20334

Assessment to VAT-motor vehicles-zero-rating of supplies-invalid EC VAT registration number-VATA 1994 sections 30(8), 83(p) and 84(10)-VAT Regulations 1995 regulation 134-Notice 703-appeal dismissed

BELFAST TRIBUNAL CENTRE

	DENNISON COMMERCIALS LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	HEATHER GIBSON QC (Chairman)
						A.F. HENNESSY ACA

Sitting in public in Belfast on 28th November 2006

Michael Blair of FGS McClure Watters, Accountants, for the Appellant

Jonathan Cannan, Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	The Appellant company appeals against an assessment to VAT in the sum of 
£34,627 plus interest for the period 30/09/02. The assessment was raised by the Respondents in relation to the sales of 5 vehicles which the Appellant 
company had zero rated for output tax and accounted for accordingly in the 
company’s EC Sales List for that period. 

The grounds of the appeal are :

(i)	That the conditions for zero rating were satisfied as 

(a)	The Appellant did take reasonable steps to ensure that the purchaser held a valid VAT registration in Republic of Ireland (“ROI”) ROI
(b)	The Appellant reasonably believed that the goods were to be removed from the UK

(ii)	That HMRC impliedly misdirected the Appellant by failing to 
draw to the company’s attention that the VAT for the previous 
transactions with the purchaser was not valid.

2.	It was agreed that pending determination by the European Court of Justice in Telios v  Customs & Excise Commissioners (Case C-409/04) of the question as to whether the EC 6th Directive requires removal of the goods from the UK  in order to qualify for zero rating,  this aspect of the appeal would be stood over.

We heard oral evidence from Mr Alan Cameron Finance Director on behalf of 
the Appellant and Mr Robert Magill on behalf of the Respondents.

The hearing was subsequently concluded by way of written submissions 
furnished by the parties which the Tribunal then considered.
The Facts

3.	The Appellant  carries on business selling commercial vehicles from premises 
at Ballyclare, Northern Ireland. 

4.	The Appellant was selected for a VAT assurance visit on 22nd June 2004. Prior to the visit a check was made of the company’s folder which was maintained electronically by the Respondents. The file contained reference to an invalid ROI VAT number used by the Appellant for the purposes of zero rating 5 sales in the period to 30/09/02.  On attending the Appellant’s Ballyclare premises the officer ascertained that the Appellant had sold 5 lorries to John Hagan Haulage Limited (“JHHL”) of Co. Monaghan, ROI. The Appellant had traded intermittently with JHHL for many years. During that time ROI VAT number IE 8410924J was used by the Appellant in respect of the transactions and was recorded accordingly on all EC Sales Lists submitted by it to the Respondents. The vehicles in question had been (at the customer’s request) pre-registered in Northern Ireland prior to the dates on the respective sales invoices. The vehicles were not delivered to the ROI address by the Appellant but rather were collected by the customer. There was no documentation relating to delivery of the vehicles to the ROI. There was no record that the Appellant had checked the validity of the JHHL ROI VAT number. This was in contrast to the numerous checks made by the Appellant in respect of sales of parts to ROI customers. Further investigation revealed that the ROI VAT number, which had in fact been held by John Hagan Haulage (“JHH”) as opposed to JHHL, had been de-registered with effect from 5/4/1996. JHHL did not have a ROI VAT number. The Officer concluded that the Appellant was not entitled to zero rate the sales. The disputed assessments were raised. 

5.	As requested by the Appellant, the Respondents re-considered their decision. The Appellant was advised by letter dated 31st March 2005 that the decision had been upheld in full. 

Evidence

6.	In his evidence in chief Mr Cameron said that the company had traded with JHHL for many years. This was an unusually large purchase as JHHL normally only bought 1 or 2 vehicles per year. Indeed JHHL had bought 2 lorries in May and August 2001. These transactions had been included in the company’s EC Sales List and the ROI VAT number had not been queried. This was in contrast to other references which had been queried by the Respondents. The ROI VAT numbers of new customers were checked. This would have been the case with JHHL with whom the Appellant had traded for many years. 

