“[1] This is yet a further case of so-called missing trader or “MTIC” fraud on the system of VAT. The decision of the First-tier Tribunal (“FTT”) conveniently describes the nature of a typical MTIC fraud as follows: “5 … goods (almost always small but valuable items such as mobile phones and computer chips) are acquired by a registered trader in the United Kingdom from a trader in another member State, and sold to a second UK-registered trader. The goods then usually change hands several times within the UK before they are sold to an overseas trader which, if it is located in a member State of the European Union, is registered for VAT in that member State. Commonly the transactions all occur within a few days of the entry of the goods into the UK, sometimes even on the same day, so that goods enter the UK in the morning, pass through the hands of several UK traders during the day, and are exported again in the afternoon. 6. The first UK vendor, the acquirer from overseas, charges VAT on the consideration paid by his purchaser, but fails to account to the respondent Commissioners for that tax, and disappears. Such documentation as he may have had—if any—relating to his acquisition is never produced to the Commissioners. For the scheme to work he must be a VAT-registered trader who provides the purchaser with a genuine VAT invoice, on the strength of which the purchaser claims an input tax credit. The purchaser’s own sale, and those of the other UK traders save the last in the sequence, usually generate a small profit and, consequently, a small net VAT liability, for which those traders account. The last trader, selling overseas, claims credit for the input tax he has incurred, but has no output tax liability since the sale is zero-rated. Usually this trader makes a significant profit, though that is not invariably the case; occasionally one of the antecedent traders can be shown to have made the greatest profit of all those in the chain. All of these sales and purchases, including the sale to the overseas buyer, are almost always properly documented. [2] In the jargon that has developed to describe the various participants in such chains, the initial importer of the goods who fails to account for the output tax he has charged to his purchaser and disappears, is known as the “defaulter” or “missing trader.”
“55. Where the tax authorities find that the right to deduct has been exercised fraudulently, they are permitted to claim repayment of the deducted sums retroactively … It is a matter for the national court to refuse to allow the right to deduct where it is established, on the basis of objective evidence, that that right is being relied on for fraudulent ends... 56. In the same way, a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT must, for the purposes of the Sixth Directive, be regarded as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods. 57. That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice. 58. In addition, such an interpretation, by making it more difficult to carry out fraudulent transactions, is apt to prevent them. 59. Therefore, it is for the referring court to refuse entitlement to the right to deduct where it is ascertained, having regard to objective factors, that the taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, and to do so even where the transaction in question meets the objective criteria which form the basis of the concepts of ‘supply of goods effected by a taxable person acting as such’ and ‘economic activity’. 60. It follows from the foregoing that the answer to the questions must be that where a recipient of a supply of goods is a taxable person who did not and could not know that the transaction concerned was connected with a fraud committed by the seller, Article 17 of the Sixth Directive must be interpreted as meaning that it precludes a rule of national law under which the fact that the contract of sale is void – by reason of a civil law provision which renders that contract incurably void as contrary to public policy for unlawful basis of the contract attributable to the seller – causes that taxable person to lose the right to deduct the VAT he has paid. It is irrelevant in this respect whether the fact that the contract is void is due to fraudulent evasion of VAT or to other fraud. 61. By contrast, where it is ascertained, having regard to objective factors, that the supply is to a taxable person who knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, it is for the national court to refuse that taxable person entitlement to the right to deduct.” 11. The Kittel test was further clarified by Moses LJ in Mobilx Ltd and The Commissioners for Her Majesty’s Revenue and Customs, The Commissioners for Her Majesty’s Revenue and Customs and Blue Sphere Global Ltd, Calltel Telecom Ltd & another and The Commissioners for Her Majesty’s Revenue and Customs[2010] EWCA Civ 517 (“ Mobilx ”) at [24]: “The scope of VAT is identified in Art. 2 of the Sixth Directive. It applies, in addition to importation, to the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such. A taxable person is defined in Art. 4.1 as a person who carries out any of the economic activities specified in Art. 4.2. Art. 5 defines the supply of goods and Art. 6 the supply of services. The scope of VAT, the transactions to which it applies and the persons liable to the tax are all defined according to objective criteria of uniform application. The application of those objective criteria are essential to achieve:- “the objectives of the common system of VAT of ensuring legal certainty and facilitating the measures necessary for the application of VAT by having regard, save in exceptional circumstances, to the objective character of the transaction concerned.” (Kittel para 42, citing BLP Group [1995] ECR1/983 para 24.) And at [30]: “...the Court made clear that the reason why fraud vitiates a transaction is not because it makes the transaction unlawful but rather because where a person commits fraud he will not be able to establish that the objective criteria which determine the scope of VAT and the right to deduct have been met.” 12. On the issue of knowledge, Moses LJ provided the following guidance: “4. Two essential questions arise: firstly, what the ECJ meant by "should have known" and secondly, as to the extent of the knowledge which it must be established that the taxpayer had or ought to have had: is it sufficient that the taxpayer knew or should have known that it was more likely than not that his purchase was connected to fraud or must it be established that he knew or should have known that the transactions in which he was involved were connected to fraud? 