INPUT TAX - refusal of claim -Appellant made no taxable supplies - whether supplies to the Appellant used or to be used for the purpose of a business carried on or to be carried on by him - no - alternatively whether Appellant held VAT invoices or other documentary evidence to support his claim - no - appeal dismissed - VATA 1994 S24(1) and 25; VAT Regulations 1995 SI 1995 No. 2518 Reg 29(2)(a)

LONDON TRIBUNAL CENTRE

PRITAM KAPUR
Appellant

 - and -   	

THE COMMISSIONERS OF CUSTOMS AND EXCISE
Respondents

Tribunal: DR NUALA BRICE (Chairman)
 MRS R S JOHNSON

Sitting in London on 16 May 2003

There was no appearance by or on behalf of the Appellant

David Bettoney, Advocate in the Office of the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

The appeal

1.	Mr Pritam Kapur (the Appellant) appeals against an assessment dated 19 June 2002 for tax of £1,259 with interest of £102.13 making a total amount assessed of £1,361.13. The assessment was made to disallow claims for input tax made in the seven consecutive accounting periods from that ending on 31 October 1999 to that ending on 30 April 2001. 

2.	The claims for input tax were disallowed for two reasons. First, because Customs and Excise were of the view that the goods or services supplied to the Appellant were not used for the purposes of any business carried on, or to be carried on, by him. And, alternatively, because the Appellant did not hold relevant tax invoices from his suppliers or other documentary evidence of the supplies made to him.

The legislation

3.	The legislation about input tax is contained in sections 24, 25 and 26 of the Value Added Tax Act 1994.

4.	Section 24(1) defines input tax as tax on the supply to a taxable person of goods or services used or to be used for the purpose of any business carried on or to be carried on by him.   

5.	Section 25(2) provides that, subject to the other provisions of the section, a taxable person is entitled to credit for input tax and to deduct that amount from any output tax due from him. Section 25(3) provides that, if no output tax is due, the amount of the credit shall be paid to the taxable person by Customs and Excise. Section 25(6) provides that a deduction under section 25(2), or a payment under section 25(3), shall not be made except on a claim made as provided by or under regulations. Section 25(6) also provides that, where a person has made no taxable supplies in the period concerned, or any previous period, payment of credit shall be made subject to such conditions (if any) as Customs and Excise see fit to impose.

6.	The regulations made under the provisions of section 25(6) are the Value Added Tax Regulations 1995 SI 1995 No 2518. Regulation 13 provides that, where a registered person makes a taxable supply to a taxable person, he is obliged to provide that person with a VAT invoice. Regulation 29(1) provides that claims for deduction of input tax shall be made on a return. Regulation 29(2)(a) provides that a person claiming a deduction shall hold a VAT invoice unless Customs and Excise direct that the claimant shall hold other documentary evidence. Regulation 31 provides that every taxable person shall keep VAT records including all VAT invoices received by him. 

The issues

7.	The Appellant claimed input tax in seven returns but made no taxable supplies. In his application for the cancellation of his registration he stated that he had never traded. Further, he was unable to produce tax invoices which corresponded with his claims for input tax. 

8.	Thus the issues for determination in the appeal were whether the input tax claimed was used or to be used for the purposes of a business carried on or to be carried on by the Appellant within the meaning of section 24 and whether the Appellant held VAT invoices or other documentary evidence to support his claims for input tax within the meaning of regulation 29(2)(a).
     
Appeal heard in absence of the Appellant

9.	The Notice of Appeal was received in July 2002 and the statement of case was served on 8 October 2002. On 9 October 2002 the parties were asked for their dates to avoid for the hearing of the appeal. The Appellant did not reply and he was sent a reminder on 13 November 2002. Again he did not reply and a further letter was sent on 8 December 2002. Again no reply was received and a further letter was sent on 7 January 2003. On 10 January 2003 the Appellant returned the letter of 8 December 2002 endorsed with the message: "I did reply previously; please avoid school breaks during Feb to May 2003."

10.	On 4 February 2003 the parties were notified that the appeal would be heard on 28 March 2003. The Appellant wrote a letter to the tribunal centre, which letter was received on 19 February 2003, to say that due to ill health he could not attend on 28 February 2003. He sent a medical certificate dated 17 February to say that he should refrain from work for two weeks and he asked for future dates. The tribunal centre telephoned him to say that the hearing was fixed for 28 March and not 28 February. On 27 March the Appellant wrote to say that he was unable to attend on 28 March and sent another medical certificate dated 27 March saying that he should refrain from work for a week. The hearing fixed for 28 March was therefore postponed.

11.	On 15 April 2003 the parties were informed that the appeal would be heard on 16 May. The Appellant wrote a letter, which was received on 12 May, to say that he could not attend. He sent a medical certificate dated 9 May saying that he should refrain from work for two weeks. The letter did not ask for future dates and concluded with the words "please excuse".   

12.	We took this as indicating that the Appellant would be content for us to hear the appeal in his absence. Accordingly we did hear the appeal in the absence of the Appellant under Rule 26(2) in the knowledge that when he received our Decision he could apply to have it set aside. 

The evidence

13.	A bundle of documents was produced by Customs and Excise. Oral evidence was given on behalf of Customs and Excise by Mr James Andrew Harris, an Officer of Customs and Excise.

