Plazadome Ltd v Revenue & Customs [2009] UKFTT 229 (TC)

FTT-Tax
Plazadome Ltd v Revenue & Customs
[2009] UKFTT 229 (TC) · 2009-03-13
[1]HM Revenue and Customs Solicitors' Office) appeared on behalf of the Respondents © CROWN COPYRIGHT 2009 DECISION The issues in dispute These consolidated appeals concern the Commissioners' decisions to disallow the input tax credit claimed by Plazadome Ltd ("Plazadome") in relation to five purported purchases of goods described as various types of Sony Digital Video cameras or "Camcorders". The decisions were issued in letters dated 28 July 2004 and 8 June 2004. The decision dated 8 June 2004 originally applied to a consignment of "Platinum XXX Cards" as well, but the Commissioners subsequently rescinded this part of the decision, leaving only the Sony Camcorder transactions in issue[2]The Commissioners contend that the five invoices Plazadome received are invalid for VAT purposes as they do not contain the description sufficient to identify the goods (if any) supplied to Plazadome, contrary to Regulation 14(1)(g) of the VAT Regulations 1995. The Commissioners contend that they have reasonably refused to exercise their discretion to accept any other evidence of the charges to VAT in accordance with Regulation 29(2). Agreed facts[3]It is agreed that basic facts of the five purported purchases, as shown on the face of the supplier invoices held by Plazadome, can be summarised as follows: Deal Date of Supplier Invoice Description of Goods in the Supplier Invoice Quantity Supplier InputTax Paid 1 27/06/2003 Sony DCR TRV60 digital camcorder, genuine battery & universal charger, European manual, original badge & box. 700 The Accessory People Plc £101,062.50 2 14/07/2003 Sony DCR-IP7 digital camcorder, 10 x optical, 120 x digital zoom, 800,000 pixel LCD, Bluetooth network function, video mail, web browser, 2.5 colour LCD screen, MPEG E-movie, micro mv in/out. 407 The Accessory People Plc £48,931.58 3 21/07/2003 Sony DCR IP220 digital camcorder, 1/3 6"2 megapixel (2.110K pixel), 530 line horizontal resolution, 2.5" precision hybrid monitor, touch panel operation, Carl Zeiss lens, genuine battery & universal charger, software & manual original badge and box. 480 The Accessory People Plc £50,568.00 4 25/07/2003 Sony DCR IP55 digital camcorder, 120 x zoom, 10 x optical zoom, Carl Zeiss lens 2.5" LCD screen, genuine battery & universal charger, software &manual, original badge & box. 420 The Accessory People Plc £55,125.00 5 31/07/2003 Sony DCR IP55 Digital Camcorders 150 The Big Store Ltd £19,687.50[4]It is agreed that at all material times Plazadome, The Accessory People Plc ("TAP") and the Big Store Ltd, existed and were registered for VAT.[5]It is agreed that Plazadome paid to the supplier the sum shown as due on their relevant suppliers' invoices, including the sums shown as the VAT due.[6]It is agreed that Plazadome purported to sell the goods it had purported to purchase from the relevant suppliers to a Danish company called Tele-Tech DK-APS ("Tele-Tech"), which was registered for VAT in Denmark at the material time, and that Plazadome holds documents which purport to show that those goods were then shipped out of the United Kingdom. In view of the decisions on the invalidity of purchase invoices, the Commissioners do not concede that Plazadome made any supplies to Tele-Tech; however, this is not the basis of the decisions to refuse input tax credit and it is not in issue in the course of these appeals. Appeals[7]Plazadome appeals against two decisions of the Commissioners which disallow input tax credit claimed. The first issued is in respect of the period 1 July 2003 to 31 July 2003 for the repayment of £218,186.49 (LON/2004/1110) and the second in respect of the period 1 June 2003 to 30 June 2003 for a payment of £101,062 (LON/2004/0132). The decisions relate to five purchases and sale of quantities of Sony Camcorders.[8]The five deals A brief summary: Deal 1 involves invoice on 27 June 2003 from TAP to Plazadome for the supply of 700 Sony DCR 60 Camcorders for £577,500 plus Vat of £101,062, total invoice price of goods £678,562.50. The invoice describes the goods as "Sony DCR TRV 60 Digital Camcorders, genuine battery and universal charger, European manual, original badge and box." Plazadome supplied the same to Tele-Tech in Denmark for £600,600 at zero-rate of VAT under invoice dated 27 June 2003. Deal 2 This relates to an invoice dated 14 July 2003 from TAP to Plazadome for the supply of 407 Sony DCR-IP7 Camcorders for £279,609 plus VAT of £48,931.58 with a total invoice of £328,540.58. The invoice describes the goods as "Sony DCR-IP7 Digital Camcorders 10X optical, 120 x Digital zoom, 800,000 Pixel LCD, Bluetooth Network Function, Video Mail, Web Browser, 2.5 Colour LCD Screen, MPEG E-Movie, Micro MV, In/Out." Deal 3 This relates to an invoice dated 21 July 2003 from TAP to Plazadome for the supply of 480 Sony DCR-IP220 Camcorders for £228,960 plus VAT of £50,568 giving a total invoice of £339,528. The goods are described as "Sony DCR-IP 220 Digital Camcorders ? 6 "2 megapixel, 530 line horizontal resolution, 2.5 inches precision, hybrid monitor, touch power operation, Carl Zeiss lens, genuine battery and universal charger, software and manual original badge and box." Deal 4 This relates to an invoice dated 25 July 2003 from TAP to Plazadome for the supply of 420 Sony DCR-IP 55 Camcorders for £315,000 plus VAT of £55,125 total invoice of 370,125. Plazadome supplied the same to Tele-Tech in Denmark for £327,600 at zero-rate VAT and an invoice dated 25 July 2003. The goods were described as "Sony DCR-IPS 5 Digital Camcorder, 120 x zoom, 10 x optical zoom, Carl Zeiss lens, 2.5" LCD screen genuine battery and universal charger, software and manual, original badge and box." Deal 5 This relates to an invoice dated 31 July 2003 from The Big Store Ltd to Plazadome for the supply of 150 Sony DCR-IP 55 Camcorders for £112,500 plus VAT of £19,687.50 total £132,187.50. The goods are described as "Sony DCR IP55 Digital Camcorders". The same was supplied to Tele-Tech in Denmark for £119,250 at zero-rate of VAT and an invoice dated 31 July 2003. In all five transactions the issue is whether Plazadome has a right to deduct input tax in respect of these transactions.[9]The five transactions are shown graphically with all parties involved and all sums payable under five Appendices given at the end. Background facts The relevant legal provisions[10]The Law (A) Section 4 of the Value Added Tax Act 1994 ("VATA") provide as follows:
"(1) VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.

(B) Section 24(1) of VATA defines "input tax" as: "

VAT on the supply to him of any goods or services … 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." (C) Section 24(6)(a) VATA provides that regulations may provide for VAT:
"to be treated as input tax only if and to the extent that the charge to VAT is evidenced and quantified by reference to such documents or other information as may be specified in the regulations or the Commissioners may direct either generally or in particular cases or classes of cases." (Section (24(6)(a) gives effect to Article 18 of the Sixth Directive, which refers to the documentary requirements which must be satisfied in order to exercise a right to deduct).

(D) Section 25(2) of VATA provides: "

Subject to the provisions of this section, he [the taxable person] 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." (E) Regulation 13(2) of the VAT Regulations provides that the particulars of the VAT chargeable on a supply of goods shall be provided on a document containing the particulars present in Regulation 14(1).

(F) Regulation 14(1)(g) of the VAT Regulations provides that:

"a registered person providing a VAT invoice … shall state thereon the following particulars – a description sufficient to identify the goods or services supplied." (G) Regulation 29(2) of the VAT Regulations provides: "
At the time of claiming deduction of input tax … 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 or provide such other evidence of the charge to VAT as the Commissioners may direct." (H) The foregoing provisions implement, and are to be interpreted consistently with, the Sixth Directive and, in particular, Articles 2.5(1), 17(1), 17(2)(a), 18(1)(a), 22(3)(a) and 22(3)(b) thereof. (I) Article 2 of the Sixth Directive provides, so far as material:
"The following shall be subject to value added tax: 1.

(J) Article 5(1) of the Sixth Directive provides: "

Supply of goods shall mean the transfer of the right to dispose of tangible property as owner …" (K) Article 17 of the Sixth Directive provides (so far as material):
"Origin and scope of the right to deduct – 1. The right to deduct shall arise at the time when the deductible tax becomes chargeable. 2.