52. If a taxpayer has the means at his disposal of knowing that by his purchase he is participating in a transaction connected with fraudulent evasion of VAT he loses his right to deduct, not as a penalty for negligence, but because the objective criteria for the scope of that right are not met. It profits nothing to contend that, in domestic law, complicity in fraud denotes a more culpable state of mind than carelessness, in the light of the principle in Kittel. A trader who fails to deploy means of knowledge available to him does not satisfy the objective criteria which must be met before his right to deduct arises… 53. Perhaps of greater weight is the challenge based, in Mobilx and BSG, on HMRC's denial of the right to deduct on the grounds that the trader knew or should have known that it was more likely than not that transactions were connected to fraud. The question arises in those appeals as to whether that is sufficient or whether, as the Chancellor concluded in BSG, the right to deduct input tax may only be denied where the trader knows or should have known that the transaction was connected to fraud (see judgment, § 52). In short, does a trader lose his entitlement to deduct if he knew or should have known of a risk that his transaction was connected to fraudulent evasion of VAT? HMRC contends that the right to deduct may be denied if the trader merely knew or should have known that it was more likely than not that by his purchase he was participating in such a transaction. It contends that if it was necessary to show more than appreciation of a risk then the Court's decision in Kittel would not represent a development of the law and would fail to achieve the objective, recognised in the Sixth Directive, to which the Court referred at § 54… 56. It must be remembered that the approach of the court in Kittel was to enlarge the category of participants. A trader who should have known that he was running the risk that by his purchase he might be taking part in a transaction connected with fraudulent evasion of VAT, cannot be regarded as a participant in that fraud. The highest it could be put is that he was running the risk that he might be a participant. That is not the approach of the Court in Kittel, nor is it the language it used. In those circumstances, I am of the view that it must be established that the trader knew or should have known that by his purchase he was taking part in such a transaction, as the Chancellor concluded in his judgment in BSG:- "The relevant knowledge is that BSG ought to have known by its purchases it was participating in transactions which were connected with a fraudulent evasion of VAT; that such transactions might be so connected is not enough." (§ 52)… 58. As I have endeavoured to emphasise, the essence of the approach of the court in Kittel was to provide a means of depriving those who participate in a transaction connected with fraudulent evasion of VAT by extending the category of participants and, thus, of those whose transactions do not meet the objective criteria which determine the scope of the right to deduct. The court preserved the principle of legal certainty; it did not trump it. 59. The test in Kittel is simple and should not be over-refined. It embraces not only those who know of the connection but those who "should have known". Thus it includes those who should have known from the circumstances which surround their transactions that they were connected to fraudulent evasion. If a trader should have known that the only reasonable explanation for the transaction in which he was involved was that it was connected with fraud and if it turns out that the transaction was connected with fraudulent evasion of VAT then he should have known of that fact. He may properly be regarded as a participant for the reasons explained in Kittel. 60. The true principle to be derived from Kittel does not extend to circumstances in which a taxable person should have known that by his purchase it was more likely than not that his transaction was connected with fraudulent evasion. But a trader may be regarded as a participant where he should have known that the only reasonable explanation for the circumstances in which his purchase took place was that it was a transaction connected with such fraudulent evasion. 13. In Red12 v HMRC[2009] EWHC 2563 at [109] – [111] Christopher Clarke J said this: “Examining individual transactions on their merits does not, however, require them to be regarded in isolation without regard to their attendant circumstances and context. Nor does it require the tribunal to ignore compelling similarities between one transaction and another or preclude the drawing of inferences, where appropriate, from a pattern of transactions of which the individual transaction in question forms part, as to its true nature e.g. that it is part of a fraudulent scheme. The character of an individual transaction may be discerned from material other than the bare facts of the transaction itself, including circumstantial and "similar fact" evidence. That is not to alter its character by reference to earlier or later transactions but to discern it. To look only at the purchase in respect of which input tax was sought to be deducted would be wholly artificial. A sale of 1,000 mobile telephones may be entirely regular, or entirely regular so far as the taxpayer is (or ought to be) aware. If so, the fact that there is fraud somewhere else in the chain cannot disentitle the taxpayer to a return of input tax. The same transaction may be viewed differently if it is the fourth in line of a chain of transactions all of which have identical percentage mark ups, made by a trader who has practically no capital as part of a huge and unexplained turnover with no left over stock, and mirrored by over 40 other similar chains in all of which the taxpayer has participated and in each of which there has been a defaulting trader. A tribunal could legitimately think it unlikely that the fact that all 46 of the transactions in issue can be traced to tax losses to HMRC is a result of innocent coincidence. Similarly, three suspicious involvements may pale into insignificance if the trader has been obviously honest in thousands. Further in determining what it was that the taxpayer knew or ought to have known the tribunal is entitled to look at the totality of the deals effected by the taxpayer (and their characteristics), and at what the taxpayer did or omitted to do, and what it could have done, together with the surrounding circumstances in respect of all of them.” 14. Mr Heywood referred us to the ECJ’s judgments in Kittel andCase C-642/11 Stroy trans EOOD in support of his case in respect of the SanDisk appeal. We will address the submissions in due course but in short Mr Heywood sought to argue that Stroy trans provides support for the contention that the knowledge/means of knowledge test as set out in Kittel is relevant to an appeal where there is no valid invoice to demonstrate a taxable supply ( Stroy trans at [50] and [52]): “ It follows that a national court which is called upon to decide whether, in a particular case, there was no taxable transaction, and before which the tax authorities have relied in particular on irregularities committed by the issuer of the invoice or one of the issuer’s suppliers, such as omissions in the accounts, must ensure that the assessment of the evidence does not result in the case-law recalled in paragraph 48 above being rendered meaningless and in the recipient of the invoice being indirectly obliged to carry out checks of the other party to the contract which, in principle, are not a matter for him. …In the light of the foregoing, the answer to the second question is that the principles of fiscal neutrality, proportionality and the protection of legitimate expectations must be interpreted as not precluding the recipient of an invoice from being refused the right to deduct input VAT because there is no actual taxable transaction even though, in the tax adjustment notice addressed to the issuer of that invoice, the VAT declared by the latter was not adjusted. However, if, in the light of fraud or irregularities, committed by the issuer of the invoice or upstream of the transaction relied upon as the basis for the right of deduction, that transaction is considered not to have been actually carried out, it must be established, on the basis of objective factors and without requiring of the recipient of the invoice checks which are not his responsibility, that he knew or should have known that that transaction was connected with VAT fraud, a matter which it is for the referring court to determine.”
