JSM Construction Ltd v Revenue & Customs (PROCEDURE : Other) [2015] UKFTT 474 (TC)

FTT-Tax
JSM Construction Ltd v Revenue & Customs (PROCEDURE : Other)
[2015] UKFTT 474 (TC) · 2015-09-15
[17]The first criterion in rule 23(4)(a) is whether the case will require lengthy or complex evidence or a lengthy hearing. The Upper Tribunal in Capital Air Services did not define ‘lengthy’ or ‘complex’ in rule 23(4)(a) but, at [24], indicated that there were certain limits to the tribunal’s discretion to consider that a hearing is lengthy. In relation to the duration of the hearing, the Upper Tribunal stated that “[i]t would be perverse to say that a hearing of half a day could ever be lengthy or that a three month case was not lengthy.” The Upper Tribunal then went on to say: “But in many cases there will a judgment to be made where different judges of the Tax Chamber might reasonably take different views. It cannot be said that there is a single ‘right’ answer that can be objectively ascertained as a matter of law. The Rules assign the task of making that judgment to the Tribunal by providing that a case can be allocated as Complex only if the Tribunal considers one or more of the criteria to be met. We do not consider that there is a single objective and correct answer to how long is ‘lengthy’ or how large is a ‘large financial sum’.”18. The First-tier Tribunal in Dreams commented on this approach at [19]: “In other words, it is not possible to provide comprehensive guidance, and each case has to be considered on its own merits. In my view the gateway in rule 23(4)(a) can be sensibly applied only if one starts from the proposition that a case must have some feature out of the ordinary if it is to be categorised as Complex. By that I do not mean, for example, that only hearings requiring more than a pre-determined number of days are to be regarded as lengthy; I agree with the Upper Tribunal that setting criteria of that kind in advance is neither desirable nor practical. A three-day hearing, as is suggested will be needed for this case, is by no means unusual in this Chamber. But it might nevertheless be unusual for a particular case. I take the example of a late return penalty appeal. Normally such appeals are allocated to the Default Paper category, but the parties may ask for an oral hearing. In such a case the hearing will usually be listed for an hour. If, however, the parties were to say they require three days, it would be difficult to resist the conclusion that the hearing was lengthy for that type of case. What amounts to ‘complex evidence’, too, is not susceptible of advance definition. Again, as it seems to me, there must be something out of the ordinary - evidence of a technical nature, requiring for its understanding a judge or member with particular experience or training might be an example.”19. Mr Fitzpatrick submitted that the evidence is lengthy and complex, which should be understood as complicated (see Capital Air Services at [8]). JSM has served witness statements from five witnesses and has produced four lever arch files of documentary evidence. HMRC do not intend to call any witnesses. Mr West contended that the appeal did not require lengthy or complex evidence. Mr West stated that the bundle of documents produced runs only to some four lever arch files which is a modest and by no means exceptional amount of evidence by the standards of cases heard by the tribunal.20. Despite an initial difference of views as to the time required, both parties eventually agreed that the hearing of the appeal should be listed for six days in January 2016. Mr Fitzpatrick submitted that this was a lengthy hearing as it is out of the ordinary for an input tax appeal and was lengthy by comparison with most cases before this tribunal. Mr West submitted that, even if the hearing requires the full six days estimated, that is by no means excessive in terms of many of the appeals which proceed as Standard cases before the tribunal and should not be regarded as a lengthy hearing.[21]As can readily be seen, the parties did not disagree about the nature or volume of the evidence in the case or the likely length of the hearing but, on the same view of the facts, one party, JSM, urged me to regard the evidence as lengthy and complex and the six day hearing as lengthy while the other, HMRC, sought to persuade me to regard the evidence as straightforward and the hearing as nothing out of the ordinary. Having regard to the guidance in Capital Air Services and Dreams and the submissions of the parties, I am left to form my own view. I do not regard five witness statements, none of which seemed to be particularly long, and four or five lever arch files of documents as at all out of the ordinary in the context of a case concerning entitlement to deduct input tax or in the context of cases in this tribunal generally. The volume of documents is determined by the number of invoices that are subject to challenge and the amount of correspondence between the parties. That volume does not indicate complexity as may, for example, be found in cases that involve evidence of complicated transaction chains and circular payments such as MTIC fraud cases. In my view it cannot be said that this appeal involves lengthy or complex evidence for the purposes of rule 23(4)(a). A hearing of six days is longer than the vast majority of hearings in the tribunal but, in my view, not so lengthy or unusual (especially not for a case concerning whether or not supplies in respect of which input tax has been claimed were actually made) as to justify re-allocating the appeal as a Complex case when considered on its own. In conclusion, I do not consider that this appeal involves lengthy or complex evidence or a lengthy hearing for the purposes of rule 23(4)(a) and, accordingly, it does not satisfy this criterion. Does the case involve a complex or important principle or issue?