19532

Appeal – Repayment claim – Deferment of part of claim – Whether appealable decision – Appeal struck out under Trib Rule 18(1)(a)

Assessment – Document produced showing amount due from Customs – Form VAT 657 – Whether evidence of assessment within VATA s.73 - No

LONDON TRIBUNAL CENTRE

	TOUCHWOOD SERVICES LTD	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	THEODORE WALLACE (Chairman)

Sitting in public in London on 6 April 2006

Eamonn McNicholas, counsel, instructed by The VAT Consultancy, for the Appellant 

Robert Robinson, of the Solicitor’s Office, for the Respondents

© CROWN COPYRIGHT 2006

DECISION ON APPLICATION

1.	This was an application by the Commissioners (“HMRC”) for the appeal to be dismissed on the grounds that there was no appealable matter within section 83 of the VAT Act 1994.

2.	Since the application would determine the appeal if successful, I directed that it should be heard in public.

3.	The notice of appeal dated 23 January 2006 was against a letter dated 19 January 2006 which the Appellant contended constituted a refusal to refund £562,782.50 input tax for period 07/05.  The disputed input tax was not included in the return, which was dated 3 August 2005, but in a document dated 26 August headed “Voluntary Disclosure of Errors on VAT Returns” claiming repayment of £715,198 net.

4.	In October 2005, Mr Sanger, a Customs officer, notified a repayment assessment of £152,415 on Form VAT 657 being part of the sum claimed.

5.	On 19 January 2006, Mr Sanger wrote a letter which included the following passage,

“As stated in my letter of 12 December 2005, we are making active enquiries with the manufactures (sic).  We are still waiting, for confirmation, and as such are not in a position to make a decision with regards to your clients repayment.”

6.	In the letter accompanying the notice of appeal, the Appellant’s representatives stated that they considered that the letter was a refusal to make the repayment, stating that that had been a protracted correspondence and that HMRC had consistently refused to make the repayment even though the VAT charged by the previous supplier had been paid.

7.	The Notice of Application by HMRC stated that the Commissioners had made no final decision regarding the amount of VAT to be credited and that the Tribunal had no jurisdiction.

8.	Mr McNicholas for the Appellant submitted that there had in fact been a decision within section 83 on 10 October 2005 “with respect to … (c) the amount of any input tax which may be credited to a person” or that, alternatively, that Mr Sanger had made an assessment falling within section 83(p).

9.	I gave leave to amend the grounds of appeal so as to identify the decision as dated “on or before 19 January 2006” and to read,

“or, alternatively, was made on or before 10 October 2005 and notified on or before 12 October 2005 and comprised either an assessment within section 83(p) or a decision with respect to input tax within section 83(c).”

Mr Robinson did not oppose the amendment but submitted that there was no assessment nor was there any decision as to the balance claimed.

10.	The Appellant’s return for 07/05 showed output tax of £78.75 and input tax of £1,753.92 with £1,675.17 repayable.

11.	The voluntary disclosure which was submitted by Sohals Ltd, the Appellant’s accountants, listed nine output invoices six of which were zero-rated EU sales with output tax due on the other three invoices of £362,962.25 and twelve purchase invoices on which the VAT was £1,078,159.55 of which £562,702.50 related to four invoices from The Working Group Ltd, of Isleworth, dated 29 July 2005 for goods which were invoiced on the same day by the Appellant to Total Group, Utrecht, Netherlands.

12.	The purchase invoices in issue were for a total of 168,000 My Flash memory chips which were apparently made in Hong Kong by ADATA.

13.	On 20 September 2005 Mr Sanger thanked the Appellant for the information provided to date and asked for further information as to deals on three invoices two of which were from The Working Group.

14.	On 23 September Mr Sanger visited the Appellant and in a letter of 26 September asked for further details.  During the visit he mentioned Notice 725 relating to Joint and Several Liability and in the letter referred to Customs’ concerns as to Missing Trader intra-Community (“MTIC”) fraud.

