VAT – application to strike out appeal – whether letter in respect of which appeal made amounted to a decision – basis on which application should be granted

LONDON TRIBUNAL CENTRE

	F OPTIONS LTD	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

			Tribunal:	JOHN CLARK (Chairman)

Sitting in private in London on 22 January 2004

Mrs Sally Saltissi of Byrne and Partners, Solicitors, for the Appellant

Mr Geoff Tack of the Solicitor’s Office, HM Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

REASONS FOR DIRECTION

1.	On 26 January 2004, following the Commissioners’ application considered at the hearing, the Tribunal released a Direction striking out the Appellant’s appeal in accordance with Rule 18(1)(a) of the Value Added Tax Tribunals Rules 1986. When the Tribunal indicated at the hearing that it proposed to make this direction, Mrs Saltissi requested the Tribunal to set out its reasons for doing so.
The facts

2.	So far as is necessary, I find the following facts for the purposes only of this application. The Appellant applied for registration in February 2003, stating its business to be “cellular communications sales”. On 24 July 2003 Mr Saunders of the Appellant asked the Commissioners to verify a Danish VAT number to be verified. The company concerned was Solid Trading APS. In providing verification, the Commissioners gave a standard disclaimer. On 5 August 2003 Mr Saunders sent a fax to the Commissioners stating that the Appellant would be exporting regularly. On 14 August 2003, Mr Saunders telephoned the Commissioners about a claim for the repayment of £234,774.94, and was told that it was being queried. On 18 August 2003, Mr Wilson, an officer of the Commissioners, visited the Appellant’s premises. On 22 August 2003 Mr Wilson wrote to Mr Saunders setting out a number of concerns relating to the credibility of the repayment claim and stating that it would not be paid unless the issues were addressed. Mr Saunders wrote to Mr Wilson on 1 on 1 September 2003 setting out responses to the points raised. Mr Wilson replied on 8 September 2003. He denied having given any inference during his visit that the claim was about to be paid. He set out a number of points arising from the information provided in Mr Saunders’ letter, and asked for the Appellant’s views in writing on the matters raised. On 30 September 2003 the Appellant gave Notice of Appeal, lodged on 8 October 2003. This was against the refusal to pay input tax, and specified the disputed decision as having been issued on 8 September 2003. Mr Wilson’s letter dated 30 September 2003 was therefore written without knowledge of the appeal; he referred to the need to establish the veracity of the repayment claim, and said that the Commissioners were entitled to withhold repayment of any claims until their enquiries were completed. He referred to lines of enquiry that the commissioners were following in relation to the “Platinum XXX cards” with which the Appellant was dealing in its business. One purpose of the enquiries was to see whether examination of the transaction chains revealed evidence that they were devoid of economic substance and therefore outside the scope of VAT. He acknowledged that he had already asked some of the questions in his previous letter. He asked for answers to any questions raised in that letter that had not been repeated in the present letter.
Arguments for the Commissioners

