19811

VAT: INPUT TAX – Appellant (motor dealer) claimed input tax on the supply of four vehicles – the supply not evidenced by a valid VAT invoice – the other evidence adduced by the Appellant did not substantiate that the supply took place – Appeal dismissed

MANCHESTER TRIBUNAL CENTRE

	NORTHERN 4 X 4 CENTRE LIMITED  	Appellant

	- and -

	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	 (Chairman)
				      JOHN DAVISON 		  (Member)

Sitting in public in North Shields on 1 August 2006

Denis Nixon, company secretary for the Appellant 

Charles Morgan, counsel instructed by the Acting Solicitor for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION
The Appeal
1.	The Appellant was appealing against the Respondents’ decision dated 20 December 2004 to disallow a claim for input tax in the sum of £11,445 made by the Appellant on 5 August 2004.
The Dispute
2.	The dispute concerned a supply of four vehicles to the Appellant by M.V.M Imports Limited on 29 July 2003. The Respondents refused the Appellant’s claim for input tax in respect of that supply because the Appellant did not hold a VAT invoice for that supply or provide other satisfactory evidence to substantiate the claim.
3.	The issue in this Appeal is whether the Appellant held satisfactory evidence of its entitlement to input tax credit.
The Evidence
4.	We heard evidence from the following persons:
(1)	Denis Nixon, company secretary, who dealt with the accounts for the Appellant company.
(2)	Stewart Rogers, the managing director of the Appellant company.
(3)	Louise Burt, Officer of HM Revenue and Customs, who carried out the enquiries into the VAT affairs of the Appellant company and made the initial decision not to allow the Appellant’s claim for input tax.
5.	We received a bundle of documents from the parties which we took account of in our findings. We also considered the written representations of the parties submitted in response to the Tribunal direction issued at the end of the hearing
The Facts
6.	The Appellant carried on the business of retailing new and second hand motor vehicles, specialising in four wheel drive vehicles. The Appellant commenced its business in 1995 and was registered for VAT in 1996. In 2003 the Appellant operated from premises at West End, Thorpton, Morpeth, Northumberland with a turnover of £4.5 million and employing 15 members of staff.
7.	In 2002 the Appellant started dealing in new vehicles imported from Cyprus. The demand for these vehicles outstripped supply with the result that the Appellant had to purchase vehicles from other importers in the United Kingdom, which included M.V.M Importers Ltd based in Kent.
8.	On 5 August 2004, the Appellant’s representative, Haines Watts, submitted a claim for input tax in the sum of £11,445. The claim was supported by an invoice for four vehicles (two Nissan 2.2 X Trail, and two Nissan 2.5 Navara D.Cab) in the sum of £65,400 plus VAT of £11,445 issued by M.V.M Imports Limited on 29 July 2003. The invoice contained the word “Proformer” instead of an invoice number. Further, the invoice did not bear the VAT registration number of M.V.M Importers Limited. The Appellant, however, did supply the VAT registration number in a covering letter with the invoice.
9.	On 16 November 2004 Mrs Burt visited the Appellant’s premises in connection with a range of VAT matters, including the 5 August 2004 input tax claim. Mrs Burt requested a copy of the tax invoice from M.V.M Imports Ltd for its supply of four vehicles on 29 July 2003. On 26 November 2004 she confirmed her request in writing, and gave the Appellant an opportunity to bring to the Respondents’ attention within 14 days from the date of the letter any additional relevant information. The Appellant responded on 6 December 2004 supplying information  on various matters which did not include a tax invoice or further information in respect of its input tax claim,
10.	On 20 December 2004 Mrs Burt made an assessment for unpaid VAT against the Appellant. The Respondents stated that the assessment constituted the decision letter for refusing the input tax claim, although Mrs Burt’s covering letter made no specific reference to the claim.
11.	On 19 January 2006 the Appellant submitted a Notice of Appeal against the Respondents’ decision refusing the claim for input tax in respect of the supply of the four vehicles.  The Notice recited that the Tribunal Chairman at the hearing on 11 January 2006 advised the Appellant to make the Appeal.
12.	On 1 February 2006 Mrs Gibbs, the review officer, wrote to the Appellant noting that the “Proformer” invoice did not constitute evidence of a supply having taken place. In those circumstances Mrs Burt did not process the input tax claim to reduce her assessment dated 20 December 2004 because the Appellant had not provided her with satisfactory evidence of the 29 July 2003 supply from M.V.M Imports Limited. After setting out the background Mrs Gibbs stated that
“It seems, therefore, that if satisfactory evidence is provided, input tax recovery may be allowed on the purchase of the cars shown on the proforma invoice provided that they were new vehicles which you intended to sell within 12 months of the purchase.
I would, therefore, ask that copies of the following be provided to myself at your earliest convenience:
1.	the tax invoice or a duplicate obtained from your supplier or evidence that you have received a taxable supply of goods. For example correspondence with the supplier or order forms; and
