[2010] UKFTT 319 (TC)

TC00606

Appeal number:MAN/09/0161 
                                                                                               	                                                                                                                
Disallowance of input tax- ROI green diesel-false or invalid invoices-appeal dismissed.

FIRST-TIER TRIBUNAL

TAX 

                                     GARY DAVID DONALDSON	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (VAT)	Respondents

		TRIBUNAL: 	ELSIE GILLILAND (TRIBUNAL JUDGE)
                                                CELINE CORRIGAN (MEMBER)									

Sitting in public at Belfast Tribunals Unit 3rd Floor Bedford House 16-22 Bedford Street Belfast BT2 7DS on 19 May 2010

Joseph O’Keefe BL counsel instructed by Tiernans, solicitors, Newry for the Appellant

Kim Tilling of the Solicitors Office of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	The appeal heard by the tribunal was that of Gary David Donaldson (the Appellant) against assessment to value added tax (VAT) by the Revenue dated 25 November 2008 subsequently amended on review on 12 May 2009. The total amount of the original assessments was £19,578 and was in respect of 9 accounting periods ending 30.11.05 to 30.11.07. The total of the assessments was reduced to £17,206 on review by the exclusion of the period ending on 30.11.05 on the basis that the assessment for that period was out of time. Interest has also been assessed on the tax alleged to have been underpaid. Final written submissions and responses were directed at the end of the hearing and subsequently produced by the representatives of the parties.
2.	The assessments arise out of the disallowance by the Revenue of claims for input tax for fuel. The Appellant is a haulage contractor and carries on business under the name or style of Donaldson Haulage from premises at 49 Gowdystown Road  Banbridge. The Appellant was registered for VAT under number 827 7797 67.The bank account used for the business was in the joint names of the Appellant and his wife sometimes shown as trading as Donaldson Haulage sometimes merely in the joint names but the account number remained the same.. There is no dispute that the Appellant did purchase diesel fuel for his business. The Revenue case is that the fuel in question was either rebated diesel originating in the Republic of Ireland (ROI) and had been imported illegally into Northern Ireland without payment of duty (green diesel) and/or that the purchase invoices said to evidence the legitimate purchase of fuel from suppliers in Northern Ireland and the payment of tax were either false or invalid tax invoices and that no satisfactory evidence has been produced to establish that tax was paid on the purchases of fuel. The Appellant’s case is that he has at all times paid all VAT and duties on the fuel which he has purchased for his business and that the assessments are as he states in the Notice of Appeal “completely incorrect – the basis of the assessment is totally false. I do not owe this tax.”
3.	The Appellant came to the attention of the Revenue on 30 January 2008 when samples of fuel were taken from the Appellant’s lorry at his premises in Banbridge. The samples indicated that laundered rebated ROI green diesel containing kerosene had been put into the vehicle’s fuel tank. On this occasion the Appellant said to the Revenue’s officers that he purchased most of his fuel from the ROI. In his evidence to the tribunal the Appellant said that he had purchased fuel from 2 suppliers in the ROI, Castle Oil and CSE. The Appellant had a card for his purchases from CSE. In cross-examination he said that after the detection on 30 January 2008 of laundered green diesel in his lorry he had telephoned Castle Oil and CSE to complain that there was something wrong with their diesel. This they denied. At an interview on 9 October 2008 the Appellant said that he was not sure from which company he had purchased the fuel but that it was either Castle Oil or CSE. The Appellant’s evidence was that so far as he was concerned the fuel had been legitimate and that it looked like normal derv and that he had bought it in good faith. Laundered diesel can look the same colour as normal diesel. 
4.	The Appellant has not disputed that laundered green diesel was detected in his vehicle on 30 January 2008 and we accept that laundered green diesel was detected in the Appellant’s lorry by the Revenue’s officers. The Appellant has also given evidence that tests had been carried out on his vehicles on previous occasions but that no laundered or other illegitimate diesel fuel had been detected. It was not clear from the Appellant’s evidence precisely when those tests had been carried out nor whether only a visual inspection had been carried out when a vehicle had been stopped on previous occasions. However we accept the Appellant’s evidence that no laundered diesel had been found in the Appellant’s vehicles on previous occasions before 30 January 2008. That evidence has not been contradicted by any evidence from the Revenue although the Appellant had made this point at the interview on 9 October 2008.
