followed up by a specific question to the Appellant on 29 November 2004 which was replied to on 30 November 2004. Excluding the time for these inquiries repayment was within the 30 days.
26. The deal relating to this period that was subject to extended verification falls into the same category as deal 1 of period 08/04 and we find that there was a reasonable inquiry from 23 November onwards. The only period that counts was from the receipt of the return on 8 November 2005 to 23 November 2005, which is less than 30 days. Accordingly no repayment supplement is due in respect of this period.
27. The result is that the only repayment supplement due is that in respect of period 08/04 on £60,287.50. We allow the appeal to that extent.
28. Both parties asked for costs in the event of winning. We direct that any application for costs in principle (without reference to any figures) be made to the Tribunal within 30 days of the date of release of this decision.

JOHN F. AVERY JONES

CHAIRMAN

RELEASE DATE: 22 November 2006

LON/05/0268