“I t is plain that if HMRC wishes to assert that a trader ’s state of knowledge was such that his purchase is outwith the scope of the right to deduct it must prove that assertion. ”
“I never thought they were a wrong product he would supply to us…We always respected him. He’s been known to us for a long long time…” (Transcript22 July 2014 page 52) 45. In oral evidence Ms Andersson-Hudson did not agree that the Appellant’s earlier transactions involving SanDisk products (which fall outside of the scope of this appeal) had not caused concern; she explained that the earlier transactions had not been subject to extended verification. 46. Mr Hugh Connolly, the General Manager of SanDisk’s European headquarters gave evidence regarding the memory cards. He confirmed that the closest SanDisk model names for the products purported to have been traded by the Appellant are: · For the description on the Appellant’s invoice stating “SANDISK 8.0 GIG ULTRA 2 FLASH MEMORY CARD” the SanDisk model was “Ultra II Compact Flash 8192MB”; · For the description on the Appellant’s invoice stating “SANDISK 8 GB ULTRA 2 FLASH MEMORY CARD” the SanDisk model was “Ultra II Compact Flash 8192MB”; · For the description on the Appellant’s invoice stating “SANDISK 8.0 GB ULTRA 2 COMPACT FLASH CARD” the SanDisk model was “Ultra II Compact Flash 8192MB”; · For the description on the Appellant’s invoice stating “SANDISK 8.0GBULTRA 2 FLASH MEMORY CARD” the SanDisk model was “Ultra II Compact Flash 8192MB”; · For the description on the Appellant’s invoice stating “Sandisk 8 GIG ultra 2 flash mem card”” the SanDisk model was “Ultra II Compact Flash 8192MB”; · For the description on the Appellant’s invoice stating “SANDISK 8.0 GIG EXTREME 111- 8.0GB COMPACT FLASH MEMORY CARD” the SanDisk model was “Extreme III Compact Flash 8192 MB”. 47. Mr Connolly also provided the launch date of Ultra II Compact Flash 8192MB as being September 2004 with the first shipment from SanDisk International Ltd to a European customer on11 March 2005 . The launch date of the Extreme III Compact Flash 8192 MB was April 2006 with the first shipment on25 April 2006 . 48. Mr Connolly stated that SanDisk had never supplied the Appellant and he could not provide any explanation as to how the Appellant might have acquired the volumes of goods shown on the invoices. He told us that he would normally be aware of a wholesaler dealing in such large volumes of SanDisk goods. 49. Mr Connolly explained that in the memory products trade all genuine invoices have certain indispensible features including payment terms and the product number. Mr Connolly noted that the Appellant’s invoices lack most of these features although he accepted in cross-examination that certain features were only indispensible when dealing with international transport. He added that from the descriptions on the Appellant’s invoices it would be virtually impossible to identify a precise product which is vital as the product has to be matched to a hosting device; if the product being purchased is unidentifiable it will be difficult to sell. 50. On the issue of a grey market, Mr Connolly accepted that this could hypothetically exist. However he found the possibility very unlikely on the basis that SanDisk have established long-term relationships with all of their partner manufacturers and it would not be in the interests of either side to undermine this and SanDisk’s partners would risk destroying their place in the global market place. Additionally unlicensed manufacturing could not take place without SanDisk’s knowledge. Mr Connolly explained that a grey market arising out of the pilfering of products does occur on a small scale in respect of low value, low capacity products. However this could not explain the volume of purported trading in high capacity products by the Appellant. 51. As regards the products Mr Connolly explained that the “Ultra” and “Extreme” ranges are aimed at professional users such as photographers. The goods are relatively expensive and the market for them is limited. The ordinary “Compact Flash” range is aimed at ordinary consumers and is produced in relatively large numbers. 52. In oral evidence Mr Connolly told us that in 2005 8.0 GB was the largest memory card produced by SanDisk. He explained that the shipping data from which the information regarding the worldwide shipping total for 2005 was compiled from SanDisk’s enterprise reporting system which houses all of the Company’s electronic information. In 2005 the 8.0GB products were relatively new and the market would have been very limited. He confirmed that if 34,000 counterfeit 8.0 Gb cards had entered the market he would have been aware of it. The£13,000,000 value of transactions undertaken by the Appellant would have made it one of the top 5 customers for Europe and Asia and on that basis Mr Connolly stated he would have been aware of the Appellant if there purchases of such a magnitude were made. 53. The unchallenged evidence of HMRC officer Maxted confirmed that the total worldwide quantity of SanDisk 8 Gigabyte memory cards shipped from3 January 2005 to18 December 2005 was 5,441 units. A report by Mr John Mangan, Director of Failure Analysis Engineering at the SanDisk Corporation dated13 January 2006 confirmed that the 5 sample memory cards of the 500 seized at Manchester Airport were tested for authenticity: “The five CF memory cards are clearly not SanDisk products. The labels used on the counterfeit cards are not SanDisk labels, but closely resemble the genuine SanDisk card labels. The PCB, lids, card frame, controller IC, and memory IC components used on the functional cards are not SanDisk manufactured or purchased components.” 54. HMRC concluded that the Appellant had provided no positive evidence that the goods supplied were the same ones as those described on the invoices other than the invoices, daybooks and correspondence. The invoices lacked information that genuine invoices would contain and their legitimacy was further questionable given the quantities purported to have been traded by the Appellant. The 500 SanDisk Extreme III units passed through the same deal chain as the other SanDisk products that were seized at Manchester Airport and confirmed as counterfeit. 55. In those circumstances HMRC contend that the goods supplied could not have been those as described on the invoices and therefore did not satisfy the requirements of Regulation 14(1)(g) of theVAT Regulations 1995 . In the absence of any alternative evidence HMRC contend that its decision to assess was reasonable. 56. Mr Chhiber challenged HMRC’s decision in respect of the invoices. He explained in his written evidence that the Appellant purchased what it believed to be 15,535 SanDisk memory cards from Grade One. Mr Chhiber contended that the goods seized at Manchester Airport were suspected of being counterfeit, not because they were counterfeit and it was only after opening the package and testing the actual memory cards that it was established that they were counterfeit. Mr Chhiber also noted that the consignment seized totalled only 500 of the goods sold; those 500 were the Extreme III and not the Ultra II range. Mr Chhiber’s written evidence accepted that the goods were established as counterfeit. However he noted that: “There was no way, without inspecting and checking each and every one in a computer, could it be established, just by inspecting the packaging, that these goods were counterfeit. To compound things further, if the memory cards worked, they could still have been counterfeit.” 57. Mr Chhiber could not comment on the production figure supplied by Mr Connolly but stated: “We had an inspection report and we took the stock as what it was…in my opinion a manufacturer as big as SanDisk saying they produced 5000 pieces worldwide in that period, I don’t believe in my head.” (Transcript22 July 2014 page 101) 58. Mr Chhiber confirmed that he had told HMRC that the consignments of memory cards which form the subject of this appeal “had not been given any more attention than normal.”