5.	The discovery of laundered green diesel on 30 January 2008 led the Revenue to carry out a road fuel audit on the Appellant’s fuel usage. That audit was carried out by Linda Taggart, a Revenue officer concerned with investigations into the misuse of fuel. She had been a member of the Revenue’s audit team since 2003 and she is in our view an experienced officer. In the course of the audit the Appellant was requested to provide purchase invoices for fuel he had purchased. The Appellant supplied to the Revenue various invoices. They were not produced to the tribunal. These invoices appeared to show purchases from 8 different suppliers in Northern Ireland. The suppliers named on the invoices were Banbridge Fuel Services Limited, Banbridge Fuel Services, Banbridge Fuels, Finlay Fuels, Fuel Services, Kelly Fuels, Hayes Oils and Patterson Oils. Linda Taggart has given evidence that on receipt of the invoices she was concerned with the appearance of the invoices and that she considered that the invoices were not the same in format as she was used to dealing with from the suppliers. The Revenue keep copies of invoices of various suppliers for comparison purposes. The Revenue did not have had a copy of Banbridge Fuel Services Limited’s invoices against which the Appellant’s invoices could be compared as it was not a registered dealer in controlled oils (RDCO). Linda Taggart was concerned however that some of the Banbridge fuel invoices produced were typed while others had handwritten entries on them and varied in size. So far as the Fuel Services invoices were concerned, the colour of the logo on the invoices produced by the Appellant was blue instead of the normal purple and the layout was landscape instead of portrait.    
6.	 The invoices relating to Banbridge fuel produced by the Appellant and in the chronological schedule prepared by the Revenue show that purchases made before 1 September 2006 purported to be purchases from Banbridge Fuel Services Limited. From 1 September 2006 to 20 September 2007 invoices were listed from Banbridge Fuel Services. There were also 4 invoices in October 2006 from Banbridge Fuel Services Limited and 4 invoices in September 2007 in the name of Banbridge Fuels. The schedule also records invoices from the other suppliers during these periods.
7.	Because she had doubts over the genuineness of the invoices, Linda Taggart said that she herself visited Fuel Services to check the validity of the invoices apparently from that company. She was informed by Peter Graham, the company’s financial controller, and by Bett Ingram, its sales manager, that the invoices produced by the Appellant purporting to record purchases of fuel from Fuel Services had not been issued by Fuel Services and that the Appellant was not a customer of Fuel Services. Linda Taggart was present while they checked Fuel Services’s records. She was also told that the sequencing of the invoices was not that of Fuel Services and that the VAT numbers were incorrect. In her cross-examination it became clear that the VAT registration number on the Fuel Services invoices was not that of Fuel Services but was an old number of its parent company, DCC Energy. That number she said was “very old”. As a result of what she had been told on her visit to Fuel Services she asked colleagues to visit Hayes Fuels, Kelly Fuels, Patterson Oil and Finlay Oils. Her evidence was that they visited these companies and were told that none of those companies had made the supplies of fuel shown on the invoices bearing their names. So far as the Banbridge Fuel Services Ltd. was concerned it would appear that a VAT assurance visit had already been made to it and it was the evidence of Linda Taggart that she spoke to her colleague who had visited Banbridge Fuel Services Ltd. and that he had schedules of sales invoices by Banbridge Fuels. She was told by him that the Banbridge Fuels invoices produced by the Appellant were not listed on the schedules. The schedules were apparently compiled by Banbridge Fuels and then “uplifted” by the Revenue on the VAT assurance visit.    
8.	Linda Taggart informed the VAT section of the Revenue of her concerns over the invoices which the Appellant had produced and on 24 June 2008. George Bingham a higher officer of the Revenue dealing with VAT wrote to the Appellant saying that he intended to review the Appellant’s VAT records and that he would be writing to request additional information on the Appellant’s fuel purchases. On 5 August 2008 he wrote enclosing a schedule of the Appellant’s purchase invoices from the 8 suppliers and asked for further information to be supplied by 22 August 2008. A copy of the schedule is at pages 104 to 110 in the bundle. The information requested was: 1. Do you have alternative documentary evidence (e.g. a supplier’s statement)? 2. Do you have evidence of the receipt of the taxable supply on which VAT has been charged? 3. Please provide details of the delivery vehicle-if the fuel was delivered. 4. Do you have evidence of payment? If payment was by cheque please supply original returned cheques from you bank. 5. How was your relationship with these suppliers established? i.e. How was contact made? Do you know where the supplier operates from (have you been there)? How do you contact them? How do you return faulty supplies? No reply had been received from the Appellant and a reminder was sent to the Appellant. On 15 September 2008 10 copy cheques were received from the Appellant. Copies of the cheques are pages 88 to 97 in the bundle. None of the copy cheques is made out to any of the 8 suppliers named on the Appellant’s invoices.