(L) Article 18 of the Sixth Directive provides: "

Rules governing the exercise of the right to deduct (1) To exercise his right of deduction, a taxable person must: (a) in respect of deductions pursuant to Article 17(2)(a), hold an invoice drawn up in accordance with Article 22(3); …" (2) "The taxable person shall effect the deduction by subtracting from the total amount of value added tax due for a given period the total amount of the tax in respect of which, during the same period, the right to deduct has arisen and can be exercised under the provisions of paragraph 1." (3) 'Member States shall determine the conditions and procedures whereby a taxable person may be authorised to make a deduction which he has not made in accordance with paragraphs 1 and 2.' (M) Article 22(3)(a) of the Sixth Directive provides:
"3(a) Every taxable person shall ensure that an invoice is issued, either by himself or by his customer, or in his name and on his behalf, by a third party, in respect of goods or services which he has supplied or rendered to another taxable person or to a non-taxable legal person. Every taxable person shall also ensure that an invoice is issued, either by himself or by his customer or, in his name and on his behalf, by a third party, in respect of the supplies of goods referred to in Article 28b(B)(1) and in respect of goods supplied under the conditions laid down in Article 28c(A).

(b) of the Sixth Directive provides (so far as material): "

Without prejudice to the specific arrangements laid down by this Directive, only the following details are required for VAT purposes on invoices issued under the first, second and third subparagraphs of point (a): the quantity and nature of the goods supplied …" (O) Article 22(8) of the Sixth Directive provides:
"Member States may impose other obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion, subject to the requirement of equal treatment for domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers." (P) The exercise of the discretion under Regulation 29(2) was explained in a Statement of Practice, "
VAT Strategy: Input Tax deduction without a valid VAT invoice – Statement of Practice July 2003" (Statement of Practice"). The Statement of Practice explains and clarifies Customs' policy in respect of claims for tax supported by invalid VAT invoices. At paragraph 17 of the Statement of Practice explain how HMRC will apply their discretion and that they will need to be able to answer most of the questions at Appendix 2 satisfactorily. Appellant's submissions[11]The original submission and grounds of appeal as stated in the Notice of Appeal of 17 February 2004 are as follows: 1. "The Appellant is in the business of buying and selling electrical equipment, cameras, accessories and other related products; 2. When purchasing the aforementioned goods the Appellant pays the suppliers a taxable amount; 3. The Appellant has a fundamental right to recover as input tax that part of the taxable amount attributable as output tax to the supplier; 4. The Appellant is a taxable person, the relevant supplies of products subject to the Assessment were supplied to the Appellant in the course and for the purposes of the business carried on by the Appellant; 5. The Appellant rejects the Respondents' assertion that relevant supplies were "devoid of economic activity"; 6. The Respondents have a duty, under Community and Domestic Law, to repay the input tax arising; 7. The Appellant contends that assessments are wrong in law".[12]The Appellant says that they have established a right to deduct input tax in respect of the five transactions as outlined above.[13]The Appellant notes that in these transactions there is no allegation of MTIC fraud and any allegation of a fraudulent nature relating to the five transactions is irrelevant. They draw reference to the Joined Cases C-354/03, C-355/03 and C-484/03, Optigen Ltd , Fulcrum Electronics Ltd and Bondhouse Systems Ltd v Commissioners of Customs and Excise , where the ECJ stated at paragraph 51 "It follows that transactions such as those at issue in the main proceedings, which are not themselves vitiated by VAT fraud, constitute supplies of goods or services effected by a taxable person acting as such and an economic activity within the meaning of Article 2(1), (4) and (5)(1) of the Sixth Directive, where they fulfilled the objective criteria on which the definitions of those terms are based, regardless of the intention of a trader other than the taxable person concerned involved in the same chain of supply and/or the possible fraudulent nature of another transaction in the chain, prior or subsequent to the transaction carried out by that taxable person, of which that taxable person had no knowledge and no means of knowledge. Paragraph 52 - nor can the right to deduct tax of a taxable person who carries out such transactions be affected by the fact that in the chain of supply of which those transactions form part, another prior or subsequent transaction is vitiated by fraud, without the taxable person knowing or having any means of knowing".[14]The Appellant says that the VAT invoices provide, "a description sufficient to identify the goods or services supplied" pursuant to Regulation 14(1)(g) of the VAT Regulations 1995. They refute all the claims of the Respondents that the goods shipped were not as described on the invoices whether as regards the serial numbers, the number of camcorders supplied, the declared weight of the camcorders, the number of pallets used to transport the camcorders and whether or not the serial numbers were from Sony. They provide evidence to support their claim.[15]Further, the Appellant says that the Commissioners were obliged to determine the conditions and procedures whereby a taxable person may be authorised to make a deduction even if they did not have a valid invoice. The Commissioners did have a discretion to determine what those conditions and procedures should be and having determined what those conditions and procedures should be, as published in the 2003 Statement of Practice, the Commissioners and taxpayers are obliged to adhere to them. There is no evidence that the Commissioners ever considered the proper exercise of their discretion at the relevant time. They have provided evidence to support this claim.[16]Further, the Appellant says that if the Commissioners did consider Regulation 29(2) the question arises as to whether they exercised the discretion properly. They submit that the Commissioners were concentrating on the non-economic activity argument and did not consider properly or at all exercising their discretion in relation only to the situation that now appertains, namely, a "description sufficient to identify the goods or services supplied".[17]The Appellant provided a document called – Amended Closing Submissions on Behalf of the Appellant – which outlines in some detail their arguments and the evidence which supports those arguments as well as quotations from the daily manuscript recording the Tribunal hearing. The Commissioners' submissions[18]The Commissioners say that the invoices issued by the Appellant's suppliers were invalid for the purposes of input tax deduction because they did not contain descriptions sufficient to identify the goods, if any, purchased by the Appellant, as required by Regulation 14(1)(g) of the VAT Regulations 1995 and it was reasonable not to exercise the Commissioners' discretion under Regulation 29(2) of the VAT Regulations to allow input tax deduction in the absence of valid invoices.[19]The Commissioners rely upon certain categories of evidence to show that descriptions in the invoices are not correct. These include weight discrepancies, discrepancies in pallet quantities, implausible market share, anomalies concerning serial numbers, evidence concerning the freight forwarder, Aviette UK Ltd ("Aviette"), connection with missing trader intra-community ("MTIC") fraud, and evidence concerning the Appellant's suppliers in deals 1-4, TAP.[20]The Commissioners say that, on a balance of probabilities, the Appellant did not receive the supplies described on the invoices issued by its suppliers.[21]The Commissioners say that the purported supplies of goods and transactions existed only on paper and the Appellant had not satisfied the conditions for the exercise of the right to deduct tax pursuant to Section 24 VATA.[22]As regards the Appellant's submission that the Commissioners were required to consider exercising their discretion under Regulation 29(2) to allow input tax credit without valid invoices, the Commissioners say that those submissions are misconceived as a matter of law. The relevant provision is not engaged unless the Appellant has first established that it received a taxable supply and the burden of proving such lies with the Appellant. The Appellant has not discharged this burden since their evidence relates entirely to supplies described on the invoices and the supply was wholly different from that described on the invoices.[23]Further, the Commissioners' duty under Regulation 29(2) was to consider all the relevant evidence and to decide whether, on the balance of probabilities, the claimed supplies were made. The Commissioners say that this was done. The Commissioners say that the exercise of their discretion is not confined to the Statement of Practice.[24]The Commissioners say that the Appellant has failed to fulfil its burden of proving that it received taxable supplies so the issue of Regulation 29(2) discretion does not arise. In the alternative, if the Commissioners were required to exercise that discretion, they did so in accordance with the relevant domestic and EC authorities and in a manner which fell within the range of responses open to a reasonable body of Commissioners in their position. Evidence and witnesses[25]The Tribunal received five large ring binders of information including chronology list of authorities, correspondence, witness statements and submissions.[26]There were witness statements for Appellant's side from Imtiaz Ahmed Mukhtar (who did not give oral evidence) and from the Commissioners' side officers Timothy Waxman, Richard Anthony Saxon, Smita Parikh, Roderick Stone and a witness employed in a senior position at Sony UK, Shaun Dorrington.[27]Let us start by looking at the law. There are two conditions precedent to the exercise of the right to deduct input tax. These are:(i) The goods or services forming the subject matter of the transactions must have been delivered or performed (Section 24(1)(a) of the VATA and Article 17(1)(a) of the Sixth Directive); and(ii) The Appellant must hold a valid invoice, or a document, which serves as an invoice, in respect of the deduction claimed, at the time of making a claim (Section 24(6)(a) VATA). In other words, there is no entitlement to input tax credit unless there has been a payment made for a supply of goods and services regardless of whether an invoice has been issued. There can be no "tax chargeable" unless and until a supply is made.[28]The invoice, which would contain relevant information on the transaction would normally be presented in making a claim for input tax. The invoice does not itself create an entitlement to input tax but it evidences such an entitlement. The invoice would normally identify and describe the transaction at issue.[29]The Appellant bears the burden of proof in relation to the two conditions stated above. In the case of Grunwick Processing Laboratories Ltd v C&E (1986) STC 441, at 445), the Court said that the burden of proof rest on the taxpayer to show on a balance of probabilities that the assessment was wrong. They stated:
