[2010] UKFTT 594 (TC)

TC00844
Appeal reference: TC/2009/10209

VAT – exemption – did supplies of investment gold qualify for exemption given failure to meet requirements – no – appeal dismissed

FIRST-TIER TRIBUNAL
TAX

				                   LAL JEWELLERS LTD	Appellant

- and -

	THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: Lady Mitting (Judge)
		    Beverley Tanner (Member)

Sitting in public in Birmingham on 11 October 2010

Sandeep Kumar Rajput, director, for the Appellant

Bernard Haley, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT  2010
DECISION

1.	The Appellant appeals against an assessment to VAT dated 26 March 2008, covering the tax periods 03/05 to 09/07 inclusive and in the sum of £31,972.  The Appellant accepted liability for £136 representing disallowed input tax on motor fuel, leaving 331,836 in dispute.  The assessment was raised to give effect to the Commissioners’ decision that the Appellant’s supplies of investment gold did not qualify for exemption as the Appellant had not satisfied the legal requirements.  The issue before the tribunal was, therefore, whether the Appellant’s supply was exempt, as maintained by the Appellant, or standard-rated as maintained by the Commissioners.
2.	The company was represented by its sole director, Mr. Sandeep Rajput and the Commissioners by Mr. Bernard Haley.  Oral evidence was given on behalf of the Commissioners by the review officer Mrs. June Pledger.
The legislative structure
3.	Schedule 9, Group 15, Item 1 VAT Act 1994 exempts the supply of investment gold.  This is however subject to conditions.  Statutory Instrument 1995 number 2518, Regulation 31A(2a) provides that a person making such a supply shall “…issue an invoice in respect of the supply containing such details as may be specified in a notice published by the Commissioners for the purposes of this regulation”.  The effect of this paragraph is to give the force of law to the conditions laid down by the Commissioners by public notice.
4.	The Commissioners lay down their conditions in Public Notice 701 / 21 Gold.  Paragraph 6.4 provides that “each invoice must contain the following details if appropriate”.  The details to be included include, inter alia, the name and address of the seller; the name and address of the purchaser; the date of the invoice; the nature of the supply; a full description of the gold supplied; the number of items and the total amount payable.  Paragraph 7.1 addresses the records which a trader must keep.  The accounting records to be maintained include the invoice number and date; a customer reference number; the customer’s VAT registration number if applicable; the description of the gold; the name and address of the purchaser; and the transaction value.  The trader must also keep a customer record for each sale.  This record must allot each purchaser a unique reference number and must contain the purchaser’s name, date of birth and current address.  In respect of each customer, the trader must also obtain listed identification documents and the documents seen must be either copied or recorded.  There would also have been a requirement for the Appellant to have been registered as a gold dealer, which it was not.  However, Mrs. Pledger, in her evidence, told us that this was not a critical factor and had all other requirements been met she would have not denied exemption purely because of the failure to register.

The evidence
5.	The Appellant company began trading in October 2000, trading initially in supplies of gold, silver and jewellery.  In 2005 it started selling investment gold in ingot form to customers.  In October 2007, Mr. Steve Lapham, an assurance officer, carried out a routine control visit to the Appellant’s premises and an analysis of the business records revealed that the majority of the invoices supplied to customers did not meet the mandatory requirements and further that in the majority of cases, the necessary accounting and customer records had not been maintained.  Mr. Lapham inspected all the invoices for the relevant period, identified and excluded those where the requirements had been met but in relation to the remainder he concluded that as the requirements had not been complied with, the supplies could not be exempted but had to be standard-rated and he raised the necessary assessment, this being upheld on review by Mrs. Pledger.
6.	Mr. Rajput accepted the quantum of the assessment and accepted the deficiencies identified by Mr. Lapham in the transactions included in the assessment.
7.	Correspondence had taken place between the Appellant’s accountants and the Commissioners.  The accountants had maintained in a letter dated 10 February 2009 that their client was ignorant of the law and its requirements; that customers would refuse to give their identities for self protection and not wishing others to know of their affairs; that as there were no such stringent requirements in respect of jewellery sales there should not be for gold bullion sales and that as no input tax had been claimed upon the purchase of the gold bullion it was “unfair, unjust and unreasonable” to demand output tax on those sales.  These arguments were all answered fully and rejected by Mrs. Pledger in her letter of 13 March 2009.
Mr. Rajput’s evidence
8.	The first point which Mr. Rajput made was that some three or four years after his company had begun to trade, a compliance visit had been arranged but was then cancelled and it was not until October 2007 therefore that the first compliance visit took place.  It was Mr. Rajput’s contention that had the Commissioners visited him considerably earlier than they did, the deficiencies later identified would have shown up considerably earlier.  He would have taken immediate steps to remedy his trading practices; his supplies would therefore have qualified for exemption and he would not have been left with this large assessment.  Had he known at the outset what he had to do, he would have done what he now does, namely to make his sales dependent upon his customers supplying the requisite identification documents.  Mr. Lapham had given him abundant opportunity to rectify the deficiencies by obtaining retrospectively such information as he could.  However this had not proved possible in any of the transactions.  Some were merely recorded as cash sales where he had no record of the purchaser.  In others he approached the customer but for various reasons (normally that their immediate family were unaware of the purchase) the customers refused to comply with his request for identification.  Mr. Rajput also submitted that he was totally unaware of the legal requirements upon him.  He maintained that he had never received a copy of the public notice although Mr. Lapham believed that he had.  It was Mr. Rajput’s practice to pass on to his accountant all documentation and information received from the Commissioners and at the end of each quarter he passed on to them all his accounting records and they completed his returns, giving them to him only for signature.  If anyone was to blame therefore for the failure to keep proper records, it was his accountants for failing to advise him.  Finally Mr. Rajput maintained that his purchase of gold was exempt and he therefore saw no wrong in selling it as exempt.
Conclusions
9.	We have every sympathy with Mr. Rajput in the predicament in which he found himself but it is incumbent upon a trader to acquaint himself with the accounting and taxation obligations appertaining to his trade.  Every trader has certain legal responsibilities dependent on the type of business he is running, and ignorance of those responsibilities can be no excuse.  We cannot comment upon the relationship between Mr. Rajput and his accountants.  Whether or not they complied with their obligations depends entirely on the nature of their retainer and what was expected of them.  Whatever that may have been, the ultimate responsibility for meeting his liabilities remains with the Appellant.  We have no means of knowing whether or not the public notice was ever received.  It may well have been but passed unopened to the accountants – we do not know.  Again, however, Mr. Rajput’s responsibilities are not dependent upon him having received that notice.  The requirements to be met to qualify for exemption are mandatory, having the force of law.  They quite simply were not met and the sales cannot therefore qualify
10.	For these reasons the appeal must fail and the assessment should be upheld.
11.	Mr. Rajput outlined, and indeed provided documentary evidence of, the very precarious financial position in which his company now is.  He told us that it would be extremely difficult to pay the assessment.  It is beyond our remit to make any directions as to the method of payment, but we would urge Mr. Rajput and the Commissioners to try and agree a repayment schedule that both parties could accommodate.
12.	The appeal is dismissed.  There is no order for costs.
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.

LADY MITTING
JUDGE
Release Date: 24 November 2010