2.	documentation to show that payment for supply was made; and
3.	copies of stock records for vehicles 1220, 1238, 1239 and 1241 to show that the cars were regarded as stock in trade;
to allow the matter to be reconsidered. Without this information the Commissioners intend to defend the Appeal made to the VAT and Duties Tribunal”. 
13.	The Appellant did not respond to Mrs Gibbs’ letter because it considered that the Tribunal was now seized of the dispute following the submission of the Notice of Appeal on 19 January 2006.
14.	At the hearing on 1 August 2006 the Appellant supplied the following documents:
(1)	Two “Proformer” invoices from M.V.M Imports Limited dated 6 June 2003 and 12 August 2003 which the Respondents had purportedly accepted as satisfactory evidence for input tax claims. Mrs Burt could not recall the precise circumstances why she accepted the two “Proformer” invoices. Mrs Burt believed that she exercised her discretion in favour of the Appellant after being satisfied that output tax had been accounted for on the subsequent sale of the vehicles detailed in the two invoices.
(2)	Invoices for the sale of three of the four vehicles described in the “Proformer” invoice dated 29 July 2003. The Appellant could not find the invoice for the fourth vehicle. The invoices for the two Nissan X trail vehicles dated 19 August 2003 and 8 September 2003 were VAT inclusive as they were sold to persons for private purposes. The invoice dated 8 September 2003 included no mark up for the Appellant. Mr Rogers explained that the Appellant on occasions took a loss or broke even on the actual sale price where the Appellant supplied the finance facility for the purchase. The Appellant would make its profit on the deal from the charges and commission received under the finance facility. The third invoice was for one of the Nissan Navara vehicles, dated 16 October 2003. As this was a commercial sale, the invoice separately accounted for the output tax on the sale. 
(3)	 Copies of cheque stubs, two of which detailed payments to “MVM” in the sums of £20,562.50 on 25 July 2003 and £35,410 on 8 August 2003 respectively. Mr Rogers accepted that the payments on the cheque stubs did not correspond with the date and price on the disputed “Proformer” invoice of 29 July 2003.
(4)	  EC Certificates of Conformity for the two Nissan X Trail vehicles. The certificates permitted the registration of the vehicles for excise duty purposes without further EC type-approvals in Member States. 
15.	In 2003 the Appellant frequently  dealt with M.V.M Imports Limited. Mr Rogers handled the purchases on behalf of the Appellant from M.V.M Imports Limited, which were generally confirmed by fax.  Mr Rogers accepted that the paperwork with M.V.M Imports Limited was haphazard because the business relationship was principally transacted on trust. Mr Rogers explained that M.V.M Imports Limited did not generally supply a tax invoice with the required details. Essentially M.V.M Imports Limited dictated the terms of the purchase because of the high demand for the vehicles. Mr Rogers tried on several occasions to obtain a tax invoice from M.V.M Imports Limited without success.  In 2005 the Appellant ceased trading with M.V.M Imports Limited, which no longer existed as a dealership. Thus the Appellant was now unable to obtain information confirming the purchase on 29 July 2003 from M.V.M Imports Limited. 
16.	The Appellant kept a stock book but this was not produced in evidence at the Tribunal.
Reasons for Our Decision
The Legal Requirements
17.	Under section 25 of the VAT Act 1994 a taxable person is entitled at the end of each accounting period to credit for input tax paid on taxable supplies of goods or services made by a taxable person. Section 24(6) (a) of the 1994 Act enables Regulations to be made which provide for VAT to be treated as input tax only if and to the extent that the charge to VAT is evidenced and quantified by reference to such documents or other information as may be specified in the Regulations or the Commissioners may direct either generally or in particular cases or classes of cases. Regulation 29(2)(a) of the VAT Regulations 1995 requires a taxable person to hold a VAT invoice for the supply from another taxable person, in respect of which a claim for input tax is made. Regulation 14(1) of the 1995 Regulations specifies the contents of a VAT invoice. 
18.	Under Regulation 29(2) of the 1995 Regulations the Commissioners are given the power to require a taxable person to hold or provide such other evidence in support of a claim for input tax. The Commissioners have issued a Statement of Practice (SP 7/2003) effective from 16 April 2003, regarding the circumstances in which input tax recovery will be allowed in the absence of a valid VAT invoice. A taxpayer is required, in addition to providing alternative evidence, to be able to answer satisfactorily most (or, in the case of supplies involving specified goods, all or nearly all) of the following questions:
(1)	Is there alternative documentary evidence other than an invoice (eg supplier statement)?
(2)	Is there evidence of receipt of a taxable supply on which VAT has been charged?
(3)	Is there evidence of payment?
(4)	Is there evidence of how the goods/services have been consumed within the claimant’s business or their onward supply?
(5)	How did the claimant know that the supplier existed?
(6)	How was the claimant’s relationship with the supplier established?
 