“ If F1 had been knowingly trading in counterfeit devices then we accept that prima facie it should be entitled to credit for input VAT. But that credit is available only if the requirements of the invoicing requirements of the Directive are satisfied. It seems to us that they would not have been. An indication that the goods were not genuine would have been an important indication of their nature for both supplier and customer. The invoices held by F1 would not have adequately disclosed this nature. If F1 had unwittingly been trading in counterfeit goods would the position be any different? In that situation also the invoices would not disclose the nature of the goods. The requirements of the Directive were not satisfied.” 81. Mr Heywood sought to draw a distinction between the present appeal and Reisdorf (in which the issue was that a copy invoice was held rather than the requisite original) and submitted that in Reisorf the trader must have been aware of the requirement to hold the original invoice and had failed to comply with his obligation in that regard. Similarly in McAndrew the Appellant’s wholly inadequate evidence was his own failing. By comparison the only criticism that can be made of the Appellant in this appeal is that the invoices were made without reference to the Regulations and it falls to Mr Connolly to opine that they do not appear to be genuine because certain details such as the shipping terms are not included. Mr Heywood submitted that the Tribunal’s decision in Premier Joint Ventures was erroneous in concluding that it was irrelevant that the Appellant may have believed he was acquiring the goods as described on the invoice. There are only two types of taxpayer; those who knew or should have known of a connection to fraud and those who did not and should not have known. 82. Mr Heywood posed the question: “If this analysis is correct how can any trader who has in fact received goods of a quality other than those which he contracted to buy ever be in possession of a valid invoice? He cannot be. He could only either know that the material which he has been provided with does not match the invoice or he has been misled about the quality of what he has been provided with, in which case he will be informed if the invoice does not match.” 83. In those circumstances, Mr Heywood submitted, HMRC have applied a strained interpretation of the Regulations which results in a strict liability unless a trader is fortunate enough to persuade HMRC to exercise its discretion. 84. Mr Heywood contended that it is not the adequacy of the invoice that is the issue in this case but the extension as to what it can imply. It was accepted that it appears to be the case that the total of the transactions described on all of the invoices for Ultra memory cards could not have been fulfilled by supplies of genuine SanDisk Ultra memory cards. However Mr Heywood contended that it cannot be argued on the evidence available that a number of permutations of genuine, individual transactions could not have taken place. The evidence demonstrates that the consignments existed; the issue as to whether the goods were counterfeit is a separate issue. 85. It must be accepted that Grade One and the Appellant had a long and successful trading history; that relationship must have been founded on good faith. The due diligence carried out by the Appellant was reliable and should not be criticised with the benefit of hindsight. If the Appellant was defrauded by others further up the supply chain he is entitled to the protection set out in Mobilx . 86. Mr Heywood distinguished the two different types of memory cards; the Ultra and Extreme ranges. It was accepted that the samples from the 500 Extreme memory cards seized at Manchester Airport were counterfeit and by implication the remainder were too. The five samples were found to be a mixture of cards with non-functional printed circuit boards and genuine Micron or Kodak cards with 4 GB capacities. To the untrained eye there was nothing about the goods that raised suspicion. Mr Connolly has failed to address the scenario which had taken place; namely that lower capacity SanDisk products had been re-labelled with fake higher capacity branding. 87. Mr Heywood submitted that no authority has been advanced to support HMRC’s contention that the Appellant’s records are inadequate or that serial numbers should have been retained. HMRC has misapplied Regulation 29 (2) which provides that “such other documentation” shall be held once HMRC has so directed; it is not a retrospective power to compel the production of information and HMRC’s request that serial numbers be retained was only made after the date of the relevant deals. 88. The VAT Regulations require that the invoice contains “a description sufficient to identify the goods supplied.”
“Subject to paragraph (2) below and regulation 16 save as the Commissioners may otherwise allow, a registered person providing a VAT invoice in accordance with regulation 13 shall state thereon the following particulars: … (g) a description sufficient to identify the goods or services supplied (emphasis added) 93. We considered what is meant by “sufficient” and whether the definition is, as contended by Mr Heywood, broad enough to include goods by implication. In McAndrew Utilities Limited the Tribunal provided the following helpful comments (at [12]): “There is an issue as to the extent of the particulars necessary to constitute a valid VAT invoice. This does not appear to be the subject of any direct authority. The detailed requirements for a valid VAT invoice are left to individual member states to determine. In Reisdorf v Finanzamt Köln-West[1997] STC 180 the ECJ stated at [27]: “Article 22(2) [of the 6 th Directive] thus requires every taxable person to keep accounts in sufficient detail to permit application of VAT and inspection by the tax authorities. Article 22(8) adds that Member States may impose other obligations which they deem necessary for the correct levying and collection of the tax and for the prevention of fraud.” 13. We consider that the requirements of regulation 14 are at least in part directed to ensuring that VAT invoices provide sufficient information and detail to enable a meaningful audit of transactions to take place. In particular the information must be sufficient for HMRC to identify the nature and extent of the goods or services supplied and thus be able to verify that the supply took place as described in the VAT invoice.” 94. Judge Hellier took a similar view in F1 Promotions Limited at [24] and [29]: “It seems to us that the requirement to specify the nature of the goods is wider than simply requiring a description sufficient to identify their VAT nature. That is because:- (i) of the indication that ‘nature’ is more specific than “the type of the goods supplied”, and the latter phrase does not suggest simply “the VAT classification of the supply”; (ii) of the conclusion that the purpose of the requirement is the audit of the supplier and the recipient by the tax authorities and our belief that more could be involved in such an audit than simply checking the VAT rate applied. … We conclude that by “nature of the goods” is meant those particulars of the goods supplied which, objectively viewed, are specified between the parties for their supply. The wine merchant has agreed to buy 1985 Chateaux Blanc not 1995; the sand merchant knows he will get only coarse sand from that quarry and the quarry knows that that is all it will supply. The invoices must specify the nature of the goods as ‘1985 Chateaux Blanc’ and “coarse sand”. (If a manufacturer agrees to sell “red trousers with a 15” inside leg in style X” to a retailer that is the nature to be detailed on the invoice. It is not necessary to say ‘children’s trousers’: the indication of the availability of an exemption or lower rate of VAT is required by other parts of Art 22(3)(b) and may be audited against that description).” 95. These authorities are not binding on us. However we agreed with and adopted the same approach. 96. The following examples demonstrate the descriptions generally contained on the Appellant’s invoices: (invoice date 7/10/05) 1500 SANDISK ULTRA 2 – 8GIG COMPACT FLASH M (invoice date 30/11/05) 500 SANDISK EXTREME III 8.0GB COMPACT FLASH MEMORY CARD 97. The Appellant’s evidence indicates that there was a supply of goods by Grade One to the Appellant and an onward supply of those same goods to Unicell. The goods are said to be a specified quantity of SanDisk memory cards or either the Ultra or Extreme ranges. 98. To be balanced against the Appellant’s evidence is the information provided by Mr Connolly. We found Mr Connolly’s evidence to be reliable and compelling. We accepted his evidence that he would have been aware of a trader dealing in the quantity of SanDisk products as purported to have been traded by the Appellant. We also accepted that the Extreme range of products were not launched until April 2006 which post dated the Appellant’s transaction in November 2005. 99. From the price and shipping information provided by Mr Connolly, Mr Maxted produced his analysis which we were satisfied accurately reflected the total worldwide supplies made by SanDisk of genuine 8Gb SanDisk products in 2005 as 5441 units. 100. Having accepted the evidence of Mr Connolly and Mr Maxted we concluded that the goods described on the Appellant’s invoices could not be the quantity or type of SanDisk products purported to be supplied. We were wholly satisfied that the goods were not as described and therefore the descriptions on the invoices were not sufficient to identify the goods. 101. The question posed by Mr Heywood was whether the description can be interpreted broadly and therefore encompass the goods. This argument appeared to be based on the inference that the goods were counterfeit. The same issue was considered in F1 Promotions at [145], [147] & [148]: “Mr Young raised the possibility that the memory devices F1 bought and sold were counterfeit. If they were he suggested: (a) the purchase and sales were transactions which properly attracted VAT; (b) the principle of neutrality required F1 to be credited with the input VAT on their purchase; (c) the omission of the words "counterfeit" on the invoices was not sufficient to cause them to fall outwith the requirements of the Directive; and (d) even if it was the case that the invoices were inadequate, it was unreasonable in the circumstances not to exercise the regulation 29 discretion in favour of the Appellant. If F1 had been knowingly trading in counterfeit devices then we accept that prima facie it should be entitled to credit for input VAT. But that credit is available only if the requirements of the invoicing requirements of the Directive are satisfied. It seems to us that they would not have been. An indication that the goods were not genuine would have been an important indication of their nature for both supplier and customer. The invoices held by F1 would not have adequately disclosed this nature.”