9.	On 9 October 2008 the Appellant attended a formal interview under caution (the PN 160 interview) at his accountant’s offices. Linda Taggart and Breige Lavery were present on behalf of the Revenue. As well as the Appellant and the Revenue’s representatives, the Appellant’s accountant and the person who dealt with the Appellant’s VAT returns were also present. The interview lasted 2 hours. A typed transcript of the interview is at pages 53 to 57 of the bundle. The accuracy of the transcript has not been challenged.  
10.	 At the PN 160 interview the Appellant was first asked where the laundered green diesel detected on 30 January had come from and he replied that it had come from either Castle Oils or CSC Oils in the ROI but that he had purchased the fuel in good faith. He was then asked about his purchases of fuel in Northern Ireland and what were his fuelling arrangements. According to the transcript his reply was:”Reps came to my house selling fuel. They said they were from Pattersons. They were a couple of pence cheaper. A guy was round last week. They are quite convincing and have nice cars. Three or four different reps came from different companies”. He said he only knew some of the representatives by a first name and he referred to a Ciaran from Banbridge Fuels and a James and a Paul. He also said that people would phone him. The payment arrangements were that the representative would call round for payment. He would receive an invoice and he would pay by cheque with the name of the payee left blank. When he was asked at the interview what tankers the fuel had come in the Appellant said “a Banbridge Fuels tanker or a Pattersons tanker. He also mentioned a yellow tanker and a white tanker.
11.	In his evidence to the tribunal the Appellant said that he had purchased fuel in 3 different ways, from a fuel garage, from a pump or by delivery. His evidence was that he would buy fuel at the cheapest price and that the suppliers would usually contact him. He would get a discount if he paid on delivery or the next day. He never had any reason to question the amounts delivered and does not seem to have had any short deliveries. The purchases from Banbridge Fuels were made either at their pump on the street or at their Huntley Street premises which were about 5 or 6 miles away from his premises or by delivery to his premises where he had a fuel tank which would hold 2000 to 2500 litres. He said that he used 5000 to 15,000 litres of fuel a month depending on the time of year and the amount of business. All the small purchases from Banbridge fuels would he said have been made at their premises. The Appellant also said that he had checked on line each of the supplier’s VAT registration numbers and addresses although no record of the checks appears to have been kept and none has been produced. So far as the livery on the tankers was concerned, in addition to the liveries of Banbridge Fuels, Patterson Oils, the white and yellow tankers which he had mentioned at the PN 160 interview and which he said he stood by, the Appellant in cross-examination also said that he remembered seeing tankers with Hayes name on them.
12.	The crucial issue in this appeal in our view is whether the Appellant purchased the fuel described on the invoices from the suppliers named on the invoices which he has produced. There is no dispute that the invoices purport to record the charging of VAT and it was the Appellant’s own evidence at the end of his evidence in chief that he claimed credit for the input tax on the invoices. If the Appellant’s evidence is correct, the appeal must in principle succeed since he has purchased fuel from legitimate suppliers and paid VAT thereon. If on the other hand the Appellant did not purchase the fuel from the suppliers named on the invoices, the invoices will be false invoices and not be valid VAT invoices and the Appellant will not be entitled to credit for the input tax shown on the invoices.