"At no time did the commissioners have any burden to prove anything before the tribunal. Neither its case nor any aspect of the matter, factually or evidentially, carries any burden imposed on the Commissioners. It is throughout, in my judgment, upon the taxpayer company, if it can, to attack the assessment in whole or in part"
. The Court of Appeal agreed with the judge's statement (1987) STC 360.[30]The burden of proof is discharged by producing evidence to support the contentions advanced.[31]Let us look at the contentions advanced by the parties. The Commissioners seek to establish from evidence that the descriptions of the goods is not accurate. They say that the evidence of weight, pallet quantities, market share, serial numbers, freight forwarders and suppliers together with transaction link to MTIC fraud suggest that the Appellant received no supplies of goods and the transactions existed in paper form only and therefore there is no right to deduct input tax. We shall deal with the discretion argument under Regulation 29(2) separately later on in the decision. The Appellant submits that each of the five invoices complied with the relevant regulatory provision. The serial numbers supplied to the Commissioners came from Aviette, a genuine freight forwarder, who confirmed that there was a duplication of serial numbers due to their error and the products inspected were genuine. The Appellant says that there was never a claim that the goods were supplied by Sony and this undermines the Commissioners' claim regarding the maximum number of Camcorders per customer which is supplied in the UK. The declared weight of Camcorders is wrong and the witness Shaun Dorrington, of Sony UK accepts that different specifications of goods weight different amounts. The evidence on pallet numbers and weight is confusing and conflicting.[32]The argument that all the transactions were contrived for the purposes of committing MTIC fraud and therefore did not represent genuine economic activity will be addressed separately. Suffice it to say at this point that on account of the ECJ's judgment in Bond House Systems Ltd v HMRC , Optigen Ltd v Customs and Excise Commissioners (C-354/03), the Commissioners no longer rely on the "non-economic activity" grounds for their decision. The Bond House judgment does not affect the "invalid invoices" argument of the Respondents so the appeals now proceed on that basis. Key to parties' abbreviations Aviette UK Ltd ("Aviette") I.T. Wholesale Ltd ("I.T. Wholesale") Britanniacity UK Ltd ("Brittaniacity") Antonio's Wholesale Ltd ("Antionio's") Maersk Logistics Benelux B.V. ("Mearsk Logistics") Vaughan Promotions Ltd ("Vaughan Promotions") Willdon Invest SL ("Willdon") (Spanish) Marryvale Ltd ("Marryvale") Robertele SL ("Robertele") (Spanish) Extend Management ("Extend") Harbour Management LLC ("Harbour") I Q Solutions Scotland Ltd ("IQ Solutions")[33]Let us turn now to the transactions on a deal by deal basis in order to establish the chain of purchases and sale, time sequence, goods sold, prices, weight volume and consignment serial numbers and tax loss, if any. They will establish the bona fides of the transactions Deal 1 We were provided with a diagrammatic illustration of the chain of transactions and deals. The first transaction relates to Sony DCR-TRV 60 Camcorders x 700 units. The entire transaction in the UK took place on 27 June 2003. The transaction starts with Trevor Watson trading as Antonio's who we are told is a missing trader, at the start of the chain. They did not account for VAT. The business is based in Londonderry, Northern Ireland. We note a fax from Antonio's to Sceneclick, a UK company, to whom the goods were sold for £569,800 plus VAT of £99,175. The fax states "with reference to the attached sales order, please pay £611,100 to our supplier". They then gives the name Tele-Teck and their account details at Jyske Bank London. The fax shows reference to two other companies, Blossing Ltd and Rad Impex and asked that £5,775 and £50,995 respectively be paid to those companies. The documents show that the goods were the same goods purchased by Tele-Tech from Plazadome. The goods are then sold from Sceneclick Ltd to Britanniacity for £570,000 plus VAT of £99,837.50. The unit price is approximately £1 more per unit than purchased from Trevor Watson aka Antonio's (£815 v £814). Britanniacity made a fax request for an inspection report for the camcorders which they purchased from Sceneclick. There is no indication from whom the inspection report is requested but the fax is dated 17 October 2003 at 15:40. The goods are then sold by Britanniacity to IT Wholesale for £573,300 plus £100,323.50 VAT who sell to TAP for £574,700 plus VAT of £100,572.50 at the unit price of £821. There is a NatWest Bank line transcript showing that TAP paid IT Wholesale the sum of £675,272.50 on 27 June 2003 at 16:11. There is also a report from Aviette that they have carried out a 100% inspection of the goods and confirm the goods are correct and in good condition. The Aviette report is to TAP. TAP paid IT Wholesale at 15.52 and title to the goods passes when payment is received and the goods released. It is clear that the goods did not belong to TAP at the time Aviette conducted their inspection. Their inspection dated 27 June was conducted at 10.12. The goods are then sold from TAP to Plazadome for £577,500 plus VAT of £101,062.50 giving a unit price of £825. Plazadome pays TAP for the goods but makes a £90,000 overpayment. Plazadome then makes an onward sale to Tele-Tech. The goods are then shipped out of the UK and a certificate of shipment is provided by Aviette, which is dated 30 June 2003. The goods are cleared in the Netherlands by Maersk Logistics, an international freight forwarding company and kept in their warehouse. Tele-Teck sells to Robertele, a Spanish company, who sells back to Antonio's on 8 July 2003. There are several aspects of the commercial transactions which are questionable. The payment instructions given by Antonio's to Sceneclick reveals a number of points. First, Antonio's were supplied by Tele-Tech who had owned the goods previously and which had been bought from Plazadome. There is a request made by Tele-Tech that part payment be made to two companies, Blossing Ltd and Rad Impex, who are not involved in the transaction but part of another completely different transaction involving AJM UK Ltd. The goods are released by Antonio's to Sceneclick at 12.37, which suggest that payment has been made for the goods at that time. Britanniacity issued a purchase order on 17 October at 15.40 but there is no addressee stated though the volume and model match the transaction. In making payment, there is a request from Sceneclick that payment be made to Tele-Tech, a third party payment request. The payment is for £611,125. There are also timing problems with other parts of the transaction chain such as, the purchase order from I T Wholesale to Britanniacity precedes the release of the goods from Antonio's to Sceneclick (who supply Britanniacity). On the sale from IT Wholesale to TAP, TAP request an inspection report from Aivette which is provided at 10.12am, which does not fit into the timing of the transaction. There is no evidence that the report is paid for by TAP. On the sale from TAP to Plazadome, payment is made by Plazadome at 15.31 which is before TAP had paid IT Wholesale and therefore the goods were not the property of TAP at the time of their sale to Plazadome. The payment is excessive which is rebated. Plazadome sold to Tele-Tech as confirmed by the CMR shipping document from Plazadome to Tele-Tech. The non-payment raises issues of ownership. It is stated on their invoice that the goods remained the property of TAP until paid in full. The payment by Plazadome to TAP which is timed at 15.31 is before TAP has paid IT Wholesale. Therefore the goods are not the property of TAP at the time of sale to Plazadome. The release of the goods from TAP to Plazadome is stated and the invoice from Plazadome to Tele-Tech is shown on the fax to be 17.28. The CMR shipping documents from Plazadome to Tele-Tech stated there are two pallets used and the weight of the pallets is 420kgs for 700 x Sony DCR TRV 60. There is a pre-warning to Maersk Logistics regarding the shipment from Plazadome to Tele-Tech that the goods must remain "on hold" until an authorisation of release is received from Aviette. Tele-Tech gives a warning to Maersk not to inspect the goods. There is a release on 30 June 2003 by Tele-Tech to Robertele, a Spanish company. Aviette releases from Plazadome to Tele-Tech, which appears to have been done on a fax dated 7 July 2003 and this is inconsistent with the other deal documentation. On 8 July 2003 Robertele SL released the goods to Antonio's and the goods are returned to the UK. The goods are the same weight and same pallet numbers as listed on the CMR Maersk Robertele to Antonio's (ie 420kg 2 pallets). There are discrepancies in the weight and pallet quantity given by Sony UK and those given on the CMR in the transaction chain. The weight of the goods is given as 420kgs for 700 x Sony DCR TRV 60. According to the witness statement of Shaun Dorrington