[2009] UKFTT 105 (TC)
TC00073

VAT – import tax – repayment claim said to be based on Appellant having purchased computer system and software relating to bank charge recovery system – whether supply took place at all – on evidence no – appeal dismissed 

FIRST-TIER TRIBUNAL (TAX CHAMBER)

JUSTRADING LIMITED	Appellant

- and -

THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	David Demack (Judge)

Sitting in public in Manchester

Mr. Abbass Ahmed Khan, director, for the Appellant

Mr. Jonathan Cannan of counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2009
DECISION

1.	In this case, the appellant, Justrading Ltd (“Justrading”), appeals against a decision of the Commissioners for Her Majesty’s Revenue and Customs (“HMRC”) by letter of 8 August 2008 rejecting its input tax repayment claim for period 07/07 in the sum of £17,664.69. In relation to £17,325 part of that claim, HMRC refused it on the basis that Justrading did not hold satisfactory evidence to support the deduction. Since, they have additionally alleged that the transaction, the basis of the claim, did not take place at all.
2.	As to the remaining £339.69, by letter of 11 February 2008 Justrading’s accountants, Messrs Chugtai & Co, confirmed to HMRC that the sum concerned should be reduced to £106.14, that sum representing motor expenses and stationery. Justrading was then invited to provide invoices in support of the claim, but failed to do so. As no invoices were produced to me, I dismiss Justrading’s claim for £106.14 input tax.
3.	In relation to the major part of the claim, Justrading gave notice of appeal on 15 September 2008, Mr Abbas Ahmed Khan, its sole director, giving its reason for appealing as:
 “I have bought goods worth £116,325 from Delstone Services Ltd [“Delstone”]. I have to date paid £50,000 and Delstone have a signed credit agreement from me for the outstanding balance. I have provided HMRC with all the paperwork when they have asked for it. Yet they are still fault finding and will not come out with a valid reason for holding back any payment. This is now having a detrimental effect on my business.”
4.	Before me, Mr Khan appeared to represent Justrading. He gave evidence on its behalf and produced a statement from Delstone which purported to show that the consideration for the transaction referred to in the notice of appeal was £99,000 plus VAT of £17,325. Mr Jonathan Cannan of counsel appeared for HMRC and produced what amounted to an agreed bundle of copy documents. He also called the case officer, Mr A J Aitchison. From the evidence so adduced, I make the following findings of fact.
5.	Justrading registered for VAT on 7 April 2007, describing its trading activities in Form VAT 1 as “Data, information guides and booklets, consultancy”. The company trades from the same premises as Yaadain Ltd (“Yaadain”), of which Mr Khan is also sole director.
6.	The background to Justrading’s input tax claim was explained by Mr Khan in the following way. In 2007 he said he became aware that the banks were facing claims from customers who alleged that they had been unlawfully overcharged for services, e.g. unauthorised overdrafts, and the overcharges had been debited to their accounts. He thought that Justrading might be able to take commercial advantage of the situation by offering a claims service to such customers. Consequently, he decided to purchase from Delstone a bank charge recovery system and the computer equipment necessary to operate it.
7.	On 9 April 2007 Justrading entered into a written agreement entitled “Bank charge recovery 3 year licence” with Delstone. Its terms and conditions are set out in their entirety in the Schedule to my decision. A number of licence terms, not least the consideration, are absent. Mr Khan claimed that contemporaneously with the licence he entered into an oral agreement with Delstone for the purchase of “recovery templates, legal contracts/court bundles, [computer] system, software and database, support and maintenance”. He said the price agreed for the whole package of goods and services was £99,000 plus VAT of £17,325; a deposit of £10,000 was to be paid in cash, and the balance by three equal annual instalments.
8.	Amongst the documents Justrading supplied to HMRC was an invoice numbered 545 from Delstone confirming the total price of the package as £116,325. Justrading also provided Delstone invoice 544, which was identical to that numbered 545 except for its number.  Which of the two invoices was intended to be the tax invoice for the transaction in question was not explained to me: Mr. Khan claimed it was invoice 545.
9.	Delstone failed to account to HMRC for the output tax charged on invoice 545 or on 544 in its accounting period 05/07, and the company was de-registered for VAT on 16 October 2007.
10.	Mr Khan explained that Justrading did not have the funds to pay the deposit of £10,000 to Delstone and so borrowed them from Yaadain. In a statement produced by Mr Khan from Delstone, dated 30 June 2008, two payments are shown as having been made by Justrading in 2007, one on 26 April of £10,000, and the other on 24 July 2007 of £20,000. (The statement also shows payments totalling £20,000 as having been made in May 2008).