13.	The evidence of the Appellant that the purchases purporting to be recorded in the invoices were genuine purchases from the named suppliers was not in our view credible. The Appellant has not provided any real explanation why he left the names of the payees blank on the cheques he used. He suggested that he had simply signed cheques in blank so that his wife could use the cheques to pay for items such as a child minder but it was clear from his evidence that in relation to purchases of fuel the Appellant as well as signing the cheques had also written in the amount to be paid. It is also apparent that the account on which the cheques were drawn was in the joint names of the Appellant and his wife and that joint signatures were not required. Indeed his wife signed the cheque for £203 dated 16 January 2007 which ended up being payable to Bed Factory although the Appellant said that this had been for fuel supplied by Banbridge Fuels on 16 January 2007 at a price of £238.77, the difference presumably being the discount for prompt payment. It is in our view very significant that the Appellant has not called any evidence from any of the named suppliers to confirm the validity of the purchases purported to be recorded by the invoices. 
14.	It was submitted on behalf of the Appellant that there was insufficient evidence upon which the Revenue could conclude that the invoices were false invoices but we do not accept that submission. There was in our opinion clear evidence before Linda Taggart to suggest that the invoices were not genuine. She herself visited Fuel Services and was present when responsible officials of that company checked its computer records and no trace of the Appellant as a customer was found. She was told by responsible officials that Fuel Services had not made the supplies on the invoices. Further inquiries from Hayes Fuels, Kelly Fuels, Patterson Oil and Finlay Fuels by her colleagues produced similar results. Although hearsay evidence, the Revenue were in our view entitled to conclude that there were doubts as to the validity of the invoices. Those doubts were in our opinion reinforced when the Appellant produced sample cheques none of which showed any of the suppliers as the payee. The explanation given by the Appellant that the payee’s name was left blank merely strengthens in our view the conclusion that the invoices did not record legitimate sales. In the ordinary way in our experience, an honest businessman will not over a period of over 3 years give cheques with the name of the supplier deliberately left blank to all the suppliers of a product essential for the carrying on of his business. The inference in the absence of any credible explanation to the contrary from the consistent giving of cheques with the name of the payee left blank is that a fraud or dishonest conduct of some kind is going on. Leaving the name of the payee blank assists in the concealment of the true nature of the transaction. We have no doubt having heard the evidence given by the Appellant that he was purchasing fuel from other than legitimate sources in Northern Ireland. While it may be the case that suppliers of fuel may employ agents or representatives to obtain sales, the picture which emerges from the evidence of the Appellant both at the PN 160 interview and at the hearing is that he was prepared to and did purchase his fuel from the cheapest source whatever that might be. The Appellant had only the sketchiest knowledge of the representatives who called upon him and seems to have had merely a mobile telephone number to contact anyone. The invoices were provided by the representatives who called upon him and there is no evidence whatsoever that any of the named on the invoices ever sent him an invoice or that he was recorded on their records as a customer.
15.	We have already said that the Revenue were on the information available to them in our view entitled to conclude that the invoices were false invoices. It was submitted that George Bingham who was the officer who actually made the assessment was not entitled to reach the conclusion that there had been an underpayment of VAT because he had not actually examined the Appellant’s VAT returns. We reject that submission. There is no dispute that the Appellant did rely upon the invoices referred to in order to claim a credit for the input tax shown on the invoices. That the invoices were open to question was clear from the fact that the matter had been referred to George Bingham and the provision of the sample cheques can only have confirmed the view that input tax may have been improperly claimed. There was to our mind sufficient evidence before the officer to justify the disallowance of the Appellant’s claims for credit for the input tax shown on the invoices. It is also to be noted that the burden of proof once a valid assessment has been made is upon the Appellant to show that the assessment is incorrect. The Appellant has in our view wholly failed to show that the Revenue were incorrect in disallowing the input tax shown on the invoices in question. We are satisfied and find that the invoices produced by the Appellant do not record legitimate purchases of fuel from the suppliers named on the invoices. We are satisfied that the Appellant was fully aware that the invoices were false. The Revenue decision was made to best judgment. The appeal is accordingly dismissed.                           
16.	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 pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

ELSIE GILLILAND

TRIBUNAL JUDGE
RELEASE DATE: 27 July 2010