of Sony UK, the weight of an individual camcorder and its accessories in their packaging would be 2.44kgs or 2.55kgs or 3kgs (the weight differential results from the thickness of the manual and the plug supplied in different regions of the world). This will give a total weight for 700 units of 1,708 or 1,785 or 2,100kgs. The international consignment note ("CMR") relating to the Appellant's purported shipment of 700 Sony DCR-TRV 60 camcorders states that the gross weight is 420kgs which is less than a quarter of the three possible weights of 700 genuine units. Mr Dorrington's witness statements states that 132 units fit on one pallet. This means that the 700 units would make up five full pallets and one partly filled pallet. However the Appellant's CMR states that only two pallets were used for the shipment of 700 units. The discrepancy between the weight and the pallet quantities supplied by Sony UK and the weight and number of pallets declared on the CMR suggest that the consignment described on the CMR did not consist of 700 Sony DCR-TRV 60 camcorders. In examining the commercial documents, questions arise regarding the lack of commercial due diligence enquiries conducted with regard to the various transactions in Deal 1. The transactions are not sequential and there are third party payments. There is also no evidence of any prior dealings between the parties and in the transaction between TAP and Plazadome there is little evidence of enquiries by the Appellant in respect of TAP. Although some invoices, such as the TAP invoice to Plazadome, states that the goods remain the property of TAP until paid in full, the goods were still traded in spite of payment not being made. There is no evidence of any prior dealing between Aviette and the Appellant and there is no evidence of any exchange of terms and conditions, due diligence or payment. There is also no evidence of any due diligence by Tele-Tech or any prior dealings between Tele-Tech and the Appellant or indeed between any of the other parties involved in Deal 1. In commercial transactions, it is to be expected that there would be thorough inspection and verification of the goods but this is not the case in these transactions. In fact, the only clear instructions are for the goods not to be inspected. This raises concerns about the commerciality of the transactions. The Appellant's market share in camcorders appears not to be credible. From the figures given by Shaun Dorrington of Sony UK, the total number of camcorders shipped to Europe in 2003 was 38,000 and the total unit shipped to the UK was 7,000. It is strange that the Appellant, in their first dealing in camcorders, purported to purchase and sell 10% of the camcorders (in this model) shipped to the UK. It is expected that Sony would have known of the Appellant's company if they commanded such market share. Mr Dorrington indicated that Sony would have heard of a UK based distributor of Sony products selling the volume indicated in the Appellant's invoices. The Appellant was not known to Sony UK. There are some issues arising with regard to serial numbers of the camcorders. Mr Mukhtar of the Appellant, faxed to officer Parikh, a list of serial numbers which, he claimed, related to his purported purchase of Sony DCR-TRV 60 camcorders. The Tribunal had the benefit of a spreadsheet showing the various numbers. It is clear that some of the numbers on the list are duplicated. The numbers at line 1 to 24 in column F are duplicated at line 28 to 51 in column N and the numbers at lines 1 to 4 in column 8 are duplicated at lines 48 to 51 in column O. It was also found by HMRC that TAP purported to supply AJM Ltd (an unrelated third party) with 700 Sony DCR –TRV 60 Camcorders on 27 June 2003. AJM Ltd faxed officer Parikh a list of serial numbers which, they claimed, related to purported purchased from TAP. It was found that some of the numbers from the Appellant's list are duplicated at AJM's list. Specifically, the numbers at lines 18 to 31 and 35 to 42 of column D of the Appellant's list are duplicated at AJM Ltd's list and the numbers at lines 1 to 3 of column K to O of the Appellant's list are also duplicated in AJM Ltd's list. The AJM Ltd transactions are completely separate from the transactions in this appeal. Plazadome has not provided an explanation as to why the serial numbers are duplicated in Plazadome's list and AJM Ltd's list (the Appellant and AJM Ltd are not members of the same supply chain but both made purchase from the same supplier, TAP, on the same day). The duplication of serial numbers clearly undermines the credibility of the list supplied by the Appellant. There are issues relating to tax losses in the supply chain. HMRC have traced the supply chain on the Appellant's purported purchase. The chain has been traced back to a supplier called Trevor Watson (Antonio's), who appeared to have hijacked the VAT number of another trader. Mr Watson failed to account to the Commissioners for output VAT on the supply of the camcorders subsequently purchased by the Appellant. The Appellants are relying on the fact that the TAP invoice describes the goods as "Sony DCR-TRV 60 Digital Camcorders, genuine battery and universal charger, European manual, original badge and box." These were the same goods which Plazadome supplied to Tele-Tech in Denmark. There is an inspection report stating that the goods are in good condition, a release authority from TAP to Aviette and the CMR shows that the goods being described by Aviette to freight forwarders Maersk Holland. TAP confirmed to Plazadome that the goods are covered for insurance purposes under the TAP insurance policy and there is an invoice from Maersk to Tele-Tech dated 10 July for handling charges for goods (reference E2012) which is the folio number of the consignment of camcorders. As regards the serial numbers, the Appellant says that there was a genuine error made by the freight forwarders, Aviette. They also say that there has been no claim that the goods were supplied by Sony but from a third market and this explains the large number of camcorders which were in the Appellant's possession. Sony supplies a maximum of 500 camcorders to large customers in the UK. While the pallets may be configured differently, there is still the issue of the weight discrepancy which is not properly explained. The Appellant says that the witness Shaun Dorrington accepts that different camcorders specifications may give variable weight. This may explain the weight differential since the camcorder itself may only be 600g. As regards the number of pallets, the Appellant provided evidence from Marilyn Swain, of Sony UK, which was different to that produced by Mr Dorrington. Further, it appears that the pallets can be "repalletised" meaning that the original number of pallets could be reconfigured. This may explain the different number of pallets and would suggest that Mr Dorrington was speaking only of the number of cameras that Sony UK put on a pallet in their warehouse. The Appellant also relies on the fact that the CMRs were delivered to Maersk forwarding agents in Holland and it is possible that they did not carry out an inspection of the goods without instructions to do so. It seems likely however that forwarding agents would at least satisfy themselves that the goods delivered in a consignment match the description in the CMRs. Lastly, the question of circularity. The goods were released from Tele-Tech to Robertele SL and sent to Antonio's in Londonderry described as "electrical goods". This circularity in trading is a familiar pattern in MTIC fraud chains of transactions where the goods described on the documents are not always the goods which are traded. Deal 2 We have been provided with a diagrammatic illustration of the chain of transactions and deals. This transaction relates to 400 units of Sony DCR-IP7 camcorders. The transaction took place on 14 July 2003. The Tribunal has seen an invoice dated 22 June 2003, for the same type and quantity of goods which shows that Tele-Tech, a Danish company, sold the goods to Robertele SL, a Spanish company. These two companies had therefore owned the goods previously. IQ Solutions was the first UK party in this chain. They did not account for their VAT liability to HMRC and submitted no returns. They sold the goods to Sceneclick the sale price is £276,353 and VAT of £48,361.78. The unit price was £679. The sale to Sceneclick took place on 14 July 2003. On that transaction IQ Solutions payment instruction in respect of their sale to Sceneclick was to make payment to Tele-Tech in Denmark via their account at Jyske bank, London, a second payment to RAD Invest LLC (£24,043.82) and a third payment to Xtend Management (£2,808), all to banks in the UK. This would show that the goods are re-circulated from Tele-Tech, who are both the supplier and the customer. Sceneclick then sells to Britanniacity at sale price £276,760, with VAT of £48,433 and a unit price of £680. This transaction takes place on 14 July. Britanniacity actually makes a payment of £296,906.50 to Tele-Tech. This confirms a third party payment. A fax report from Aviette to Britanniacity dated 14 July confirms that all the goods supplied are in good order. The report is limited and only confirms the quantity of 407 x Sony DCR-IP7. Britanniacity then sell to IT Wholesale for a sale price of £278,388, VAT of £48,717.90 and a unit price of £684.00. This takes place on 14 July. The goods are then sold from IT Wholesale to TAP. The sale price is £278,998.50, VAT of £48,824.74 and a unit price of £685.50 as reflected in the invoice of 14 July 2003 from IT Wholesale to TAP. The goods are then sold from TAP to Plazadome. The sale price is £279,609 with VAT of £48,931.59 and a unit price of £687. The sale takes place on 14 July. There is an inspection report from Aviette provided to Plazadome on 14 July 2003. It confirms a "100% inspection" of the 400 x Sony DCR-IP7 Digital Camcorders and state that all goods are "present and good condition". There is no evidence of an inspection request nor any evidence that payment was made for the inspection. There is then an onward sale from Plazadome to Tele-Tech. The sale price is £292,185.30 with no VAT given the transaction is zero-rated and a unit price of £717.90. An invoice is produced from Plazadome to Tele-Tech for that sum on 14 July 2003. The certificate of shipment produced from Aviette on 16 July 2003 