“It is necessary to distinguish the provisions of the directive relating to exercise of the right to deduct input tax from those concerning proof of that right after a taxable person has exercised it. The distinction between exercise of the right and proof of it on subsequent inspections is inherent in the operation of the VAT system.” 110. We were satisfied that to conclude otherwise would render the Regulations redundant as a trader could fail to provide evidence to prove the charge to VAT by simply pleading good faith and in doing so undermine the effective operation of the VAT system. The MTIC Appeal Transactions connected to fraudulent tax losses 111. Between27 February 2007 and18 April 2007 the Appellant carried out 7 transactions involving Nokia mobile phones. All of the purchases were made from Mobile One Distribution UK Ltd (“Mobile One”) and sold to Trading Point APS (“Trading Point”) save for one deal in which the customer was Italian based Elettroberg. 112. HMRC officer McDonald provided unchallenged evidence regarding the blocking trader Bushmaster Ltd (“Bushmaster”). 113. Bushmaster was incorporated on4 August 2004 and registered for VAT with effect from13 February 2006 . The trader’s intended business activities declared on the VAT 1 were “Courier Services.”
“Q. What did you do to improve your checks? A. We improved as he went through with us a lot of times and we actually did whatever we can to check our suppliers properly. Q. What did you do as a result of this letter to improve your checks? A. We introduced extra paperwork to do the checks to get our supplier to agree that they are checking their companies, which we didn't need to do that. Q. What's this extra paperwork? A. I can give you a copy if you --- Q. Just tell us what it was. A. It was for them to confirm that they are selling the stock to us, not making a loss, they are doing the checks on the suppliers. Q. So, it's supplier declarations I think you are talking about isn't it? A. That's right, yes. Q. So, your suppliers tell you that they are doing a good job and that was what you brought in as a new measure? A. It was as far as we know that they are doing their job. Q. I see. A. That's what they want to do isn't it? Q. So, no more third party checks; you just rely on the word of your supplier. A. We did third party checks. We did your Redhill checks.” (Transcript22 July 2014 page 60 – 61) 131. At a meeting with HMRC on15 January 2008 Mr Chhiber was asked whether he had followed up trade references or carried out any other commercial checks on his suppliers and customers as he had supplied little in the way of deal pack paperwork to HMRC in support of his VAT repayment claim despite having been told in the past that his commercial checks should be more robust. Mr Chhiber was recorded as telling HMRC that he did not feel the need to carry out checks every time a deal was undertaken because he had known the majority of his customers and suppliers for many years. Mr Chhiber was also asked whether there were any written contracts between the Appellant and its suppliers; he confirmed that there were not and that the paperwork reflected the trading terms. He added that as his trading partners were longstanding he was able to be more relaxed about trading terms, for example he stated he had dealt with Wood Transport for many years and felt he did not need to carry out regular due diligence to confirm its status. Customer 132. Due diligence documents were provided for Trading Point including photographs of the Danish premises, Redhill VAT validation, Danish registration documents and an account application. 133. Ms Andersson-Hudson noted that the account application form for Trading Point is on Devi headed paper. It is dated2 March 2006 and signed by Mr Degnegaard. The form states that all trade references must be at least 12 months old and have “an adequate trading history with your company.”