The facts

14.	From the evidence before us we find the following facts.

15.	The Appellant lives in Rickmansworth, Hertfordshire. 

16.	On 30 August 1999 the Appellant completed Form VAT 1, the application for registration. In completing the form the Appellant stated that he intended to start trading on 1 September 1999. He estimated that his annual taxable turnover would be £200,000. His proposed business was as an importer and wholesaler of men's clothing, shirts and trousers etc. His business address was stated to be Suite 6A, Morley House, 32, Regent Street, London W1R 5AB. A bank account number was stated by the Appellant. The Appellant was registered from 3 September 1999.

17.	 The Appellant then submitted a series of value added tax returns on which amounts of input tax were claimed but on which no output tax was declared. The first return for the period ending on 31 January 2000 was endorsed with the message: "Please send cheque to 19, Azalea Walk, Pinner - bank account closed". The Appellant wrote to Customs and Excise, in a letter which they received on 14 April 2000, confirming his change of address to 19, Azalea Walk and asking for cheques for the repayments  to be sent to him there.  

18.	On 21 September 2001 the Appellant wrote to Customs and Excise to say that he had ceased to trade and had never traded. He completed Form VAT 7 (application to cancel registration) which also stated that he had never traded. The registration was cancelled with effect from 10 October 2001. 

19.	In evidence which we accept Mr Harris told us that the Appellant had been a director of three other companies which either did not trade or whose registrations were cancelled without any supplies having been made. These companies did not have bank accounts and had not prepared annual accounts. Mr Harris wrote to the Appellant on 22 February 2002 to say that he would visit him on 21 March and asked him to ensure that his business records, including purchase invoices, for the last three years were available for inspection.   

20.	On 21 March 2002 Mr Harris visited the Appellant at his address in Rickmansworth; that address was the Appellant's residence. When speaking to Mr Harris the Appellant did not supply details of his occupation except that he said he worked as a consultant. He had no records of his income. He said that he was paid in cash and was living on borrowed money. He also said that he was, or had been, involved in various other business ventures which had been registered but which had not made supplies. 

21.	At the visit Mr Harries established that the Appellant had made no taxable supplies. The Appellant said that he had intended to sell ladies' clothing and had some samples which he had presented to retailers but had made no sales. However, he was not able to produce any samples to Mr Harris and neither could he give the names of the suppliers who had provided the samples. He had not purchased any goods for re-supply. 

22.	Mr Harris examined the Appellant's records which included a list of the amounts of input tax in respect of expenses but which did not state what supplies the amounts related to. The total of the input tax corresponded with the amounts claimed on the value added tax returns. There was "a handful" of invoices for petrol, home telephone and car repairs but the amounts shown on these invoices did not correspond with any of the amounts shown on the list. There was no indication that the Appellant had tried to apportion the expenses between his business on the one hand and his private consumption on the other. 

23.	Mr Harris gave the Appellant a couple of weeks in which to obtain and supply copies of the invoices to support the claims for input tax and also to provide information about his business. The Appellant did not respond. On 19 June 2002 Mr Harris made the assessment which is the subject of the appeal.

24.	The Appellant asked for the assessment to be reconsidered and this was done. Customs and Excise wrote to the Appellant on 27 June 2002 to say that the assessment would stand because there was no evidence that the Appellant had made any taxable supplies and he had produced no invoices or documentary evidence to support his claim. 

The arguments for the Appellant

25.	In the absence of the Appellant we read his Notice of Appeal which set out his grounds of appeal as:

	"I was going to start a business in selling clothing; the business did not take off. I had incurred expenses and I claimed refund and the amounts were refunded to me for the periods. I had to do a lot of running around in the car and telephone for research. The refund was for mainly tax on petrol and telephone bills. All businesses have a research period." 
  
26.	In a subsequent letter written to the tribunal centre on 1 August 2002 the Appellant repeated his grounds of appeal and added that he was unemployed and could not afford to pay the assessment. 

The arguments for Customs and Excise

27.	For Customs and Excise Mr Bettoney argued that the Appellant had not satisfied Customs and Excise that the supplies in respect of which input tax had been claimed had been used for the purposes of his business; there was no evidence of any supplies or any intended supplies. Further, there had been no indication as to how the input tax had been calculated as the invoices which had been produced did not correspond to the claims for input tax.

Reasons for decision

28.	The first issue for determination in the appeal is whether the input tax claimed was used for the purposes of a business carried on or to be carried on by the Appellant within the meaning of section 24. 

29.	Here it is relevant that the Appellant never made any taxable supplies and when he applied for his registration to be cancelled he stated that he had never traded. However, he would still be entitled to claim input tax if the supplies to him were to be used for the purpose of a business intended to be carried on by him. In this appeal the burden of proof is on the Appellant to satisfy us, on the balance of probabilities, that the supplies in respect of which he claimed input tax were to be used for the purposes of a business to be carried on by him. On the evidence before us we are not so satisfied. The Appellant should have been able to show samples to Mr Harris and to give him details of the suppliers whose samples he obtained and of the retailers he visited but was unable to do so.  
 
30.	The second issue is whether the Appellant held VAT invoices or other documentary evidence to support his claims for input tax. The Appellant failed to produce evidence to satisfy Mr Harris and no such evidence was produced to the Tribunal. We also note that section 25(6) provides that, where a person has made no taxable supplies, payment of input tax credit shall be made subject to such conditions as Customs and Excise see fit to impose. In this appeal the Appellant made no taxable supplies and in our view it was eminently reasonable for Mr Harris to require the evidence and information which the Appellant failed to supply.31.	For these reasons the appeal is dismissed. 					DR A N BRICE						CHAIRMAN					RELEASE DATE:LON/2002/073907.07.03