15.	Another letter dated 6 October acknowledged further documentation and requested further information stating that enquiries had been initiated with ADATA.  Mr Sanger wrote that he would release on a without prejudice basis the VAT on sales to Talkount and Well-Com; these were two of the six EU sales.

16.	On 10 October 2005 Mr Sanger wrote that he still required evidence on an amended CMR for one of the sales to Total Group and asked for evidence from the freight forwarder and Total Group that the goods had  been received.  He wrote that he was still waiting for further information from ADATA.  He wrote that he had authorised  part of the Voluntary Disclosure without prejudice to any further action which might be taken.

17.	On 12 October 2005 Form VAT 657 headed “Value Added Tax Notice of Voluntary Disclosure” was issued at Mr Sanger’s behest.  The first page contained the following words,

“the following assessment(s) of tax and, where appropriate, interest have been made, along with any adjustment required for overdeclarations for the period(s) shown.”

The date of calculation was given as “07.10.05” and the “Net amount due from Customs and Excise” as £152,415.  The bottom line drew attention to the rights of appeal.  Page 2 was headed “Details of assessment(s) and/or overdeclaration(s)” and showed for period 07/05 £362,962 “due to C&E” and £517,377 due from C&E, with “Total Tax Overdeclared this period : - £152,415.”  An accompanying statement of account stated “The Commissioners of Customs and Excise have made assessment(s) of tax … and/or adjusted for overdeclarations of tax” and showed a credit balance of £152,564 at 7 October 2005.  The reason for the discrepancy was not apparent.

18.	On 14 October Mr Sanger wrote that he was still awaiting information from ADATA but was aware of the urgency of the claim and would endeavour to conclude the enquiries as quickly as possible.

19.	A further letter on 26 October stated that he was still unable to release the amount claimed on a without prejudice basis or to make a final decision to deny repayment.

20.	On 12 December Mr Sanger wrote that Customs had still not decided whether the Appellant was legally entitled to a repayment or not and stated that no appealable decision had yet been made.

21.	The last relevant letter was on 19 January 2006.  Having referred to Bond House in the European Court of Justice he wrote,

“Our enquiries into your client’s claims are not in relation to ‘Circularity’ or ‘Non-Economic Activity’ but are into whether the products described on the invoices that support the claim for input tax deduction were what was actually traded and therefore whether the purchase invoices are valid.”

Later he wrote, that Customs were making active enquiries with the manufacturers and “are not in a position to make a decision with regards to [the] repayment.”

22.	Although Mr McNicholas produced correspondence from The Working Group Ltd confirming the supplies to the Appellant and stating that The Working Group Ltd had declared the VAT on the invoices, this was produced shortly before the Application hearing and in my judgment has no relevance to the questions whether there was an appealable decision on or before 19 January 2006 or whether there was an assessment in October.

23.	Mr Robinson submitted that there had been no assessment in fact and that no decision had been made as to the balance claimed.  He said that the documents issued on 12 October 2005 had to be seen in their context and were an allowance of part of the claim.  There was no assessment for the recovery of tax.  He cited Tricell UK Ltd v Customs and Excise Commissioners (2003) Decision No.18127 at paragraph 47.

24.	Mr McNicholas submitted that a decision not to decide whether to repay input tax is a decision “with respect to” the amount of any input tax which may be credited and falls within section 83(c).  He said that in October 2005 Mr Sanger had decided to accept the claim for £517,377 but not the balance.  This was a conscious decision.  A claim had been made; it was assessed by Mr Sanger and part was allowed and part not.

25.	He said that Customs have no power to defer a decision indefinitely, see R v Customs and Excise Commissioners, ex parte Kay [1996] STC 1500 at page 1521-2.  He said that it was almost inconceivable that Customs do not know that The Working Group had paid the VAT on the invoices claimed.  He cited Uuden Kaupingen Kaupungi (Case C-184/04) 30 March 2006 where the Court had said at paragraph 24 that where goods are used for transactions which are taxable as outputs deduction of input tax is required to avoid double taxation.