“I would call Mr Degnegaard and ask him whether or not he wanted to buy stock. I never knew who Mr Degnegaard dealt with or supplied to, nor did I know who supplied Trading Point APS…” 138. Mr Chhiber stated that in addition to sourcing new trading partners and liaising with existing ones, Mr Degnegaard was also responsible for all of the administration including the bookkeeping. Mr Chhiber’s only involvement was sourcing funding for the company to enable it to trade. He stated that given his association there was no point in conducting further checks on the company although despite knowing Mr Degnegaard well he still undertook a Redhill check and obtained due diligence documents. Even though Trading Point was a new company he believed it was Mr Degnegaard’s reputation that had ensured a reference from Kuenhe & Nagel who will not allow an account to be opened without checks being carried out. Having met Mr Degnegaard many times Mr Chhiber was satisfied with his integrity. 139. In cross examination Mr Chhiber explained that he wanted to start a company outside of the UK. He reiterated that he had not been aware that his son’s company DIS had traded with Trading Point as he did not discuss with his son who DIS was selling to: “Q. So you did not discuss with your son who he was selling to? A. No. Q. Why not? A. Because I don’t do. I did not know that he was supplying to Trading Point as well. Q. Why wouldn’t you discuss that, as a matter of business, or even a matter of father and son A. ( Inaudible ) that I can see what my son is doing. Q. Why wouldn’t you? You lived together, you worked together. Are you seriously expecting A. He is over eighteen, a person. You let him to run his life. Q. You worked together, you lived together. You did not know that he was supplying your company. A. I can’t recall, no. Q. You have fallen back on “I can’t recall” now. Did you discuss A. Well, I did not know then, that’s what I am saying to you.” (Transcript22 July 2014 page 134) 140. In his oral evidence Mr Chhiber stated he had known Mr Degnegaard about a year or two before Trading Point was set up but he could not recall the circumstances in which he met or got to know Mr Degnegaard: “A. I had known him about a year or two before. I can't recall the date when I knew him. Q. And how did you get to know him? A. I honestly can't recall. Q. Well, this was a man that you knew well and trusted with your company, according to your evidence-in-chief. A. Yes, but you are asking me before. Q. It's quite a simple question. How did you get to know him? A. Mainly through the lawyers when I was opening the company --- Q. You opened the company in March 2006. We see that halfway down page 77: "Trading Point APS was started2 March 2006 , VAT registered3 March 2006 ". So, is that when you got to know Mr Degengard? A. Sorry, I can't recall. Q. You told us in your evidence-in-chief that you knew him well. What I am asking is how you knew him. How did you come to know him? A. (no reply) Q. Was it through an advertisement? A. I don't know. I might be wrong on this. What I think is maybe we met in the exhibitions in Germany.” (Transcript22 July 2014 page 143) 141. Mr Chhiber described his surprise and concern at finding out that Mr Degnegaard represented a number of other mobile phone companies. He told us that when asked, Mr Degnegaard said it was confidential. Mr Chhiber explained that Mr Degnegaard had offered to run the company but he could not recall whether he had entered into any written agreement with Mr Degnegaard, although he felt sure he did. 142. Mr Chhiber explained that it was Mr Degnegaard who would call the Appellant to discuss deals. He would speak to any of the staff at Devi or Mr Chhiber; normally the staff would refer back to Mr Chhiber regarding the deals, for instance in respect of pricing. He could not recall an occasion when the Appellant wanted a higher price than Mr Degnegaard was willing to pay and he told us that Mr Degnegaard never spoke to him about how much to offer or whether Trading Point should do a deal: “Q. So, it was in his interests to get the product at the cheapest price possible wasn't it, Mr Chhiber? A. Yes, it would be, yes. Q. So, he would want to negotiate hard with your team in Devi wouldn't he? A. Yes, he should do, yes he did. Q. But he never contacted you to say, "You're asking too much, Devi is asking too much"? He never said to you? A. No one ever said that to me, no. Q. No, because presumably you wanted Trading Point to make as much profit as possible as well, did you? A. Yes, of course. Q. It was your company wasn't it? A. Yes. Q. Did you know who Trading Point was selling to and at what price? A. No, I had no knowledge of that Q. Did you ask Gurt that question? A. Not at this time, no… A. Whenever I spoke to Gurt, I already ask him how much, you know -- are we making good profits, and he said he's trying his best to make good profits. Q. So, you would ask him, "Are you making good profits?" and he 'd say, "I'm doing my best"? A. That's right, yes. Q. Did it get any more complex than that? A. No. Q. Presumably you asked to see the books of Trading Point? A. Yes, you know, eventually we did, yes.” (Transcript23 July 2014 page 12 - 14) 143. Mr Chhiber told us that he was provided with a breakdown of Trading Point’s sales, purchases and profit each quarter but he was not given the details of the transactions as the paperwork was in Denmark. He agreed that as the owner of Trading Point he was entitled to that information but stated that he was very busy at the time. Mr Chhiber agreed that the Appellant had entered into a loan agreement with Trading Point under which the latter was loaned approximately£8,000,000 : “Q. We can see the totals back and forth on page 354. The debit side of the column loaned£8 million , it looks like. The credit side received£8.3 million back again so it looks like in the end Devi appeared to be£300,000 up on this. A. No, but that's only until that date. You know, if it continued then it would be --- Q. Well, this takes us right up to March 2009 doesn't it? A. Yes. Q. So, would it be fair to say that you were trading, or that Devi was trading with Trading Point and you were funding Trading Point to do that? A. Of course, we had a loan agreement between us. We were giving the loan to each other, yes. Q. So, Trading Point would loan money to -- I am sorry, Devi would loan money to Trading Point so that Trading Point could pay for the goods that Devi was selling it? A. I can't tell that. I don't know exactly what they're paying for and what they -- but this is the money being loaned to each other, that's all. Q. Yes. We know that Devi did a lot of business with Trading Point don't we? A. Yes. Q. So, it is not unfair, is it, to suggest that you were loaning money to Trading Point so that Trading Point could buy your goods in part? A. (no reply) Q. Is that what was happening? A. To buy goods? Q. To buy goods from Devi? A. From Devi or wherever they want to buy from. Q. And you were trying to get both companies to trade profitably? A. Yes, sir, I was.” (Transcript23 July 2014 page 64) 144. It was put to Mr Chhiber that at a visit by HMRC on15 January 2008 he had told the officers that he had been invited to join the Board of Directors of Trading Point for his knowledge of the mobile phone industry yet there was no such Board as Mr Chhiber was the sole director. Mr Chhiber agreed but stated that he could not recall referring to a Board and that the officers may have interpreted his comments in their own way. 145. In respect of Elettroberg the Appellant’s due diligence comprised a Redhill VAT validation, documents which appear to be Italian registration documents and a letter of introduction. On11 July 2007 the Appellant faxed Elettroberg requesting the names and contact details of two trade references. Ms Andersson-Hudson noted that this was over two months after the date of the Appellant’s transaction with the company and no trade references were provided as part of the Appellant’s due diligence packs. On6 July 2007 Elettroberg sent the Appellant a copy of its VAT certificate; this postdated the transactions by two months. HMRC also highlighted the lack of any credit checks carried out by the Appellant on Elettroberg and the absence of a trade application form or references. Information received from the Italian Tax Authorities indicated that the company was involved in the wholesale of household appliances and that the trader was investigated in 2005 and 2006 for possible fiscal frauds. 