19.	The following conditions must, therefore, be met for input tax credit to be available:
(1)	a supply must have taken place;
(2)	the input tax credit must be claimed by the taxable person to whom the supply is made,
(3)	the supply must be chargeable to tax at the rate claimed;
(4)	the claimant must hold satisfactory evidence of his entitlement to input tax credit.
The Dispute
20.	The Respondents contended that the Appellant had not provided evidence to establish its right to credit for the input tax incurred on the supply of  four vehicles from M.V.M Imports Limited on 29 July 2003.
21.	 The  issues to be determined in this Appeal were as follows:
(1)	Did the “Proformer” invoice dated 29 July 2003 meet the requirements of a VAT invoice as defined by the 1995 Regulations?
(2)	If the Appellant did not hold a VAT invoice, has the Appellant provided other evidence which meets the requirements of the Respondents’ Statement of Practice (SP 7/2003) regarding the circumstances in which input tax recovery will be allowed in the absence of a valid VAT invoice?
22.	Before determining the issues it is necessary to form a view about the scope of the Tribunal’s jurisdiction with respect to this Appeal.
The Tribunal’s Jurisdiction
23.	The Respondents submitted that the jurisdiction of the Tribunal was supervisory only in relation to its decision to refuse the claim for input tax. Thus the Tribunal was only concerned with whether the Respondents’ refusal was manifestly wrong or unreasonable or one that the Respondents could not have made.
24.	The Respondents principally relied on the House of Lords decision in Customs and Excise Commissioners v JH Corbitt (Numismatisits) Ltd [1981] AC 22. This case concerned the regime under the Value Added Tax (Works of Art, Antique and Scientific Collections) Order 1972 which allowed a taxable person to reduce output tax on the sale of second hand goods provided the records of the taxable person were recognised as sufficient by the Commissioners. Notice 712 set out the Commissioners’ requirements for the records. Essentially the House of Lords decided that the Tribunal was not entitled to substitute its own views for that of the Commissioners as to what records and accounts should be recognised as sufficient. 
25.	The Respondents contended that where a taxable person did not hold a valid VAT invoice, he was not entitled to deduct input tax unless the Respondents exercised their discretion to accept other evidence as set out in the Statement of Practice (SP 7/2003). According to the Respondents, the Tribunal was not entitled to form its own views about the validity of the other evidence supplied by the Appellants to substantiate its input tax claim. The Tribunal was restricted to reviewing the exercise of the Respondents’ discretion on the material that was in fact before the decision-maker at the date of the decision and only on Wednesbury principles.  The review would include reference to the policy in the Statement of Practice. 
26.	Lord Lane in  JH Corbitt (Numismatisits) Ltd stated that
“It is common ground between the Commissioners and the dealer that in so far as conditions imposed in Notice 712 itself, they are not conditions which the Appellate body, the Tribunal, can interfere with in the sense that it can substitute its view as to what were the appropriate conditions for the view of the Commissioners. The Tribunal can certainly consider whether or not those conditions have as a matter of fact been complied with. That is something which would be a suitable subject of an Appeal. But what it cannot do is to say. ”We do not think that Appendix A or Appendix B, or whatever it may be, ought to be in that form; it should be in some other form.” Once it is conceded, as I think rightly, that the Commissioners are empowered, subject to the control of the Treasury, to lay down the conditions in a general such as Notice No. 712 in such a form as they consider proper and that the power is not subject to Appeal, it seems to me impossible to contend that the discretion given by the final words of article 3(5) or may recognise as sufficient for those purposes is a different kind of discretion which is subject to Appeal”.