26.	He submitted that Customs have a duty to repay input tax due under Article 18.4 of the Directive and section 25(3) of the VAT Act 1994.  Customs were not entitled to “spike” the claim.  A decision not to pay pending enquiries was a sufficient decision for an appeal.  He referred to Garage Molenheide BVBA v Belgium (Case C-284/94) [1998] STC 126 submitting that denying a right of appeal by putting off a decision was contrary to EU law.  The question whether a decision had been made should be considered in the light of the duty to give a decision.

27.	Mr McNicholas said that R (UK Tradecorp) v Customs and Excise Commissioners [2006] STC 138 was not concerned with when an appealable decision was made.

Conclusions

28.	The issue for the Tribunal on this application is whether there was a decision in October 2005 or January 2006 sufficient to give rise to a right of appeal within section 83.  This application is not concerned with whether there ought to have been an appealable decision.

29.	I am satisfied from the correspondence that Mr Sanger did not intend to reach any conclusion on the repayment claim for £562,782.50 either in October or January.  In October he was still asking for evidence and awaiting further information.  In January he wrote in terms that Customs were not in a position to make a decision.

30.	In R (UK Tradecorp Ltd) v Customs and Excise Commissioners [2005] STC 138 Lightman J said at [18],

“The Commissioners are under a duty to conduct a reasonable and proportionate investigation into the validity of claims for a refund and repayment and a duty to act proportionately both in respect of the investigation and in dealing with the taxable person’s claims generally …
The Commissioners are entitled to take a reasonable time to investigate claims …  The availability and proper exercise of the Commissioners’ powers of investigation are essential to maintain the fiscal neutrality of VAT and to prevent refunds being made to parties not entitled to them.”

While I accept that that case did not concern the question whether there had been an appealable decision, the statement of the law by Lightman J is clearly correct.

31.	I do not accept the proposition that a decision to defer a decision is an appealable decision. If the delay in making a decision is thought to be excessive the remedy is judicial review.  Mr McNicholas correctly accepted that Mr Sanger was entitled to make enquiries : that of itself involved deferring a decision.  There was nothing to suggest that Mr Sanger had in fact made up his mind and was merely deferring communicating a decision.

32.	In my judgment the decision to pay part of the claim in October was not also a decision to refuse to pay the balance.  Mr Sanger was entirely correct to pay the part  of the claim which he accepted without delay.

33.	Initially it appeared to me that the assessment argument might be stronger.  Having generated documents purporting on their face to notify an assessment, in the absence of any evidence by Mr Sanger that he did not in fact intend to make an assessment there was an obvious inference that he had done what the documents stated.

34.	The word “assessment” is not in fact defined in the Act.  The assessments to which section 83(p) relates are however assessments under section 73 or 75.  Here the relevant subsection would be section 73(1).  That subsection gives the Commissioners power to “assess the amount of VAT due from” a trader.  It clearly refers to a net amount due.  The process involves taking account of output tax due and input tax credit allowable.  Where the output tax exceeds the input tax there is an amount due which is assessable under section 73(1).

35.	A statement that a greater sum is due from Customs than is due to Customs is not in my judgment an assessment within section 73(1).  The fact that the document generated by Mr Sanger was incorrectly labelled an assessment did not have the effect that what he had done constituted an assessment within section 73(1).  At the most any assessment was that no output tax was due to Customs and no credit had been given for overdeclared input tax.

36.	The Act does not lay down any form or procedure for making an assessment, a fact which has given rise to substantial difficulty in relation to time limits.

37.	I am in full agreement with the observations of Mr Colin Bishopp at paragraph 47 of  Tricell UK Ltd v Customs and Excise Commissioners (2003) Decision No.18127.

38.	The result is that the application by Customs is allowed and the appeal is struck out under Rule 18(1)(a).

THEODORE WALLACE
CHAIRMAN

RELEASED: 12 April 2006

LON/06/167