146. Mr Chhiber stated that the trade references in respect of Elettroberg were chased up even after the period in question: “Q. But this was well after the deal that you carried out with the Ellectroberg at period 5/07. A. That was Mahesh's job. He should have done it at the same time, sir. Q. But you just went ahead without the due diligence? A. He would have checked, like I said, the VAT number is more important to us, if it is valid or not valid. Q. Presumably you were asking for these documents for a reason? A. Yes, just to keep, because if you are going to deal or future deals, we got the documentation in our file. Q. When was this visit that you carried out to Ellectroberg? A. I actually met the company; I can't give you the exact date I have been. I was introduced to this company by a gentleman called Bianci Bhazi who was our agent in Italy who spoke English and Italian. He requested me to come to, before we done the deals, long before we done this deal. Q. This was long before you had done any business with Ellectroberg? A. That's right, yes, with Ellectroberg. Obviously I went down to see their premises and I met with Luizi, who was the main guy in the company. Q. Where is the evidence of this visit? A. I did take photographs and I did give it to Mahesh. I don't know if he passed it on to Customs or if he lost it there or we lost it within our house. I don't know Q. Why would you not have asked for the sort of documentation that you were chasing up in July 07 when you went to see them? A. I asked them to send it to us because ... I don't know what the reason for ... that he, when we met each other, he took us out and then we didn't go back to the office to gather all the documentation. Q. And these documents did not come until months after you started dealing with him? A. Yes. Q. Is that right? A. Yes, dates from this documentation tells you that he is chasing afterwards, so yes. Q. Because you were warned on page 123, warned by Redhill that Customs could not verify that there was a valid VAT registration on13 April 2007 . A. Is there a document when we applied to Redhill? Can you check? Q. The previous page, page 122. You did receive a positive answer from Redhill in July at 124. But the deal that we are concerned with in this period, deal 11, and you sold to Ellectroberg on20 April 2007 . Q. At the time that that deal was undertaken, Redhill had not given you the green light as regards the registration of Ellectroberg and that did not come until July. So why would you go ahead with the deal? A. As I said to Mr Puzey, that I actually visited the company. I knew how big the company was and our main aim to check the VAT is not invalid, we need to make sure the VAT number is valid. So we did a Europa check on it and its VAT number was valid to us. To do the Redhill checks sometimes takes weeks.” (Transcript23 July 2014 page 90) Supplier 147. The due diligence documents provided to HMRC in respect of Mobile One include photographs of an office in a residential premises, a copy driving licence for Mohammed Javid Akhtar, a Creditsafe report and an account application form. 148. Ms Andersson-Hudson highlighted that the registered address given on the account application form for Mobile One was that of Barrington’s accountants which was also used by the Appellant. The form indicated that the company held an account with UMBS bank but did not give any account details or the period over which the account has been held. Referees were provided: DVB and Ace Telecom. However no account opening dates or addresses were provided. Ms Andersson-Hudson noted that there was no indication that Mr Chhiber had contacted the referees. She highlighted that the Creditsafe report for Mobile One was printed on30 March 2007 and does not give a credit rating or credit limit as the financial statements for the company are too old. The photographs provided do not show when or where they were taken nor the name of the person photographed for identification purposes. Ms Andersson-Hudson also noted that there was no indication as to when the Appellant’s supplier declaration which had been completed by Mobile One had been signed. 149. In cross-examination Ms Andersson-Hudson stated that she was not aware of any due diligence documents that had gone missing since she took over the case. She confirmed that additional documents highlighted on behalf of the Appellant had not been part of the deal packs that she had received. 150. In his written evidence Mr Chhiber contended that the Appellant’s due diligence was always deemed sufficient as the company’s returns were signed off and the procedures became more robust as time went on. The company’s general procedures included site visits, Creditsafe reports, supplier declarations, inspections of goods and Redhill VAT validations. 151. Mr Chhiber stated that he had known the Appellant’s trading partners for a long period of time and could see “no point in carrying out due diligence in such companies without a good reason…during the period in question, I was satisfied with the integrity of those that I dealt with…I am keen to stress that I would carry out HMRC’s advice. If I did not, then I imagine, HMRC would have refused my VAT repayments. Their own advice said, I was to satisfy myself as to the integrity of my suppliers and customers. In this respect a combination of due diligence and personally knowing the people in some instances provided me with sufficient comfort to trade.” 152. He stated that the companies named as references for Mobile One were known to him and he had contacted them. The Creditsafe report was used to verify the company’s address and basic information. He also knew Mr Akhtar and Mr Proctor the directors. Mr Chhiber was unable to comment on why the supplier declaration form sent to Mobile One on18 April 2007 for a deal which took place on the same date and which specified that the form must be completed and returned prior to the deal taking place was apparently not faxed back to the Appellant until September 2007. 153. In cross-examination Mr Chhiber could not recall how his son had come to be a director of Mobile One: “Q…Your son was a director of Mobile One, was he not? Page 58. A. He was a director of Mobile One but he never traded on that company. Q. How did he come to be a director of Mobile One? A. That I can't recall…Yes, previous director means he was a director only but he never worked with the company. There must have ... I don't know, Mr Aktar was new to us through Twenty Twenty, as I said in the past to you, and obviously he would have known to my son. They probably decided they wanted to deal, do some business together, and obviously didn't continue. Q. It was not just that they did business, Mr Dipak Chibber was made a director of this company. I am asking you if you knew how that came about. A. That's his decision, not mine. You had better ask him.” 154. It also transpired from Mr Chhiber’s oral evidence that he had had some involvement in the company, although we note that this was prior to the relevant period for this appeal: “Had you ever had any relationship with his business, Mobile One Ltd, by way of, for example, being a director of it? A. We had this company originally, Mobile One, set up to do, you know, to do other business what we wanted to do. … Q. Were you ever a director of the company? A. I think it was my son was director on that, if I correctly remember. Q. Did you have any such relationship with the company like your son did? A. Not at that – only at the beginning before ever we dealt with the company, is like I was a shareholder, then I given up my shareholding. Q. When was it that you gave up your shareholding? A. It was long before we ever dealt with these deals, years before.” (Transcript23 July 2014 page 86) 155. Mr Chhiber was asked about the references provided by Mobile One: “Q. Mr Proctor, whose name we also see in the middle of that page, was known to you through a company called Ace Telecom, was he not? A. Ace Telecom, yes, I believe… Q. I am just asking you to look at the box with the name of the reference in it. A. Yes, I am looking at it. Yes, I can see. Q. DDB, do you see that? A. Yes, I can see that. Q. They were a supplier of Trading Point, were they not? A. DDB? Q. DDB. A. I can't recall. Q. Okay, we will come to that when we look at Trading Point's records. And the second reference that is put forward is Ace Telecom, is it not? A. Yes. Q. Mr Proctor's company. A. Yes. Q. Mr Proctor is putting forward his own company as a reference for Mobile One. Yes? A. Yes. I don't know, obviously Neil Proctor was a partner in there. There were several partners in Ace Telecom I believe. Q. You told us that that was his company. A. I'm sorry, I made a mistake then. Q. What mistake? A. I thought it was a part of the company but not – I don’t know if you, how much share will he work together with that company.” (Transcript22 July 2014 page 125) 156. Mr Chhiber went on to say that the Creditsafe report in respect of Mobile One meant nothing to him as he “thought he would be…honest and straightforward guy.”