7.	On cross-examination Mr Cameron stated the drivers employed by JHHL were known to the company’s employees. No customer orders were obtained. No documents were obtained to prove the vehicles were leaving Northern Ireland and Mr Cameron indicated that he did not see what documentation could have been obtained by the Appellant. Mr Hagan would not have been asked if the vehicles were being taken to the ROI as this would have assumed from the previous trading history and also as JHHL was based in Co Monaghan. The Appellant’s employees knew the JHHL drivers. No enquiry was made regarding the request to pre-register the vehicles in Northern Ireland. 

8.	Mr Cameron stated that the company was aware of the conditions for zero rating and always insisted on a VAT certificate and return from all new ROI customers. Mr Cameron was unable to say when the original check was made or against which entity. The JHHL number had not been checked as during their previous trading history it had been included on Appellant’s EC sales list and had never been queried by the Respondents. He said that in his experience it was not unusual for a VAT registration number to be taken over when a company became incorporated. He did not consider it unusual that JHHL had been using the JHH ROI VAT registration number. ROI VAT numbers for ROI parts customers were checked on an annual basis by the company’s Newry depot. This did not happen with vehicle sales as these purchases were seen as a sign of expansion by the customer. Mr Cameron did not know that JHH had a UK VAT registration number. He did not accept that any element of the transaction should have given cause for concern at the time. However he admitted with the benefit of hindsight it would have been prudent to have checked the VAT number of the purchaser given that a much larger fleet than normal was being purchased. The Appellant had been entitled to rely on the fact that the Respondents had not previously queried the number. Mr Cameron said that Mr Hagan had been contacted soon after the assessment was raised. However he had died shortly thereafter. JHHL had stopped trading and subsequently gone into liquidation. He stated that the Appellant had been prejudiced by the delay in the Respondent making it aware that the ROI VAT was invalid. If the Appellant had been advised of this when the 09/02 EC Sales List had been submitted, it would have had a better chance of recovering the input tax. 

9.	Mr Magill in his evidence on behalf of the Respondents said that the 
Respondents did not check the validity of those EC VAT numbers appearing 
on EC Sales Lists which had the correct format of the relevant EC member 
state. They expected invalid numbers to be returned by the member state in 
question. The Respondents queried those numbers which were a “mis-match” 
in other words did not conform to the requisite member state format. Hence 
the queries previously raised with the Appellant company related to numbers 
which did not conform as opposed to issues of invalidity.

10.	Mr Magill said that since 2000, the Respondents had maintained an electronic 
folder for each person. Any calls made to check a VAT number would be 
logged. There was no record of the Appellant having checked the JHHL ROI 
number. Whereas the VAT numbers for ROI parts customers were checked 
regularly by the Appellant. He found it surprising that this was not done for the lorries as there was much greater VAT risk to the company.  He considered that the fact that the vehicles had been pre-registered in NI made it likely that they were going to NI as opposed to ROI. In his opinion the Appellant had not taken reasonable steps to check that the JHHL ROI VAT number was valid nor that the vehicles were actually being delivered to the ROI.

11.	Under cross-examination, Mr Magill said that the Appellant was not entitled to 
rely on the fact that the JHHL ROI number included on its EC lists had 
not been queried prior to 2002. The Respondents did not check every 
business transaction and, indeed, there were millions of transactions to 
member states. The Respondents had subsequently been made aware that the 
JHHL ROI number was invalid and this information was recorded on the 
Appellant’s electronic folder. The folder was routinely checked prior to the 
VAT assurance visit. The validity of the number had not been checked by the 
Appellant. Furthermore the visit had revealed that the company had no records 
to prove that the vehicles were to be removed from NI. They had in fact 
been supplied to someone in Cookstown. JHH had therefore profited from the 
fact that VAT had not been charged on the original purchase.