11.	Bank statements for Yaadain from Lloyds Bank TSB show a cheque for £8000 having been encashed on 26 April 2007, and £20,000 having been withdrawn from its account in cash on 24 July 2007. Mr Khan claimed that all the cash withdrawals were paid to  Mr Iqbal, the director of Delstone. Mr Khan also claimed that the remaining £2,000 of the deposit due to Delstone was paid in cash out of Justrading’s own petty cash to Mr Iqbal in April 2007. (If that had been true, and the loans from Yaadain were interest free as claimed, there would have been no necessity for Justrading to repay Yaadain £10,000 in respect of the deposit paid in April 2007, as Mr Khan insisted had happened).
12.	By letter of 3 October 2007 Justrading was informed by HMRC that its input tax claim for period 07/07 would be subjected to extended verification. The company was later informed that its claim was rejected.
13.	Mr. Khan claimed that on a date unknown Justrading “sold” four computers provided by Delstone as part of the transaction at [7] above to Ex Electronics Ltd “for 4 second hand laptops and £200 cash”. Assuming those transactions took place Justrading failed to return details of them in its VAT returns. 
14.	Again assuming that Justrading purchased the recovery licence and equipment to operate the claims system from Delstone, it quickly found that it was unable to use it for the banks took legal proceedings claiming that their charges were lawful and fair. Since then both the High Court and the Court of Appeal have held that not to be the case, and a further appeal by the banks is due to be heard by the House of Lords in June next. Until the issue is finally resolved Justrading will be unable to process claims on behalf of its clients. Notwithstanding that problem, Mr Khan maintains that his purchase of the licence and equipment “was a good buy” as he was provided with the names and addresses of “hundreds of thousands” of people which will be useful for all sorts of purposes. Consequently, he claims to be prepared to pay the balance due to Delstone.
15.	Amongst the copy documents produced to me was that of the Delstone website. It contains mention of a number of people said to be employees of the company, but Mr Iqbal, its director, is not referred to at all.
16.	For the benefit of Mr Khan I should explain that European law and the Value Added Tax Act 1994 provide that the VAT paid by a registered trader on a supply of goods or services may be recovered as input tax provided the goods or services forming the subject matter of the transaction have been delivered or performed, and he holds a valid invoice, or its equivalent, in respect of the deduction claimed at the time of making the claim. The Court of Justice of the European Communities has held  that “… the invoice must state clearly the price exclusive of tax and the corresponding tax at each rate as well as any exemptions … and the Member States are to determine the criteria for considering whether a document serves as an invoice …”: see Joined Cases 123/87 and 330/87 Léa Jorion, née Jeunehomme, and Société anonyme d’étude et de gestion immobiliére ‘EBGI’ v Belgian State [1988] ECR 4517.  Further, it is settled law that the mere fact that a trader holds documents in respect of purchases purporting to be VAT invoices does not, of itself, give any right to deduction or refund where no underlying supply has taken place: see Case 342/87 Genius Holding BV v Staatssecretaris van Financien [1991] STC 239 at 250 and Customs and Excise Commissioners v Pennystar Ltd  [1996] STC 163 at 165f.
17.	In Mr Cannan’s submission there were in the instant case clear reasons to doubt the genuineness of the transactions said to be the subject of invoice 545. Did Justrading get something of real value?  The agreement put in place was wholly vague and inadequate; the payment record was unreliable and incomprehensible. Cash payments were made; the earlier ones were receipted, the later ones were not. It was quite impossible to say from Mr Khan’s evidence when payment was supposed to have been made. The licence agreement was inconsistent with what Mr Khan said took place. Delstone failed to account for output tax on the supply and was subsequently de-registered. Mr Cannan contended that against that background there was a “cloud of suspicion” as to whether the transactions took place at all. The Delstone website contained no mention of Mr Iqbal, and without his evidence I could not be satisfied that the supply took place. HMRC did not expect to find perfect audit trails in all cases, but they did expect the evidence produced to support a supply to be adequate. Mr Khan’s evidence, far from confirming that the supply took place, only served to confuse the situation. It was for Mr Khan to satisfy me that the supply took place, and, on the evidence, Mr Cannan submitted that it did not do so.
18.	In response, Mr Khan maintained that the claimed supply did take place; HMRC were “nitpicking”. He admitted that there were errors, but claimed that sometimes it was impossible to “stick to the arrangements”.
19.	It is for Justrading to satisfy me on the balance of probabilities, ie that it was more likely than not, that the supply on which Justrading bases its input tax claim took place. On the evidence it has failed to do so.  Consequently, the fact that it holds what Mr Khan submits is a valid VAT invoice avails it nothing. I adopt Mr Cannan’s submissions in their entirety, and dismiss the appeal.
MAN/2008/1225