indicates that there is one pallet weighing 244kgs. Tele-Tech pays Plazadome and we have evidence from Tele-Tech Jyske bank, London, showing that there has been a debit in favour of Plazadome. The goods are released from Aviette to Tele-Tech who provides a notice to Maersk Logistics on 15 July 2003 stating that the goods are on the way with a handwriting note stating that the goods should be released to Robertele, the Spanish company at the very start of the chain. Tele-Tech issues an invoice to Robertele on 22 June 2003. There is a CMR dated 18 July 2003 for Robertele to Abbey Storage, Stoke on Trent where the goods are only described as "electricals" but with same weight and pallet number (240 kg/1 pallet). The items are also identified in an invoice from Maersk to Tele-Tech on 20 August 2003 with charges for handling but no charge for any inspection. What conclusions can be drawn from the transactions? Firstly, we heard evidence from Sony UK relating to their worldwide shipment which indicates that in July 2003 Sony shipped 1,347 DCR-IP7 camcorders throughout the world which is broken down into 66 to Asia and 1,281 to Europe. The Appellant's purchase of 407 Camcorders on 14 July 2003 would represent 30% of the total worldwide shipment in that month. One would question how a small, recently established business such as the Appellant would have achieved such a great share of the worldwide market. Secondly, we have a witness statement from Shaun Dorrington of Sony UK which states that the weight of an individual camcorder and its accessories and packaging could be 3kgs or 1.4kgs (the different weights refer to different thickness of manuals and kinds of plugs supplied in different regions of the world). This means that 407 units would weight 1,221kgs or 569.8kgs. The CMR for the transactions which the tribunal has examined indicates that the consignment weight was only 244kgs which is roughly 43% of the lower of the two possible weights provided by Sony UK for these camcorders. We know from the statement of Mr Dorrington of Sony UK that approximately 120 units would fit on a pallet. This means that 407 units would take approximately three full pallets and one partly filled pallet. The CMRs state that one pallet was used for the shipment of 407 units. This would raise questions as to whether, given the discrepancies of weight and pallet quantities, the consignment in question did contain 407 Sony DCR-IP7 camcorders. Thirdly, the serial numbers faxed by Mr Mukhtar to officer Parikh indicating a list of serial numbers related to the Sony DCR-IP7 camcorders indicated that there was duplication in the list. Specifically, the numbers lines 1 to 9 of column E are duplicated in lines 34 to 42 of column 1 and the numbers at lines 22 to 42 in column F are duplicated in lines 1 to 21 in column 1. The columns relate to spreadsheet printout provided by the Commissioners. The Appellant was asked to explain the discrepancies. They say that one of the employees of the Appellant's freight forwarder had provided incorrect serial numbers and this was confirmed by the freight forwarder in writing. A letter dated 1 October 2003 was provided and signed by Ian Buttery, a director of the Aviette and addressed to Plazadome. The letter states:
"Further to our conversation of today, please be advised that due to an admin error by Aviette UK Ltd, you were incorrectly supplied with duplicate serial numbers …"
. There was no evidence provided to explain or show the administrative error. HMRC examined the Aviette individual job files and found there was consistency in missing serial number list on all files. Fourthly, the Commissioners provided evidence that IQ Solutions traded under a VAT number which was hijacked from another trader. From evidence provided by the Danish authorities, a letter and schedule of Tele-Tech transactions, shows the goods traded in this transaction as were pre-owned by Tele-Tech in this transaction. The Appellant says that there is evidence from Aviette which confirms that they provided the wrong serial numbers as a result of an administrative error. The error was confirmed by Aviette to Richard Saxon of HMRC. The Appellant says that the configuration of the pallets and the weight of the goods are different from Sony's and as such the weight discrepancy and pallet configuration as used by the Appellant could be easily explained. They say that there is no evidence that the particular camcorders have come directly from Sony which refutes the points made by the Respondents with regard to the market share of the particular consignments. Deal 3 We have been provided with a diagrammatic illustration of the chain of transactions and deals. This chain of transactions took place on 21 July 2003 and relates to the supply of 480 Sony DCR-IP220 camcorders. We have been provided with an invoice from Tele-Tech to Willdon, a Spanish company, dated 11 July 2003, which predates the Deal 3 transaction date of 23 July 2003, it establishes that the goods were pre-owned by Tele-Tech and Willdon. The transactions starts in the UK with Maryvale selling to Britanniacity. This takes place on 23 July 2003, the sale price £284,1160, VAT of £49,728 and a unit price of £592. Payment instructions were given by Maryvale to Britanniacity which requests payment to Tele-Tech and Willdon of approximately £311,960 respectively with further payments of £2,800 and £17,800 to companies, Extend and Harbour. The format of the payment instruction is almost identical to that used by IQ Solutions and Xtend features as a payee in Deal 2. It confirms third party payments. Maryvale did not account for any VAT on this transaction. Britanniacity then sells to Vaughan Promotions for £285,120, VAT of £48,996 and a unit price of £594. This takes place on 21 July 2003. Vaughan Promotions then sells to IT Wholesale for £286,080, VAT of £50,064 and a unit price of £596. This transaction also takes place on 21 July 2003. IT Wholesale then sells to TAP for a sale price of £287,520, VAT of £50,316 and a unit price of £599. This takes place on 21 July 2003. TAP then sells to Plazadome for price of £288,960, VAT of £59,568 and a unit price of £602. This takes place on 21 July 2003. An inspection report is undertaken by Aviette for Plazadome in respect of the 480 DCR-IP220. The report says it is a "100% inspection" and "all goods are present and in good condition". There is no evidence of any request for the inspection nor any evidence of payment, for the report. In the last transaction in the UK, Plazadome sells to Tele-Tech. There is an invoice from Plazadome to Tele-Tech which is dated 21 July 2003 for the sum of £304,320. There is no VAT on the transaction and the unit price is £634. There is a payment from Tele-Tech, via Jyske bank, London for the payment of the invoice on 21 July 2003. A certificate of shipment is provided by Aviette which is dated 14 July 2003, one week before the deal. The CMR from Plazadome to Tele-Tech states that the weight of the goods is 288kgs on one pallet and confirms 480 x Sony DCR-IP220 Digital camcorders. The goods are then released to Tele-Tech who provide a pre warning of their arrival to Maersk and finally 22 July 2003 the goods are released to Willdon, the Spanish company. There is no inspection ordered by Tele-Tech of the goods, nor evidence of any inspection by Maersk and the goods are released to Willdon who pre-owned them eleven days before. The CMR Willdon then passed the goods to Haalt where the goods are only described as electrical with one pallet and 288kgs. What do we learn from this transaction. First let us look at the size of the consignment. From the figures provided by Sony UK in July 2003 Sony shipped 1,450 DCR-IP220 and DCr-IP220E camcorders throughout the world, including 370 to Europe. The Appellant purported to purchase 480 of such camcorders on 21 July 2003 which represents over 33% of Sony's total worldwide shipment and over 129% of Sony's European shipments in that month. This creates problems of credibility and how a small business recently established could have acquired such great market share of worldwide and European markets in camcorders. Secondly, according to the evidence of Shaun Dorrington given in his witness statement, the weight of an individual DCR-IP220 camcorder and its accessories in their packaging could be between 3.6kg and 2.5kg. We know the weight differential arises from the thickness of the manual and the kinds of plugs etc used in different regions of the world. This means that 480 units would weigh 1,728 kg or 1.200kg. The CMR used by the Appellant for their shipment of 480 Sony DCR-IP220 camcorders gives a weight of 288kg which is only 24% of the lower of the two possible weights of the product. We have also heard evidence and seen the witness statement of Mr Dorrington where he confirmed that the 120 units would fit on one pallet. This means that 480 units would make up approximately four pallets. The CMR of the Appellant states that one pallet was used for the shipment of 480 unit. Questions therefore arise, given the differentials in weight and pallet quantities as to whether these were genuine Sony camcorders of the type and quantity which is alleged to have been sold or indeed camcorders at all. Thirdly, a question arises as to serial numbers. Mr Mukthar provided to officer Parikh a list of serial numbers which related to the purchase of the Sony DCR-IP220 camcorders. It was found by HMRC that the numbers on the list were duplicated, it was found that some of the numbers from the Appellant's list were duplicated on another list which was provided separately to HMRC on 1 July 2003. The Appellant was unable to explain why the numbers were duplicated. The numbers were duplicated with numbers on a different supply chain where the purchases were made from the same supplier TAP on the same day. The duplication of serial numbers in this way undermines the credibility of the Appellant. The first supplier in the UK, Maryvale was trading under a VAT number hijacked from another person. That company failed to account to the Commissioners for VAT. In reply, the Appellant says that Aviette supplied an inspection report stating that the Camcorders were present and in good condition. The CMR shows Aviette shipping the goods to Maersk in Holland as one pallet containing 480 x Sony DCR-IP220 Digital Camcorders weighing 288kgs. Along with arguments raised earlier with regard to