The Law

12.	The relevant legislative framework is as follows :

30. Zero-rating.—
		   ……………………………….
(8) Regulations may provide for the zero-rating of supplies of goods, or of such   goods as may be specified in the regulations, in cases where—
(a)the Commissioners are satisfied that the goods have been or are to be exported to a place outside the member States or that the supply in question involves both—
(i) the removal of the goods from the United Kingdom; and
(ii) their acquisition in another member State by a person who is liable for VAT on the acquisition in accordance with provisions of the law of that member State corresponding, in relation to that member State, to the provisions of section 10; and
(b)such other conditions, if any, as may be specified in the regulations or the Commissioners may impose are fulfilled.

83. Appeals.
Subject to section 84, an appeal shall lie to a tribunal with respect to any of the 
following matters— 
……………………………….
(p) a decision of the Commissioners under section 61 (in accordance with section 61(5));

84. Further provisions relating to appeals.
       ………………………..
(10) Where an appeal is against a decision of the Commissioners which depended upon a prior decision taken by them in relation to the appellant, the fact that the prior decision is not within section 83 shall not prevent the tribunal from allowing the appeal on the ground that it would have allowed an appeal against the prior decision. 

Pursuant to that regulation further conditions are imposed by the Commissioners as set out in Notice 703. These have the force of law.
	Of specific relevance to this appeal is :
	
1.6	Invalid EC VAT Registration Numbers

“ The condition as to obtaining and showing the VAT registration number of the   customer is subject to a proviso that if the supplier has taken all reasonable steps to ensure that the customer is registered for VAT he will not be liable for VAT in the UK if the number subsequently proves to be invalid.”

Case Law

13.	We were referred by the Respondents to the following cases :

	Telios v  Customs & Excise Commissioners (Case C-409/04)
	C & E Commissioners –v- Arnold [1996 STC 1271] 
C & E Commissioners –v- The National Westminster Bank [2003] STC 1072 

Submissions

14.	On behalf of the Respondents, Mr Cannan submitted that whether the Appellant took all reasonable steps to ensure that the purchaser was registered for VAT in ROI will depend on all relevant circumstances.  He accepted that a supplier might in appropriate circumstances reasonably make checks as to a customer’s VAT number and then rely on those checks for subsequent transactions for a reasonable period thereafter.  He accepted that there was a system in place at Dennisons to make regular checks with HMCE on the VAT registration number of parts purchasers.  However given that there were relatively few vehicle purchasers there was no reason (economic or administrative) not to extend the periodic checks to vehicle purchasers.  Mr Cannan submitted that the evidence as to whether the Appellant did in fact make any check in relation to JHH or JHHL was scant.  It relied entirely on Mr Cameron’s evidence that there was a system in place and the inference was a very specific check would have been made.  The Appellant was unable to say when the check was made, or against which entity i.e. JHH or JHHL .  This was against a background of dealings with JHH over many years and not withstanding that Paragraph 8.5 of Notice 703 suggests retaining any letter or advice received from trader.  The purchaser was involved in an unusually large series of purchases – 5 vehicles over 2 months as compared to previous purchases of only 1 or 2 vehicles per year.  Given these transactions were unusually large, the Appellant ought to have ensured that the conditions were met in relation to the specific transactions.  

15.	Mr Cannan submitted that the onus of ensuring that the conditions were 
      satisfied rested with the Appellant.  There was no evidence of any representation or advice from HMCE that in the absence of a query in relation to any entry on an EC sales list, the trader might reasonably conclude that the numbers were valid.  Mr Cannan asserted that the evidence of Mr Magill highlighted why HMCE could never give any such representation or advice – not only do HMCE deal with millions of entries on EC sales lists, but the discrepancy with which the Tribunal was concerned may not even have become known to them.  In this regard HMCE have to rely not only on their own procedures working faultlessly and timeously, but also those of other Member States. Mr Cannan submitted that not only was this an unusually large series of transactions for the purchaser, but there were other factors which ought to have put the Appellant on warning.  The Appellant appeared to have assumed that the vehicles were to be removed from the UK without any form of confirmation from the purchaser.  Furthermore the vehicles were pre-registered in the UK on the instructions of the purchaser, they were to be collected by the purchaser and the Appellant did not hold any documentary evidence of removal. In the circumstances, Mr Cannan submitted that the Appellant had not taken all reasonable steps to ensure that the purchaser was registered for VAT in ROI.