27.	 Lord Lane then went onto examine whether the Tribunal had a supervisory jurisdiction to review the Respondents’ discretion:
“Assume for the moment that the Tribunal has the power to review the Commissioners’ discretion. It could only properly do so if it were shown that the Commissioners had acted in a way in which no reasonable panel of Commissioners could have acted; if they had taken into account some irrelevant matter or had disregarded something to which they should have given weight. If it had been intended to give a supervisory jurisdiction of that nature to the Tribunal one would have expected clear words to that effect in the Act. But there are no such words to be found. Section 40(1) sets out nine specific headings under which an Appeal may be brought and seems by inference to negative the existence of any general supervisory jurisdiction”.
28.	We make the following conclusions in respect of the Tribunal’s Appellate jurisdiction:
(1)	The Tribunal’s jurisdiction is derived from statute, which is set out in sections 83 and 84 of the VAT Act 1994.
(2)	The Tribunal has jurisdiction to make its own decision in respect of the matters listed in section 83 except where the jurisdiction is restricted by statute to considering the reasonableness of the Respondents’ decision.
(3)	The Tribunal has no inherent or explicit judicial review jurisdiction.
(4)	Under section 83 (c) of the 1994 the Tribunal has jurisdiction to determine on Appeal the amount of any input tax which may be credited to a person. The jurisdiction is not limited to considering the reasonableness of the Respondents’ decision to refuse a claim for input tax except where the claim relates to a supply of something in the nature of a luxury, amusement or entertainment (see section 84(4)) which is not the case in this Appeal.
(5)	In exercising its jurisdiction under section 83 (c) the Tribunal is entitled to determine whether the evidence submitted by the claimant meets the requirements of the 1995 Regulations in respect of a VAT invoice. Further, the Tribunal can make findings of fact on whether the evidence meets the criteria set down by the Respondents in its Statement of Practice (SP 7/2003) for dealing with input tax claims where there is no VAT invoice.
(6)	The Tribunal cannot substitute its own decision for that of the Respondents as to the criteria for determining acceptable evidence under the Statement of Practice.    
29.	   We are satisfied that the above conclusions are consistent with  the House of Lords decision in JH Corbitt (Numismatisits) Ltd. The House of Lords stated that the Tribunal’s jurisdiction on Appeal included  making  findings of fact on whether the  Appellant met the Commissioners’ requirements for the records. What the Tribunal could not do was to replace the Commissioners’ record requirements with its own requirements. 
30.	We consider that the Respondents’ submissions about the Tribunal’s jurisdiction are misconstrued. The Tribunal has no judicial review jurisdiction. The Tribunal is not restricted to examining the reasonableness of the Respondents’ decision in respect of input tax claims except for those circumstances specified in section 84(4). 
31.	We also note that the Statement of Practice states that claimants have a right of Appeal to the Tribunal in respect of the Respondents’ refusal under the Statement to allow deduction of input tax. The Statement does not say that the right of Appeal can only be exercised to challenge the reasonableness of the Respondents’ refusal. The Respondents’ interpretation of the right of Appeal in its Statement of Practice is consistent with our conclusions about the Tribunal’s Appellate jurisdiction conferred by statute. The views expressed by the Respondents in the Statement contradict the specific submissions made by the Respondents in this Appeal.