3.	Mr Tack argued that the Commissioners’ letter dated 8 September 2003 did not constitute a decision. He referred to the concept of carousel fraud or “missing trader” fraud. The cards dealt in by the Appellant purportedly retailed for between £30 and £50. The client was in Denmark, and the web site to which the cards were to give access was in the Czech Republic. It was therefore necessary for the Commissioners to make and complete enquiries in Denmark. The Commissioners suspected that the cards were sold in sequence through “buffers”, and that the money went round in a circle, making no economic sense unless there was a VAT repayment. This was the state of the Commissioners’ knowledge so far, and enquiries were still being pursued.
4.	He referred to sections 83 and 84 Value Added Tax Act 1994. The Commissioners’ view was that there was no jurisdiction; the lodging of the appeal was premature, as the Commissioners were still verifying the claim. He questioned which heading in section 83 would apply. Section 83(c) presupposed that the Commissioners had made a decision. The letters were letters of enquiry. It would be senseless for the Tribunal to consider the matter without the outcome of the Commissioners’ enquiries. It would lead to an adjournment, with wasted effort and costs. He compared the Tribunals’ decisions in Tricell UK Limited (VAT Decision No. 18127) and Evolink Limited (VAT Decision No. 18207). The former had been on developing law, but by the time of the latter, the legal position in relation to carousel frauds had been established in Bond House v Customs and Excise Commissioners (VAT Decision No. 18100). In Evolink the Commissioners had still been determining the facts, and the Tribunal struck out the appeal, as it related only to an issue of fact. In the present case, the Appellant might claim that it was in an invidious position, but Mr Tack maintained that it was for the trader to make sure that its transactions were “bomb proof” as far as the Commissioners were concerned. If traders in this position suffered cash flow difficulties, they could apply to the Administrative Court, where financing was not a bar. He argued that the present position was contemplated by the legislation; sections 78 and 79 Value Added Tax Act 1994 provided statutory interest and repayment supplement, recognising that this situation could occur. In relation to human rights, he referred to the qualification to Article 1 of Protocol 1 to the Convention, concerning the right of a state to enforce laws to secure the payment of taxes. The Commissioners considered it inappropriate to repay in these circumstances; it would lead to a haemorrhage of taxes. So far as the right to a fair trial under Article 6 of the Convention was concerned, Mr Tack argued that remedies were available in other jurisdictions, or the alternative remedies of statutory interest and repayment supplement within the Tribunal.
Arguments for the Appellant

5.	Mrs Saltissi appreciated that Mr Tack was trying to get up to date with the Commissioners’ enquiries. She considered the position to be straightforward. She referred to the Commissioners’ practice of verifying non-UK VAT numbers, but questioned how a trader could make the position “bomb proof”. Was the answer not to trade outwith the UK? The Appellant had made what enquiries were possible, and had responded to the Commissioners’ letters by providing answers to the points raised. In giving the information in its letter dated 1 September 2003 the Appellant had made what checks were possible. Having put in a large repayment claim, it wanted to know whether this would be repaid, or refused. She acknowledged the existence of the Commissioners’ “Missing Trader” teams to try and tackle frauds. However, it was now 6 months since the claim, and she maintained that each day of the delay amounted to a decision that no amount was to be repaid. The Tribunal was the appropriate forum for this matter. She accepted that a remedy could be sought elsewhere, but this would involve a two stage process in the Administrative Court, where she maintained that the relevant specialist expertise would not be available. Experience had shown that in such circumstances the Commissioners would very quickly make a decision, leading to the court telling the parties that they should be at the Tribunal. This was an invidious position.
6.	Mrs Saltissi referred to the chronology of the matter. The appeal had been lodged on 8 October 2003. The substitution of the strike-out application had been notified on 3 December 2003 for a hearing listed for 5 December 2003. She referred to Rule 6 of the Tribunals Rules. The Appellant had been disadvantaged since the end of August, although Mrs Saltissi accepted the need for time to verify the claim. The Appellant had done what it could to alert the Commissioners to the parties with which it was dealing. She argued that the only people with the full picture were the Commissioners, who ought to give the matter some urgency. The Appellant had answered all the questions put. She had provided information on the Appellant’s behalf in her fax to Mr Wilson dated 20 October 2003, in which she had said that the Appellant remained willing to give whatever assistance it could regarding the questions posed.
7.	Mrs Saltissi referred to the Commissioners’ argument in Bond House and in Optigen Limited (VAT Decision No. 18113) that the amount claimed was not VAT. Yet the Commissioners refused to pay back money accounted for as VAT; there was no suggestion of them paying it back as being “non-VAT”. In Evolink the point had been an entirely different one. The Commissioners were prepared to repay the sum on a without prejudice basis, and were not running the argument about law on carousel frauds. Optigen, in which the Chairman had been surprised at the conclusion to which he had been drawn, was the subject of an agreed reference to the European Court. Mrs Saltissi argued that the decision in Tricell was rather closer to that of the Appellant in the present case. She referred to the citation at paragraph 8 of that decision of a passage from Colaingrove v Customs and Excise Commissioners (VAT Decision No. 16981), in which the Chairman had said that total silence in response to a repayment claim must constitute a refusal, and that equally, repeated refusals to give a straight answer would amount to a refusal. She referred to the “schizophrenic approach” of the Commissioners, in that when prosecuting, they maintained that the money in question was not VAT. She cited R v Anwar (No. T20021003) in which the indictment had been quashed on the basis that VAT had not been shown to be due.
8.	She contended that there must be some time at which the Commissioners had to accept that they had made a decision. She argued that there was a continuing decision not to repay the input tax. This was a sufficient determination. It could not have been the intention that the system could thwart an appellant’s right to be heard. The Commissioners were saying that there had been no decision, yet a review officer had been appointed. She referred to Article 1 of Protocol 1 to the Convention and to the rights of the Appellant.
Conclusions