the other deals, the Appellant says that the paperwork would suggest that the transactions took place and the information recorded on that paperwork attested the fact that these were real transactions involving real goods and credible companies. Deal 4 We have been provided with a diagrammatic illustration of the chain of transactions and the deals (see Appendix 4). This deal, which took place on 23 July 2003 involves the same parties from Deal 3. The Tribunal was provided with an invoice from Tele-Tech to Willdon, the Spanish company, for 420 Sony DCR-IP55 camcorders on 11 July 2003. The evidence suggest that the goods were owned by Tele-Tech and Willdon. The first UK company involved in the transaction is Maryvale who sold the camcorders to Britanniacity for £311,640,00 VAT of 54,537 and a unit price of £742. We have already been told that Maryvale did not account for VAT on the transaction. The invoice from Maryvale to Britanniacity is dated 23 July 2003 with a payment instruction to Britanniacity to pay Tele-Tech and Willdon the sums of £333,480 and £840 respectively. There is also an instruction to pay two other companies Xtend Management and Harbour. This confirms third party payments in Deal 2. The format of the document is similar to that in Deals 2 and 3. The goods are then sold by Britanniacity to Vaughan Promotions for £312,480 VAT of £54,684 and a unit price of £744. Vaughan Promotions then sells to IT Wholesale for £313,320 VAT of £54,831 and a unit price of £746. IT Wholesale then sells to TAP for £314,160, VAT £54,978 and a unit price of £748. TAP sells to Plazadome for £315,000, VAT of £55,125 and a unit price of £750. An inspection report is provided to Plazadome by Aviette which predates the invoice from TAP to Plazadome. There is no evidence of any order for an inspection report on the goods or any payment to Aviette for their inspection report which seems to follow a format. The goods are then sold by Plazadome to Tele-Tech for £327,600 with a unit price of £780. An invoice is issued by Plazadome to Tele-Tech on 25 July 2003 but payment is made by Tele-Tech to Plazadome on 24 July 2003 by way of debit from the account at Jyske bank. There is a certificate of shipment provided by Aviette showing the goods have gone to Tele-Tech on 23 July 2003. Aviette pre-warn Maersk of the delivery of the goods via fax sent on 24 July 2003. The CMR from Plazadome to Tele-Tech on 24 July 2003 predates the invoice for the goods. Tele-Tech warns Maersk not to inspect the cargo which is then released to Willdon. Willdon then releases the goods on 13 August to Accor in the UK where they are simply described as "electrical goods". They are described as being of 231kg in weight and one pallet. The invoice from Maersk to Tele-Tech contains no charges for inspection. What conclusions can we draw regarding Deal 4. Firstly evidence provided by Sony of their worldwide shipment shows that in July 2003 they shipped 1,144 DCR-IP55 and DCR-IP55E camcorders throughout the world, including 518 to Europe. The Appellant's purported purchase of 420 such camcorders on 25 July 2003 represents over 36% of Sony's total worldwide shipment and over 81% of Sony's European shipment in that month. This raises issues of credibility given the size of the business. Secondly, we have seen the witness statement of Shaun Dorrington of Sony UK where he says that the weight of an individual DCR-IP220 camcorder and its accessories in their packaging could be 2.790kgs or 2.880kgs or 3kgs. We know the difference in weight results from the thickness of manuals, plugs etc. supplied in different jurisdiction. This means that 420 units would weight 1,171kg or 1,1209kg or 1,260kg for 420 Sony ECR-IP55 camcorders. The CMR in this transaction states that the gross weight of the consignment (including the pallet) was 231kgs which is only 19% of the lowest of the three possible weights for 420 of the relevant camcorder excluding the weight of the pallet. The evidence of Mr Dorrington confirms that 100 units of these camcorders would fit on a pallet. This means that 420 units would make up four and one partly filled pallet. The Appellant's CMR states that one pallet was used for the entire shipment of 420 units. The discrepancy between weight and pallet quantity supplied by Sony and the weight and numbers of pallet declared on the CMR suggest that the contents carried by the CMR did not consist of 420 Sony DCR-IP55 camcorders. In looking at the supply chain, the supplier called Maryvale trading on a VAT number hijacked from another taxable person. They also failed to account to the Commissioners for VAT of £55,537 on the supply of camcorders. There is no evidence to explain why the goods were shipped by the Appellant to Tele-Tech on 24 July 2003 but the invoice was issued on 25 July 2003. It is not explained why payment was made on 24 July 2003 when the invoices had not been issued at that time. There is a purported inspection report by Aviette but there is no evidence of any instruction or payment by the Appellant for it. There is also no evidence of any payment by the Appellant to TAP and it is unclear as to the date and time at which ownership of the goods passed from TAP to Plazadome. The Appellant says that the invoice from TAP to Plazadome for the supply of 420 Sony DCR-IP55 camcorders for £315,000 plus VAT shows there was a supply made and that there was a further supply to Tele-Tech in Denmark for £327,600 at the zero-rate of VAT and an invoice for payment dated 25 July 2003. They say that the Aviette inspection report confirms the presence of the camcorders. The Appellants rely largely on these documents to prove that the transactions took place. Deal 5 We have a diagrammatic illustration of the chain of transactions (see Appendix 5). This is the last transaction. The Tribunal was shown an invoice dated 10 July 2003 from Tele-Tech to Willdon, the Spanish company indicating that the 150 Sony DC-IP55 Digital camcorders were pre-owned by Tele-Tech and Willdon at least once and probably many more than one time. The first UK transaction is the sale from Maryvale to Britanniacity. The sale is for £111,600, VAT of £19,530 and a unit price of £744. The payment instructions to Britanniacity is that a payment should be made to Tele-Tech and Willdon the following amounts £121,050 and £150. There is also a request to pay the company Harbour Management which was involved in Deals 3 and 4. Britannia then sells to Vaughan Promotions for £111,900, VAT of £19,582 and a unit price of £746. The sale takes place even though the goods have not been paid for by Britanniacity. Vaughan Promotions LLC then sells to The Big Store for £112,200 with VAT of £19,635 and a unit price of £748. The Big Store then sells to Plazadome for £112,500 with VAT of £19,687.50 and a unit price of £750. Plazadome then sells to Tele-Tech for £119,250 with no VAT and a unit price of £795. All transactions take place on 31 July 2003. Aviette provides a certificate of shipment which predates the invoice from Plazadome to Tele-Tech on 1 August 2003. Tele-Tech provides a clear instruction to Maersk not to inspect the cargo which is then released to Willdon. The CMR Maersk Willdon to Accor Ltd in the UK on 13 August 2003 described the goods simply as "electrical" and one pallet weighing 90kgs. The invoice from Maersk to Tele-Tech has no charges for inspection and the invoice from Maersk to Willdon has trucking cost but no charge for inspection. What can we then deduce from this transaction? First there is no evidence of any prior dealing between The Big Store, who have not featured in the first four transactions, and the Appellant. There is also no evidence of any due diligence being carried out by the Appellant in respect of The Big Store nor any evidence of payment between those two parties. Secondly, with regard to Aviette, there is no evidence of a request or payment for an inspection report, nor evidence of the provision of an inspection report from Aviette to the Appellant and there is no evidence as to why The Big Store uses the same freight forwarders as TAP. They perform the same function as TAP in the first four transactions. Thirdly, a proforma invoice was issued by the Appellant to Tele-Tech on 31 July 2003 and the goods were purportedly shipped on the same day but the Appellant did not invoice Tele-Tech until 1 August 2003. There are further observations on this transaction. With regard to the size of the consignment, from the evidence provided by Sony UK, in July 2003 Sony shipped 1,144 DCR-IP55 and DCR-IP55E camcorders throughout the world including 580 into Europe. The Appellant's purported purchase of 150 such camcorders on 31 July 2003 represents over 13% of Sony's total worldwide shipment and over 28% of Sony's European shipment in that month. If the 420 DCR-IP55 camcorders purportedly purchased in Deal 4 are taken into account, the Appellant purports to have purchased 570 such camcorders in July 2003. This figure represents just under half of Sony's total worldwide shipment and over 110% of Sony's European shipment in that month. These figures present a business scenario which is not credible. According to the weight supplied by Shaun Dorrington's witness statement, 150 Sony DCR-IP55 camcorders would weigh 418.5kgs or 432kgs or 450kgs. The CMR for the shipment of 150 Sony DCR-IP55 camcorders showed a gross weight of the consignment was only 90kgs which is only 21.5% of the lowest of the three possible weights of 150 genuine units, excluding pallets. Mr Dorrington's witness statement states that 100 units fit on a pallet. This means that 150 units require one full pallet and one partly filled pallet. However the Appellant's CMR says that only one pallet was used for the entire shipment of 150 units. Their discrepancies between the weight and pallet quantities supplied by Sony and the weight and numbers of pallet declared on the CMR raises questions as to whether the goods are in fact Sony DCR-IP55 camcorders. HMRC have traced a supply chain linked to the Appellant's purported purchase as far back as Maryvale, which traded under a VAT number hijacked from another taxable person. They did not account for £19,530 VAT owed on the supply of the camcorders. The Appellant says that the 31 July 2003 invoice from The Big Store to Plazadome for the supply of the camcorders is an accurate description of the goods and states correctly the pallet and weight of the camcorders.