16.	With regard to the second aspect of the Appeal, namely that the failure by HMCE to draw the invalid ROI VAT number to the attention of the Appellant amounted to an implied misdirection, Mr Cannan referred the Tribunal to the provision for concessionary treatment set out in Extra Statutory Concession 3.5 which provides:

“if a Customs & Excise Officer, with the full facts before him, has given a clear and unequivocal ruling on VAT in writing or, knowing the full facts, has misled a registered person to his detriment, any assessment of VAT due will be based on the direct ruling from the date the error was brought to the registered person’s attention”.

Mr Cannan submitted that the Tribunal had a statutory jurisdiction which was governed by Sections 83 and 84 of the VATA 1994.  He contended that the appeal was brought under Section 83(p) against an assessment, the Appellant contending that no VAT was chargeable on the supplies because they were zero-rated.  Whether they were zero-rated or not was a matter of fact and law to be decided upon by the Tribunal.  There was no jurisdiction within Section 83 to consider whether or not HMCE had properly applied a concession.  He referred us to the case of C & E Commissioners –v- Arnold [1996 STC 1271] where the trader argued that jurisdiction to consider the application of a concession derived from Section 84 (10) of VATA 1994.  Hidden J held that Section 84 (10) did not apply to give the Tribunal jurisdiction over the operation of an extra statutory concession. He then referred to us the case of C & E Commissioners –v- The National Westminster Bank [2003] STC 1072 where Jacob J held that when hearing an appeal over which it does have jurisdiction (because it is a head of Section 83) the Tribunal can consider an earlier decision over which it has no jurisdiction (because it is not a head of Section 83).  Jacobs J went on to state that this could only be done if a decision under appeal depended on the prior decision.  Section 84 (10) did not he said, apply where there were two independent legal decisions.

17.	Mr Cannan submitted that the decision appealed against was the assessment based upon the finding that the supplies were not zero-rated.  He contended that there was no prior decision upon which the assessment depended.  In any event he argued that apart from the question of jurisdiction there had been no misdirection within the terms of ESC 3.5.  It was not suggested by the Appellant, nor could it be, that there had been any specific ruling by an Officer that the Appellant could rely in the absence of any query in relation to VAT numbers on its EC sales list.

18.	In conclusion Mr Cannan submitted there was no basis upon which the assessment could be set aside and the appeal should be dismissed.

19.	On behalf of the Appellant, Mr Blair of McClure Watters submitted that the Appellant company had taken reasonable steps to ensure that the conditions for zero-rating were complied with.  This was evidenced by the requisition of the ROI VAT number in relation to the customer concerned and reporting of the number consistently in the Intra State Returns.  It was further submitted since the number was never queried, unlike other entries on the EC sales lists, it was implicit that HM Customs & Excise considered all transactions to qualify for zero-rating and the Appellant relied on same accordingly. Mr Blair referred to the fact that the Customs Officer was concerned only with the transaction which he knew related to the invalid VAT number and accordingly HM Customs & Excise itself considered the validity of the VAT number the over-riding and most important consideration in determining zero-rating.  There was a failure to enquire into any other transaction where Customs were aware that the VAT number was correct.  In the circumstances the Appellant viewed it as wholly reasonable to place reliance on the validity of the VAT number as apparently had HM Customs & Excise.  

20.	Mr Blair contended that the Appellant considers that the law of mitigation may also have applied.  If it had been made aware contemporaneously that the VAT number was invalid after HM Customs & Excise had checked the EC sales list, then it would not have zero-rated subsequent invoices.  Hence they had aggravated the loss to the Appellant by failure to issue a direction at the time.  Had HM Customs & Excise done so the loss would clearly have been mitigated. Mr Blair submitted that the Appellant placed reliance on a practice which was employed consistently over a period of time by HM Customs & Excise to the Appellant’s detriment.  The Appellant contended that HM Customs & Excise should be estopped from raising assessments on the Appellant for all but the first transaction.
Conclusions