The Issues
Did the “Proformer” invoice dated 29 July 2003 meet the requirements of a VAT invoice as defined by the 1995 Regulations?
32.	Regulation 14(1) of the 1995 Act prescribes the contents of an invoice in order to qualify as a VAT invoice for the purposes of Regulation 29(2).  The invoice dated 29 July 2003 did not contain the VAT registration number of M.V.M Imports Limited.  The invoice was not identified by a unique number. Further it was described as a pro-forma invoice.
33.	We are satisfied that the invoice dated 29 July 2003 did not constitute a VAT notice under regulation 14(1). Thus the Appellant did not hold a VAT invoice for the supply purportedly made by M.V.M Imports Limited on 29 July 2003.
Has the Appellant provided other evidence which met the requirements of the Respondents’ Statement of Practice (SP 7/2003)?
34.	  The fundamental requirement of the Statement of Practice is that the Appellant should provide alternative evidence to show that the supply of goods has been made.
35.	We make the following findings of fact:
(1)	We were not convinced with the Appellant’s explanation about why it did not obtain a valid invoice from M.V.M Imports Limited. Essentially Mr Rogers and Mr Nixon acquiesced to the supplier’s practice of issuing Proformer invoices because the Appellant was dependent upon M.V.M Imports Limited for the supply of vehicles from Cyprus. They did not seek a valid invoice until after the Respondents refused the Appellant’s claim for input tax. A prudent business person would have insisted on the issue of a valid invoice before completing the purchase.
(2)	  The Appellant provided no alternative evidence from M.V.M Imports Limited that it supplied the four vehicles.
(3)	The Appellant did not supply evidence of payment for the four vehicles. The payments recorded on the cheque stubs produced did not correspond with the date and the price recorded on the Proformer invoice.
(4)	The sales invoices for the three vehicles were only evidence of the supply made by the Appellant not evidence of the supply of vehicles to it by M.V.M Imports Limited.
(5)	The certificates of conformity demonstrated that the two vehicles concerned could be registered for excise duty without further EC approvals. The certificates, however, did not show that a transaction had taken place between the Appellant and M.V.M imports Limited.
36.	We are satisfied on the facts found the Appellant has failed to provide alternative evidence within the requirements of the Statement of Practice to show that the supply of the four vehicles from M.V.M. Imports took place on 29 July 2003.
Decision
37.	We determine that the Appellant does not hold a VAT invoice for the purported supply of four vehicles by M.V.M Imports Limited on 29 July 2003. Further the Appellant has not supplied alternative evidence to show that the 29 July 2003 supply took place. We find that the Appellant is not entitled to credit for the input tax on the purported supply of 29 July 2003. We, therefore, dismiss the Appeal. 
38.	We make no order for costs.
39.	At the end of the hearing Mr Rogers, on behalf of the Appellant, applied to stay the proceedings for three months so that he could take further advice from the Appellant’s accountants. We refused the application because Mr Nixon and Mr Rogers indicated during their evidence that they could produce no further documents which would advance the Appellant’s case. If in the future the Appellant finds fresh evidence to substantiate its claim for input tax, the Respondents may entertain a new claim but that will be a matter for them.

                                 MICHAEL TILDESLEY OBE
CHAIRMAN
RELEASE DATE: 17 October 2006

MAN/06/42