9.	I acknowledge the comments in Colaingrove referred to by Mrs Saltissi. To take them into account requires an examination of the correspondence and course of dealing between the trader and the Commissioners, in order to determine whether the Commissioners have been silent or have repeatedly refused to give a straight answer. In the Appellant’s case the correspondence amounts to no more in my view than an exploration of the Appellant’s position by means of a series of questions. The Appellant has provided at least partial answers to some of these questions, but it is clear from the correspondence that the Commissioners’ enquiries were continuing, and that at the time when the Notice of Appeal was served, these enquiries were not at a very advanced stage. I can see nothing in any of the correspondence that could be taken as a decision by the Commissioners in relation to the repayment claim; in particular, the letter dated 8 September 2003 did not in my view contain any decision. I do not accept that anything after that letter can be construed as a continuing refusal to repay the input tax. In any event I consider that in the context of this appeal it can only be correct to consider the correspondence up to the time when the Notice of Appeal was lodged. By that stage there had been only limited correspondence.
10.	Mr Tack contended that the position was covered by Rule 18(1)(a) of the Value Added Tax Tribunals Rules 1986. This follows if the letter in respect of which the appeal was made can be described as a “disputed decision”. I have accepted this basis for dealing with the matter, even though I do not regard the letter under appeal as amounting to a decision. If the proper view were to be that, despite the contentions for the Appellant to the contrary, there was no “disputed decision”, the appropriate way of dealing with the matter would be under Rule 18(1)(b). Where this applies, the Tribunal is required to dismiss an appeal where it cannot be entertained by a tribunal. I conclude that the appropriate basis on which to deal with the matter is to treat the Commissioners’ letter dated 8 September 2003 as an alleged decision and so a “disputed decision” and to strike out the appeal pursuant to Rule 18(1)(a).
11.	Mrs Saltissi argued that in accordance with Rule 6, the Commissioners should have given earlier notice of the application. It appears from the Tribunal file that until December 2003, other matters were being considered in relation to the appeal, and that the question of an application to strike out the appeal was not raised until very shortly before an applications hearing listed for 5 December 2003, two days after Mr Tack had been asked to look at the file. Although this was a late stage at which to raise the question, I do not think that doing so amounted to a failure to comply with Rule 6. It would not have been reasonable to deal with the matter at the hearing proposed for December; the result of setting 22 January as the new hearing date was to give the Appellant time to consider this application. I think it unfortunate from the Appellant’s point of view that the question was not raised at an earlier stage, but I do not think that this has prejudiced the Appellant’s position. It would be preferable in future cases for the Commissioners to give notification much sooner after service of the Notice of Appeal that they propose to apply for an appeal to be struck out.
12.	On the human rights questions raised in connection with this application, I consider that the process of verification of an input tax claim is part of the mechanism for securing the payment of taxes as referred to in the qualification to Article 1 of Protocol 1 to the Convention. In relation to Article 6, the availability of proceedings in the Administrative Court, taken together with the availability of statutory interest and repayment supplement if eventually the repayment claim proves successful, mean that the Appellant’s right to a fair trial is not prejudiced by the striking out of the present appeal. If the Appellant can establish the basis for the repayment claim, it will either be able to satisfy the Commissioners without a further appeal, or it can pursue such an appeal in the event of a continuing dispute. The present appeal has been brought at too early a stage, and in the absence of anything constituting a decision by the Commissioners, has to be struck out.
13.	I make no order as to costs.

JOHN CLARK
CHAIRMAN

                                                    RELEASED

LON/03/945