DAVID DEMACK
JUDGE
Release Date: 18 May 2009 

The Schedule
Agreement to the Company’s Terms and Conditions of Sale
As consideration for the advancement of credit, agree to the following terms and conditions and sign below;
•	Delstone Services Ltd will provide you with a Bank charge recovery 3 year licence which will include Recovery templates, Legal contracts and Court Bundles.  4 Computer systems, software and databases.  3 years of unlimited support and maintenance, Software, databases and templates will be updated regularly.
•	You are bound by all terms and conditions contained in this application and in the due diligence pack.
•	Seller may at anytime without notice cancel all credit available to buyer and refuse to make any further credit advances.  In the event seller determines the information contained on this credit application is false or misleading, or if the seller received other false or misleading information from buyer of any kid or nature, seller may without notice cancel any orders in house or cancel any deliveries in progress to buyer.  An y false or misleading information by the buyer shall be construed as a material default and any invoices outstanding shall be immediately due and payable in full.
•	Delstone Services Ltd require you to pay 10% deposit within 7 days of the date of the invoice, a further 15% within 3 months of the date of the invoice and the outstanding balance as per the credit agreement (maximum of 3 years of date of invoice).
•	Delstone Services Ltd allows a maximum of 3 years credit, the account is payable within 3 years of the date of the invoice unless other terms have been agreed.
•	To pay all costs and legal fees incurred by seller in relation to the interpretation or enforcement of any or all of our obligations hereunder, whether or not a suit is filed.
•	This agreement is entered into and is to be performed in the United Kingdom.
•	The undersigned warrants and represents to seller that the business entity we represent is solvent and is able to pay our obligations as they become due.  The business entity we represent will not place any order with seller unless it reasonably believes that it will be solvent and is able to pay its obligations as they become due at the expected time of shipment.
•	The seller may use this agreement with any bank or other kind of financial institution for the purpose of obtaining all personal and business financial information or any kind or nature in the name of us, and / or the entity we represent.
•	By Delstone Services Ltd authorising 3 year credit facility, you also hereby agree to offer the same credit facilities to Delstone Services Ltd.
•	I have read and understood Delstone Services Ltd Terms and conditions for the supply of goods and service and agree to abide by them
•	I confirm acceptance of Delstone Services Ltd payment terms