[22]Mr Fitzpatrick submitted that the appeal raised an important principle or issue relating to the jurisdiction of the tribunal, conferred by section 83(1)(c) VAT Act 1994, to consider the amount of input tax that may be credited by JSM. The point is whether the unilateral act of a third-party issuing a credit note to a taxpayer deprives the tribunal of jurisdiction to consider whether the taxable person is entitled to deduct input tax on supplies made by the third party. Mr Fitzpatrick referred to HMRC’s statement case which states that the tribunal is “bound to have regard to the results of an insolvency procedure conducted under the relevant legislative provisions and cannot either effectively reconsider the relevant matters itself or reach a contrary conclusion.” He contended that HMRC’s position is that the issue of the credit note by Mr Katz is sufficient to dispose of the appeal because it means that no VAT was charged to JSM by Goldflex. Mr Fitzpatrick contended that the consequence of HMRC’s primary argument, if correct, would be that the tribunal’s jurisdiction was ousted by the credit note issued by Mr Katz. Mr Fitzpatrick also observed that HMRC's position raised issues of EU law in relation to a taxable person’s right to deduct input tax. Mr Fitzpatrick referred to the decision of the Court of Appeal in Brunel Motor Company Limited v HMRC [2009] STC 1146 , at [31], and contended that it showed that a credit note is not sufficient in itself to justify a decrease in the consideration for a supply for VAT purposes but there must be some underlying legal entitlement to the decrease in consideration of which the credit note is merely evidence. In the absence of such underlying legal entitlement, to the decrease in consideration, a credit note purporting to reflect such a decrease is ineffective for VAT purposes. As the Chancellor observed in Brunel, at [32], “ the task of the Tribunal … was to ascertain whether Brunel had a legal right to the discharge of the original supply .”23. Mr Fitzpatrick contended that HMRC’s alternative case also raised an important point, namely whether HMRC may impose, after the supply has been made, specific or general requirements on a taxable person as to the documents that must be held in order to establish a right to deduct input tax incurred on that supply. Mr Fitzpatrick contended that such a requirement is contrary to the decision of the tribunal in Maliha Group Limited v HMRC [2011] UKFTT 10 (TC) . In that case, the tribunal held that it is not open to HMRC to give directions under regulation 29 of the VAT Regulations 1995 after the time that the right to deduct has arisen.24. Mr West submitted that the case did not raise any important principle or issue. He stated that HMRC do not see the cases giving rise to any challenge to the tribunal’s jurisdiction. HMRC’s position is simply that the tribunal must have regard to the fact that the credit note has been issued issued and is not challenged when considering whether Goldflex supplied services to JSM. Mr West submitted that if JSM is correct in its interpretation of Brunel then it is a simple and straightforward issue that just requires the reasoning of the Court of Appeal to be applied to the facts of this case. Mr West said that HMRC had not appealed Maliha Group Limited but they were not obliged to do so and could still raise the issue which is a simple point which the tribunal can resolve.25. It is clear from [14] of Capital Air Services that what is complex or important must be assessed in the context of taxation and tax appeals. I do not consider that the principal issue in this appeal, ie whether JSM is entitled to deduct the VAT shown on the Goldflex invoices, is complex or important in the context of VAT or tax appeals although it is, of course, very important to JSM. It is sort of issue that is considered by the tribunal on a regular basis. That does not conclude the question of whether the appeal meets the criterion in rule 23(4)(b) because JSM maintains that the subsidiary issues raise important principles or issues. While I accept that the jurisdiction of the tribunal and the status of credit notes are important issues in the general scheme of VAT, the points that arise in this case are neither new nor, in my view, particularly complex (in the sense of complicated). As submitted by Mr Fitzpatrick, issue of the status of a credit note has already been considered by the Court of Appeal in Brunel which, unless it can be distinguished, would seem to provide powerful support for JSM’s position. There are many authorities on the right to deduct under EU law and the tribunal is familiar and well able to deal with them. As to the issue in relation to regulation 29 of the VAT Regulations 1995, I accept Mr West’s submission that it is a straightforward point which the tribunal can decide with or without reference to the earlier decision in Maliha . In conclusion, I do not consider that this appeal involves any complex or important principle or issue for the purposes of rule 23(4)(b) and, in my view, it does not satisfy this criterion. Does the case involve a large financial sum?26. Mr Fitzpatrick submitted that the amount in dispute, £226,845, is a significant financial sum in the context of tax appeals. He also submitted that I should take account of the fact that JSM has been assessed to corporation tax in the sum of £601,971 seemingly on the basis that if there were no supplies between Goldflex and JSM, JSM had overstated its deductions and understated its profits. Mr Fitzpatrick referred me to be decision of the tribunal in Babergh District Council v HMRC [2011] UKFTT 341 (TC) (‘Babergh’) where, at [34], the tribunal stated:
“Although the Council’s case itself concerns only a relatively small amount of VAT, the legal issues of the case are important and complex, and the outcome of the case involves a very considerable sum of money for the taxpaying community as a whole. A large number of similar appeals have been lodged which, the parties submit, have the potential to be affected by the Tribunal’s decision in respect of the Council’s appeal.”