[34]What general observations can we make from these five deals.[35]All five deals form part of a supply chain leading to traders who had hijacked VAT numbers and defaulted on their liabilities to account for VAT on the supply of the goods in question. The companies through which the purchases are conducted, normally called "buffer" traders, leads to a missing trader who has imported the goods from another EC country and then fraudulently defaulted on the output tax due to the Commissioners. We have the defaulting traders Maryvale and Trevor Watson trading as Antonio's. There is no allegation, in this case, than the Appellant knowingly participated in such a fraud. Mr Stone, a senior HMRC officer familiar with MTIC fraud has stated in his evidence that the pattern has all the hallmarks of supply chains contrived for the purpose of defrauding the public revenue through MTIC fraud. The transactions were all concluded on the same day and were "back to back" in the sense that each customer required the precise amount of stock held by his supplier which gave the chain a fluidity and the invoicing became a matter of general bookkeeping which could be prepared in advance since the product, VAT and unit cost per item were known in advance. The profit margin at each of the stages in the chain, except the very last stage, was minimal and would hardly cover the cost of the overheads and cost of sale. It is questionable whether these transactions can be considered commercial transactions at all. The members of the chain were all wholesalers with no end users and the bulk purchases of goods and their resale form a familiar pattern. All the transactions showed a similarity of companies involved and the companies in the chain paid most of their purchase price not to their supplier but to an unidentified third party based overseas. At the end of the chain, the goods were exported at the zero-rate of VAT and an attempt was made to reclaim the VAT which has been paid. There is clear evidence of a circularity of money and invoices and goods, and the transactions do not appear to bee at arm's length.[36]The companies involved in these transactions had very large quantities of the worldwide and European supply for the models of Sony camcorders. Plazadome was a business which had been set up only two years before the deals and traded in a wide range of electronic goods rather than just camcorders. There is no evidence that the company had any employees, warehouse facilities, marketing campaigns, or other attributes of a large well established business. It was more or less a one man band. It is quite remarkable that it could have achieved such vast market share without Sony UK knowing of its presence. Further, Sony UK had an efficient stock management system which was designed to keep a minimum amount of stock in its warehouse. It was therefore extremely unlikely for the Appellant in a single transaction, to have acquired and sold a very high percentage of Sony's total output as shown in Mr Dorrington's tables. In Deals 4 and 5 the sales represented approximately 50% of Sony's monthly shipments worldwide and over 100% of Sony's monthly shipments to Europe. The Tribunal is not convinced by the Appellant's argument that these high percentages can be explained by the products being sourced from suppliers other than Sony.[37]All five consignments had weight and pallet quantities that differed from the weight and pallet quantities of genuine article. Even if the pallet configurations had changed, as suggested by the Appellant, it is difficult to explain the weight discrepancies between the Sony UK figures and those on the CMRs. The weight discrepancies cannot be explained by different kinds of packaging, as the Appellant submitted. It is unlikely that Sony would have produced a product of such different specification and packaging, which would weigh less than one-third of the products identified in the CMRs. Serial numbers supplied by the Appellant for products which they had purchased were duplicated serial numbers on products supplied by TAP, to another supplier. The explanation provided by Aviette was weak and vague.[38]The Appellant supplied a list of serial numbers as evidence of their purported purchase. It was found that the serial numbers contain serious anomalies in Deals 1, 2 and 3. There was an internal duplication of serial numbers and certainly for Deals 1 and 3 these are duplicated with a list supplied to the Commissioners by AJM Ltd in respect of their purchases from the same supplier, TAP, on the same day with no satisfactory explanation from the Appellant as to why these anomalies were created The Appellant attempted to explain this by saying Aviette, the freight forwarders, had found an "administrative error." The letter from Aviette was not credible and did not explain the administrative error nor was there evidence of this error when the Commissioners looked at Aviette's case file.[39]The role of Aviette creates problems of its own. Mr Mukhtar tried to explain the position of Aviette. He said that they had not dealt with Aviette before and there is clear evidence that Aviette seemed to have been instructed by TAP and that inspection on behalf of the Appellant company raised questions as to Aviette's independence in this chain of transaction. Further, Mr Mukhtar said that Aviette had been "asked to check the number of camcorders and to selectively check they were real and not dummy/fake product". The inspection declaration from Aviette explained that they had "carried out 100% inspection" and "can confirm that all goods are present, correct and in good condition". It is hard to see how this report is consistent with Mr Mukhtar's instructions. Aviette was compulsorily wound up on 6 October 2005, following a presentation of a petition by the Commissioners on 4 October 2004. Aviette were also involved in two previous judgment of the Tribunal in appeals concerning disallowance of input tax on the ground that the goods (if any) purchased by the Appellant was not as described on the relevant note invoices, in both cases, the Appellant relied upon documentation produced by Aviette which showed that the goods were as described. In both cases, the appeals were dismissed. Aviette's evidence can be considered at best as being unreliable. The inconsistency of Aviette's information and description of the inspection report cannot be relied upon. For this reason, the Appellant's submission that the Aviette's report shows a true description of the goods, the weight and the pallet is not accepted.[40]Mr Stone in his witness statement explained that TAP was not a "reputable publicly limited company known to HMRC" as Mr Mukhtar described but rather had a long history of suspected involvement in MTIC fraud stretching back to and before the Appellant's purported purchases. Evidence was produced to the Tribunal to show their involvement in supply chains leading to missing traders and making third party payments. The involvement of TAP in these transactions would cast doubt on the reliability in the description of goods provided in the invoices issued by TAP to the Appellant.[41]With the evidence presented by Sony relating to the size of consignment, weight and volume of consignment and serial numbers, which evidence was not adequately or properly rebutted by the Appellants in their defence, and taking into account all the other factors and points made with regard to the five transactions the goods, if any, purchased by the Appellant could not have been Sony camcorders as described on the relevant purchase invoices and the number of units purchased was not correctly stated on those invoices. The invoices were therefore not valid invoices under Regulation 14(1)(g) of the VAT Regulations 1995.[42]The Appellant's case depends very heavily on the Aviette commercial documents produced. That documentation is not reliable and it is felt on a balance of probabilities, the Appellant did not receive the supply described on the invoices issued by its suppliers. There was no actual supply of described goods and to that extent the invoices were not valid. The Appellant therefore have not satisfied the conditions precedent for the exercise of the right to deduct input tax.[43]Let us turn now to the second issue. Commissioners' discretion under Regulation 29(2)[44]The Appellant submits that the Commissioners were required to consider exercising their discretion under Regulation 29(2) VAT General Regulations 1995, to allow input tax credit without valid invoices; and they failed to consider exercising this discretion because they did not ask the question set out in the Commissioners' policy document, VAT strategy: Input Tax Deduction Without a Valid VAT Invoice – Statement of Practice July 2003 ("the Statement of Practice"); and that if they had done so, the result would have favoured the Appellant. The Commissioners submit that this argument is misconceived as a matter of law and/or lacking in any credible evidential basis.[45]The Appellant says that officers Timothy Waxman and Smita Parikh who dealt with the transactions involved in this appeal disallowed input tax on grounds of "non-economic activities" and make no reference to any consideration for the exercising of the discretion under the Statement of Practice. They explained that the tribunal's jurisdiction in considering the exercise of the Commissioners' discretion, is as held by Schiemann J in Kohanzard v Commissioners of Customs and Excise 1994 STC 967 at 968 which stated:(i) The tribunal, when considering a case where HMRC have a discretion, exercises a supervisory jurisdiction over the exercise of that discretion.(ii) It is not an original discretion of the tribunal, but rather one where it considers whether the Commissioners have exercised their discretion in a defensible manner and(iii) The supervisory jurisdiction is to be exercised in relation to materials which were before the Commissioners, rather than in relation to later materials.[46]The Appellant says that the Commissioners were concentrating on the non-economic argument and did not properly exercise their discretion in relation to the present arguments before this Tribunal. Regulation 29(2) of the VAT Regulations provides:
"At the time of claiming deduction of input tax … 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 or provide such other evidence of the charge to VAT as the Commissioners may direct."
