19144

Input tax – Acquisition of goods from dissolved company

LONDON TRIBUNAL CENTRE

	PLATINUM CLOTHING LIMITED	Appellant

-	and –

	HER MAJESTY’S  REVENUE AND CUSTOMS 	Respondents

				Tribunal:	HOWARD M NOWLAN (Chairman)
						M M HOSSAIN FCA, FCIB

Sitting in public in London on 26 May 2005

The Appellant did not appear and was not represented

Miss Eleni Mitrophanous for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.     This was an appeal by Platinum Clothing Limited against the disallowance of input tax. The disallowed input tax all related to supplies apparently made to the Appellant by a company called Module Limited, which had been struck off the Register of Companies, such that the company did not  exist as a legal person, on the date of any of  the disputed invoices.

2.     The Appellant did not appear for the hearing and no information was available from the Appellant or any representative to explain the failure to appear. We decided to proceed to hear the appeal particularly because it appeared likely that the appeal would be governed by the legal point that the apparent supplier was not a valid legal person at the time the alleged supplies were made and the invoices issued.

3.     Her Majesty’s Revenue and Customs (“HMRC”) were ready to present their case either on the legal point referred to in paragraph 2 above or on the alternative basis that the invoices illustrating the alleged supplies and claimed and disputed input tax were unsatisfactory in several respects and in some cases false. A witness statement was produced from Mr. Laawrence Zussman in support of the factual evidence that was to be produced, and this witness statement had not been disputed in any way, prior to the hearing, by the Appellant. However in the light of our decision on the legal point, we found it unnecessary to ask  counsel for HMRC to call Mr. Zussman, and unnecessary for us to rely on that evidence in any way. 

THE FACTS

4.     Platinum Clothing Limited is a manufacturer of clothing, and duly registered for VAT purposes. In the course of routine enquiries by HMRC, various invoices supporting claims for deduction of input tax were queried, and this appeal focused solely on invoices apparently issued by a company called Module Limited.         HMRC had been informed by the Registrar of Companies that Module Limited had been struck off the register of companies on 6 August 2002, and dissolved on 13 August 2002. All the disputed invoices evidenced alleged supplies made by Module Limited after the date of its dissolution, there being 33 such invoices dated between 28 August 2002 and 31 March 2003, save for one which was undated. The disputed input tax was in the amount of  £54,334.

THE GROUNDS ON WHICH PLATINUM TRADING WAS APPEALING

5.     The grounds on which Platinum Trading Limited was appealing were that Module Limited was still in fact trading, after its dissolution; that it had issued VAT invoices; that it only ceased trading on 10 April 2003, when it was de-registered for VAT purposes; and that payments had been made to Module Limited. Cheque stubs were contained in the bundle of documents that matched approximately 10% of the disputed invoices.  

6.     According to information contained in HMRC’s Statement of Case, no VAT returns were rendered by Module Limited after July 2002, and the last payment to be made in respect of VAT to HMRC was made on 19 April 2002.

OUR DECISION

7.     We agreed with the legal point made on behalf of HMRC that the conclusive fact in the present case was that on and after 13 August 2002 Module Limited ceased to exist and so it, as such, made no supplies to anybody.  Insofar as trading continued in the name of the company after that date, it was not trading undertaken by Module Limited. Accordingly invoices appearing to be issued by Module Limited were not valid VAT invoices because the apparent supplier had not rendered any supplies.   And so the recipient of the supplies had to be denied its input deduction because it had not received taxable supplies from a taxable person, and had not received a valid VAT invoice either. Our decision is thus that the Appellant’s appeal is dismissed on this ground. 

8.     Since Platinum Clothing Limited had not been represented at the appeal we thought it appropriate, with considerable assistance from counsel for HMRC, to explore any arguments that might have been advanced in support of the appeal.

9.     The actual argument on behalf of Platinum Clothing Limited, implicit in its grounds of appeal, to the effect that Module Limited continued to trade is unsound for the reason already given. Albeit that somebody might have traded after the dissolution of Module Limited the one entity that certainly did not trade or even exist was Module Limited. 

10.     We tentatively raised the possibility that although the disputed invoices may all have been dated after the date of the dissolution of Module Limited, the invoices might have been produced late, and it was at least theoretically possible that the relevant supplies might have been made at an earlier date, and prior to the dissolution of the company. Counsel for HMRC accepted that this was a theoretical possibility but understandably pointed out that there was no argument or evidence in support of such a possibility, and it also seemed extremely unlikely that such an explanation could apply to more than a trivial number of the disputed invoices. 

11.     We explored the possibility that although no input deduction could be sustained on the basis that supplies had been received from Module Limited, the right analysis might be that somebody else was carrying on a business and making supplies for VAT purposes, and that that other person ought to have been registered such that it might thereby rank as a taxable person for VAT purposes.  Even if that person had not then issued VAT invoices, and had not actually been registered, an input deduction might be available to Platinum Clothing Limited on the basis of other evidence that it had paid such other “taxable person”, and was thus due an input deduction on that basis.   Such an argument would be supported by the successful claim for an input deduction by Ellen Garage (Oldham) Limited in the case of that name, reference MAN/93/1446.

12.     Without any argument on behalf of the appellant as to the status of trading and the identity of the trader, when trading continues after a company has been dissolved, we had to agree with Counsel for HMRC that in the present case, it seemed very difficult to sustain any argument along these lines. In the easier case where prior to incorporating a company an individual has plainly rendered services, and personally received payment, the case for saying that the individual ranked as a taxable person on the basis that he should have been registered, such that the recipient of the services may be able to claim an input deduction on the basis of alternative evidence to a VAT invoice issued by the individual, is relatively strong. Thus if the newly formed company then issues an invoice, as in the Ellen Garage case for services in fact supplied by the individual, the recipient of the services may well be able to claim an input deduction by demonstrating payment to the taxable  person that in truth supplied the services.  

13.     In the present case however, the essence of the argument in the Appellant’s grounds of appeal was directly contrary to any such argument. Also insofar as payment was made to anybody, it was difficult to argue that it was made to some other actual person in fact trading, since the cheques were all drawn in favour of Module Limited. Whilst it may follow from our decision that payment cannot actually have been made to a non existent company the issue of the cheques to Module Limited certainly makes it difficult to argue that payment was plainly made to some other identified person whose supplies were made in the course of a business, and whose supplies exceeded the relevant level for registration purposes. Aside from this difficulty, there were only cheque stubs in respect of about 10% of the disputed supplies, and had we not concluded that the appeal was governed by the point summarised in paragraph 7 above, HMRC would have been ready to call a witness in support of the proposition that there were other questionable matters in relation to the alleged supplies and invoices. 

14.     We accordingly concluded that it was difficult to see any argument that might have successfully been advanced on behalf of Platinum Trading Limited, and we are grateful to counsel for HMRC for exploring these various possible arguments on behalf of the absent Appellant. 

15.     Reference was finally made to Extra Statutory Concession 3.9, and to the circumstances where an input deduction may be granted under that Concession. We were far from clear that the Concession was even applicable in the present case, but in any event had no jurisdiction in relation to the application of the concession, and in the light of the other facts exhibited in Mr. Zussman’s witness statement, we would have been very surprised if HMRC would have considered this case an appropriate one in which to apply the concession. 

COSTS

16.     Counsel for HMRC requested an award of costs of £1080 particularly because a substantial amount of work had been undertaken in preparation for an appeal  made by Platinum Trading Limited which the company failed to attend. We award costs in that amount. 

HOWARD M NOWLAN
CHAIRMAN

RELEASED: 29 June 2005

LON/2003/1201