That led the tribunal in Babergh to conclude, at [41], that “having regard to the accepted similarity of a large series of other appeals regarded as depending on the outcome of the council’s appeal, the case indirectly satisfies the conditions in rule 23(4)(c).” Mr Fitzpatrick submitted that I should have regard to the wider financial implications for JSM of the outcome of the appeal and not just the VAT amount at issue in the appeal when considering whether this criterion is satisfied. Mr West submitted that the decision in Babergh that rule 23(4)(c) was indirectly satisfied was flawed. In any event, HMRC contended that the amount of £226,845 was not a large financial sum and, unlike Babergh , there were no other cases stayed pending the outcome of this one. 27. It is clear from [17] of Capital Air Services that, in the absence of special factors, it is not appropriate to take into account the financial circumstances of the parties. In Capital Air Services , the Upper Tribunal observed, at [24], that “[i]t would be perverse to say a case involving tax of £1,000 involved a large financial sum or that a case involving tax of £100 million did not do so.” The FTT in Dreams considered how to determine what is a large financial sum in the context of tax appeals. The FTT concluded, at [30], that:
“… the sum should be large by comparison with the median value of the cases which come before the [Tax] Chamber and are allocated to the Standard and Complex categories. The adoption of that approach, it seems to me, represents a simple and straightforward means of applying the condition.”
The FTT concluded that the amount at issue in Dreams , £5 million, was a large sum and met the criterion in rule 23(4)(c). 28. The amount at issue in this appeal is £226,845. There are no published statistics that give the median value of appeals before the tribunal and so any judgment as to whether a particular amount is more or less than the median is necessarily one of experience and impression. In my experience and impression of the value of appeals to the FTT generally, I do not consider that this appeal involves a large financial sum. I gain support for my conclusion from (although do not base it on) the fact that Judge Cannan reached a similar conclusion in relation to a slightly greater amount in Elder v HMRC [2014] UKFTT 728 (TC) . 29. I do not accept Mr Fitzpatrick’s submission that I should take account of the fact that JSM would potentially be liable to corporation tax of £601,971 if its appeal is unsuccessful. The assessment to corporation tax is not the subject of this appeal (nor of any appeal to the FTT) and I do not consider that it would be proper to take it into account for the purpose of deciding whether or not to categorise this appeal as a Complex case. It appears to me that the facts of Babergh were very different and the considerations that led the tribunal to take account of wider financial implications do not apply in this case. . In conclusion, I do not consider that this appeal involves a large financial sum for the purposes of rule 23(4)(c) and, accordingly, it does not satisfy this criterion. Decision 30. In the light of my conclusion that the appeals do not satisfy any of the criteria in rule 23(4) of the FTT Rules, I have no discretion to categorise JSM’s appeal as a Complex case and JSM’s application must be refused. Right to apply for permission to appeal 31. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it under Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must normally be received by this Tribunal not later than 56 days after this decision is sent to that party but, in order to avoid the possibility of either parallel proceedings or a delay in the final resolution of the substantive appeal, I extend the time limit for appealing this decision until 56 days after the release of the decision of the First-tier Tribunal that determines the substantive appeal. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. GREG SINFIELD TRIBUNAL JUDGE RELEASE DATE: 24 SEPTEMBER 2015

Cited in 1 later judgment