“Q. Right. So a chap that you knew worked for a proper company some years before was now selling you phones from his bedroom. That did not cause you any concern? A. No. I mean, I didn’t realise. I mean, if I worked for Twenty Twenty I would be able to obtain stocks from them. Q. Did he indicate that that was the source of his stock? A. No.” (Transcript22 July 2014 page 130) Turnover 157. The Appellant’s annual turnover declared on its VAT returns was£3,305,633 in the 12 months to28 February 2002 . In the following 12 months the turnover increased to£24,031,345 . In the 12 months thereafter to29 February 2004 the turnover was£21,082,550 . The turnover then dropped in the 12 months to28 February 2005 to£6,850,570 but then rose again in the 12 months to28 February 2006 to£50,486,778 . In the following 12 months the declared turnover was£45,593,169 . 158. Mr Chhiber agreed that the Appellant’s turnover grew exponentially. However he explained that: “…relative to the international market – in which hundreds of thousands of phones are traded daily, PLC’s business model (and its chains of suppliers and customers) accounted for a tiny fraction of the world market. The numbers traded are large because the demand was insatiable…Fluctuation in turnover is explained by the fact that demand was higher in some years than others.”
“Our main aim was to make maximum ourselves. I have no knowledge about other people, what they were making. … Sorry, or what, you know, they want to make. That is up to them. Q. Your guide figure to your sales team was£3 to£5 you told us earlier. A. Correct, but if you are exporting the stock it could be higher, but --- Q. Of course if you charged less, that would have enabled Trading Point to make more of a profit wouldn't it? A. As I said, our sales team, they wanted to make the maximum what they can. If they offered it to him at that price and he would be able to sell it at a higher price making a profit. Q. Both of your companies want to maximise their profits don't they? You told us that. A. Yes, well, we are exporting it and we are also funding the VAT in that. Q. It didn’t cost£50 odd per unit to export it did it? A. It didn't need to. What do you mean, it didn't cost --- … Q. You are trying to explain a disproportionate --- A. If you are working out all the cost, the cost is overheads at our offices, our sales costs, then our insurance costs, and our transport costs for exporting the goods, these are all added up when you are doing the export. Q. And does that account for about£50 per unit, all those overheads? A. (no reply) Q. Does it, or was this just a very good deal? A. It was a very, very good deal we made. We made a very good profit. … Q. So just think about deal 10 again. Devi are making£52 and£32 a unit – huge profit compared to Trading Point, who are making£3 a unit. When you looked at the books did you consider that Devi were effectively overcharging Trading Point? A. I wouldn’t say overcharging. It was Gert’s interest to negotiate with Devi’s sales team, whatever best he can get the prices. Q. He cannot have been very good at negotiating if you allowed Trading Point£50 margin. A. Well, in this case he hasn’t, has he, in this case? So I don’t – I can’t tell, that ….. Q. What were his credentials as a tough negotiating businessman? A. Well, presumably he was, but it depends on the sales person selling it to you, how good he is. Q. What did you know of his track record in sales? A. I really didn’t know his track records on sales. Q. You hired this man to run your company. A. Yes, I did. Q. On what basis? A. Because I could not run the company in Denmark myself. I need to have other employees ….. Q. Why choose him? … A. I made a decision that time when I met him, so, you know, that’s my decision and my obviously ….. Q. A decision you made apparently without any knowledge of his business experience. A. Well, when he was speaking to me he was talking that he was very experienced, and to me he looked very experienced and knowledgeable. But on the negotiation side it didn’t look very good.” (Transcript23 July 2014 page 21 & 33) Freight Forwarder 172. The freight forwarder used by the Appellant, D Wood Transport Ltd, has not submitted any VAT returns since 03/08. The company is now insolvent and its official address is the Official Receiver. 173. Mr Wood was previously registered for VAT as the director of Express Transport Midlands Ltd. The registration was the subject of a compulsory winding up order and is formally insolvent having been de-registered from23 November 2005 . 174. At a visit to the trader on13 February 2009 HMRC recorded Mr Wood’s denial of ever having transported goods from SA Trading to the Appellant. Mr Wood also stated that he had never signed anything from the Appellant apart from some inspection reports which the Appellant had insisted were signed. 175. HMRC had also visited Mr Wood on16 March 2005 and1 April 2005 (both of which we should note pre-date the mobile phone deals under appeal). The visit report for16 March 2005 recorded Mr Wood as stating that he was not always aware of the type of goods he was transporting and that he had some concerns that he had moved the same goods to Europe and back to the UK on the instructions of the Appellant, although he stated he did not want the Appellant to be informed of the concerns he had voiced. At the meeting on1 April 2005 Mr Wood indicated that he was still working for the Appellant and had carried out a recent job where the value of stock was£250,000 . He stated that he received payments in a mixture of cash and cheques and that the stock collected was usually shrink-wrapped. 176. Mr Chhiber disagreed with much of the content of Mr Wood’s conversations with HMRC. He noted that no statement was obtained by HMRC from Mr Wood and that the conversations as reported are uncorroborated hearsay. He disputed the fact that Mr Wood was unaware of the stock he was carrying as Mr Wood had signed inspection reports and CMRs. Inspections 177. At a visit to the Appellant on15 January 2008 HMRC recorded Mr Chhiber as stating that if the goods are ship on hold with the freight forwarders then it is the freight forwarder which carries out the inspections. If the goods are delivered to the Appellant’s storage unit then either he or his staff would complete the inspection. Mr Chhiber said that he does a 100% check which includes a 100% count to ensure that all the goods are there and the original seals are intact, and a 10% physical check that the contents of the boxes are correct. 178. Ms Andersson-Hudson noted that Trading Point did not specify the type of manual on its purchase orders. The manuals in the deals differ; the inspection report for deal 1 shows the manual language as English, the report for deal 7 does not specify and the reports for deals 8, 10 and 10a show German. Elettroberg which was based in Italy does not specify the manual language on its purchase order but the inspection report for the deal indicates that it is German. In cross-examination Ms Andersson-Hudson accepted that whether a specific manual was required would depend on who was buying the goods and may or may not have an effect on the value of the phone. 179. Mr Chhiber’s witness statement explained that the market he dealt with was international and that HMRC “assumes that because goods were sent to the UK and Denmark, that is where they remained. She provides no evidence as to their final destination…All I need to know is can I find stock for a customer who is willing to buy it.”