[47]The Statement of Practice seeks to clarify the position of the Commissioners in relation to claims for input tax supported by valid VAT invoices. In order to deduct VAT a person must hold a valid VAT invoice. In the absence of such an invoice, the Statement of Practice states, "a taxable person may be able to make claims for input tax, but these claims are subject to the Customs' discretion". Under the section "How will Customs apply their discretion?", it is stated in respect of "supplies of computers and other equipment", claimants would be expected to be able to answer satisfactorily a number of questions such as whether they had documentary evidence of a supply other than an invoice, or evidence of payment. It states further, "in addition, they are likely to be asked further questions by Customs in order to test whether they took reasonable care in respect of transactions to ensure that their supplier and supply was bona fide". Where the claimant provides satisfactory answers to those questions and to any additional questions that HMRC might ask, input tax could be permitted. There is provided a list of questions but it is stated that "this list is not exhaustive and additional questions may be asked in individual circumstances".[48]It is implicit in the Statement of Practice that HMRC must be satisfied that the claimed supply actually took place. In this respect, the Commissioners are being asked to undertake a review of materials to see if a supply took place and then to answer the question of whether input tax should be paid in the absence of credit invoices. The discretion is not as a free standing discretion. The review role of the tribunal, as noted above from the Kohanzard case, is very limited. In the case of Elite Designs International Ltd v CEC (2000) VTD 16925 the Tribunal, following Kohanzard , noted at paragraph 31: "When Customs and Excise have failed to exercise their discretionary power under the proviso to Regulation 29(2) to allow a deduction, the issue on an appeal to the tribunal is whether Customs and Excise in that failure acted in a manner in which they could not reasonably have acted. When considering that question the relevant material is the material that was available to Customs when it made its decision and it is for the taxpayer to satisfy the tribunal that Customs failed to act reasonably and properly".[49]We know that the evidential burden moves to the Appellant once the Commissioners discharge the evidential burden of putting in doubt that the goods supplied were as described in the invoice and the Appellant must show that the goods corresponded with those described in the invoice ( Grunwick Processing Laboratories Ltd v Commissioners of Customs and Excise (1986) STC 441). The Judge in that case ( Grunwick ) at page 445 paragraph "At no time did the commissioners have any burden to prove anything before the tribunal. Neither its case nor any aspect of the manner, factually or evidentially, carries any burden imposed on the commissioners. It is throughout, in my judgment, upon the taxpayer company, if it can, to attack the assessment in whole or in part". The Court of Appeal agreed (1987 STC at page 360).[50]A case of assistance though not cited by the parties is the opinion of the Advocate General Slynn in Jeunehomme v Belgium State , [1988] ECR 4517 in which he observed: "An invoice which complies with the rules is the "ticket of admission" to the right to deduct, subject to its subsequently been shown by the tax authorities to be false; if the invoice does not comply, it may be that the taxpayer can prove the genuineness of the transaction and that his supplier accounted for the VAT which he has paid as input tax, but if the invoice is incomplete in a material respect the onus is on him to establish the right to deduct".[51]The Appellant has attempted to discharge the burden by submitting invoices and other commercial documents showing certain supplies of Sony camcorders. The documents were not convincing. The Tribunal finds that the Appellant did not receive those supplies and therefore the Appellant has failed to discharge the burden which has been placed on them.[52]The Commissioners' duty under Regulation 29(2) was to consider all the relevant evidence and decide whether, on the balance of probabilities, the claim supplies were made or not. The officers involved did fulfill this obligation and there is no evidence that they failed to consider any relevant evidence submitted by the Appellant before making their decision. Mr Stone, in his evidence, described how the Commissioners undertook a verification exercise which involved gathering and considering the evidence from the Appellant, its suppliers, its freight forwarders and Sony and representations made by the Appellant. They concluded that the Appellant did not receive the claimed supplies of Sony camcorders. The tribunal agrees.[53]In the circumstances, the Tribunal finds that there was no need for the Commissioners to ask the Appellant the questions in Appendix 2 of the Statement of Practice. This would only have arisen if the Commissioners were satisfied that the claimed supplies had been made. The Commissioners therefore acted reasonably in the circumstances. The non-economic activity argument[54]Let us start by looking at the history of the Commissioners' decision. In a letter dated 20 January 2004, the Commissioners wrote to the Appellant stating:
"The purchases and sales, judged objectively, were devoid of economic activity. Accordingly, the purchases were not supplied to use or to be used for the purposes of a business, and the sales were not supplies made in the course of a business for the purposes of VAT"
. The letter was signed by officer Parikh.[55]In the original Statement of Case dated 29 October 2004, which related to Deals 2-5 in July 2003, the Commissioners reiterated the economic substance argument when they stated "thus the relevant transaction, judged objectively, was devoid of economic substance and was not part of any economic activity".[56]In the amended Statement of Case dated 14 July 2006, the Commissioners presented the invalid invoice argument and deleted the economic activity argument. In the re-amended consolidated Statement of Case dated 4 July 2007 the Commissioners' case was presented around invalid invoices and the fact that there was no supply of goods. The statement of the issues in dispute and agreed fact, which was signed by the solicitors for both party in December 2008, did not raise the economic activity argument on either of the five deals. The Appellant agreed the changes and the arguments to be presented to the Tribunal.[57]The skeleton arguments filed by the Appellant on 22 February 2009, made after the Appellant became aware that the Commissioners no longer sought to rely on the non-economic activity argument but on the invalid invoice aspect of the case and are therefore in response to those arguments. At the hearing, however, the Appellant sought to raise the issue that since the non-economic activity point was the basis of the Commissioners' argument as stated in officer Parikh's letter and since the appeal (partly) was against that letter, given the new arguments, the Tribunal no longer has jurisdiction to decide the matter. In looking back at the hearing, the Tribunal asked the Appellant to confirm and identify the grounds for their appeal and whether the appeal was made pursuant to Section 83 of the VATA. After some deliberation, it was agreed that that was the case.[58]For completeness the Tribunal will address this issue. The Commissioners have no statutory obligation to provide reasons for their decision ( BUPA Purchasing Ltd & Others v CEC (2) (2008) STC 101 para 43-48 and CEC v Alzitrans SL (2003) All ER 288 (para 38-39). The Commissioners are entitled to change the reasons for their decision while maintaining the decision itself and such change neither alters the decision nor its validity in law. It is correct to say that officer Parikh in the course of her evidence and in the letters which was sent out did place weight on the non-economic activity point. However it is important to distinguish in a decision and the reasons given for that decision, the decision in this case which is the subject of appeal is contained in letters dated 28 January 2004 and 8 June 2004. The reasons given in the letters for arriving at that decision is not necessarily the basis for the decision The Commissioners are entitled to rely upon different reasons for their decision. The Commissioners are not precluded from relying upon an alternative basis before the Tribunal for their decision. The use of an alternative basis for a decision does not amount to a new decision. The jurisdiction of the Tribunal derives from Sections 83(c) and or 83(b) VATA 1994. These are the appealable grounds. The Commissioners are not bound by the reasons provided by the decision making officer as originally given and are entitled to rely on other reasons and this is not a basis for saying that the Tribunal has no jurisdiction to rule on the appeals.[59]In the case of Altrizans SL Mr Justice Blackburne stated that the Commissioners are not bound by the reasons given for their original decision and are entitled to advance different reasons for their decision and the tribunal is entitled to ignore the reasons given for the original decision and to consider the matter on the basis of the further and different reasons set out in the statement or amended statement of case. In this sense, the reasons for the assessment do not form part of the assessment. The giving of reasons is founded in public law and there is no obligation on the Commissioners to give reasons for their decision under the VATA 1994.[60]The Commissioners are therefore not bound by the reasons given by the decision making officer and are entitled to rely on other or new reasons for their decision. Conclusion[61]The decision of the Tribunal can be summarised as follows. The Appellant did not receive the goods described on the invoices in the five deals which are listed above and for this reason the invoices are invalid under Regulation 14(1)(g) of the VAT Regulation 1995 which means that the Appellant is not entitled to the credits for input tax in respect of invoices arising from those transactions. The Commissioners' evidence was sufficient to show that on the balance of probabilities the Appellant did not receive the supplies described on the invoices.[62]The Commissioners considered all relevant evidence, on the balance of probability, in deciding that the claimed supplies were not made. Given that the supplies were not made, Regulation 29(2) did not actually engage, which is to say that the Commissioners did not have a discretion to exercise under Regulation 29(2). Therefore there was no need for the Commissioners to go through the exercise of asking the Appellant questions as stated in Appendix 2 of the Statement of Practice and in exercising any residual discretion.[63]The Tribunal is not convinced that there was any argument to be made regarding the withdrawal of the non-economic activity. The reasons given for the decision and the withdrawal of the original reasons for the decision in no way interfered with the jurisdiction of the Tribunal.[64]In the circumstances, the appeal is dismissed. Their parties may apply to settle matters relating to costs. DR K KHAN TRIBUNAL JUDGE RELEASE DATE: 4 September 2009

Cited in 5 later judgments