21.	Conditions for zero-rating
The Appellant did not dispute that the ROI VAT number for the purchaser was invalid.  Therefore the question for determination by the Tribunal was whether the Appellant had taken all reasonable steps to ensure that the customer was registered for VAT on the relevant sales.  The Appellant clearly operated a system in respect of its sales of parts whereby its ROI customers’ VAT registrations were checked on an annual basis.  The Tribunal also accepted that the Appellant operated a system for checking the ROI VAT numbers of its new customers for purchases of lorries.  Mr Cameron in his evidence said this would have happened with this particular purchaser.  However he could not say when such a check would have been and whether it would have been made against JHH or JHHL.  The ROI VAT number appears to have been the number of JHH. This number had been invalid since 05.04.96.  At some stage Mr Hagan must have incorporated his business in the Republic of Ireland.  The Appellant produced no documentation from its customer nor had the Customs Officer been able to find any record of any enquiries made.  In the circumstances the Tribunal was not satisfied on the evidence before it that the Appellant had made a check as to whether JHHL, the purchaser for the transaction in question, held a valid ROI VAT number. Whilst purchase of lorries may well constitute expansion of a purchaser’s business, the Tribunal does not consider that the Appellant would have been entitled to rely on this as evidence of continued validity of a VAT Registration in the ROI.  Indeed this is in contrast to the system for sales of parts to purchasers in the ROI, when it appears the Appellant checks the validity of numbers on an annual basis.  The Appellant did not offer any financial or administrative reason why this was not feasible for checking the validity of VAT numbers for ROI customers purchasing vehicles. On checking the Appellant’s folder, the Officer became aware that the number in question was invalid.  The Tribunal accepted Mr Magill’s evidence that during the visit steps were taken to ascertain what the Appellant had done in terms of ensuring that the ROI VAT number was valid.  As was confirmed by Mr Cameron’s evidence, apart from an initial check when the customer first started trading, no other checks were made.

	In essence the Appellant’s case is that the lack of query regarding the validity of the Purchaser’s ROI VAT number included in previous EC Sales Lists amounted to a representation by HM Customs & Excise that the number was valid and reliance on same by the company constituted all reasonable steps having been taken.  However there was no evidence of any representation of advice from HM Customs & Excise that in the absence of a query in relation to any entry on an EC sales list, the trader might reasonably conclude that the numbers were valid. Consequently on the basis of the evidence before it, the Tribunal was not satisfied that the Appellant company had taken all reasonable steps to ensure that its customer was registered for VAT in ROI.

22.	As stated above it was agreed that the question of removal of the vehicles from NI would be held over pending the judgement of the European Court of Justice in the Telios Reference.

23.	The Misdirection
As was submitted on behalf of the Respondent, the subject appeal is against the assessment of VAT on the sales of the five vehicles under Section 83(p) of the VATA 1994.  The effect of Section 84 (10) VATA 1994 is that the Tribunal can consider an earlier decision over which it has no jurisdiction (because it does not come under ahead of Section 83) but only if the decision under appeal depended on the prior decision.  See C & E Commissioners –v- National Westminster Bank [2003 FTC 1072] Jacob J at Paragraph 58-60.  The impugned decision involved consideration by HM Customs & Excise as to whether the Appellant had taken all reasonable steps to ensure that its customer was registered for VAT in ROI.  Therefore it was a decision which was unconnected to the implied misdirection which is alleged by the Appellant.  There was in effect no prior decision upon which the assessment depended.  In those circumstances the Tribunal concludes that it does not have the jurisdiction under Section 83 to consider whether or not HM Customs & Excise did properly apply a concession.

However if the Tribunal is wrong in that conclusion, we do not consider there was any evidence to support the allegation made by the Appellant.  The Appellant had conducted previous sales to this particular purchaser and the ROI VAT number was included in the Appellant’s EC sales list for the periods 12.05.01 and 11.08.01.  HM Customs & Excise did not subsequently inform the Appellant that the number as invalid.  As stated above the Tribunal is not satisfied that there is any evidence of any representation or advice from HM Customs & Excise that in the absence of a query in relation to any entry on an EC sales list a trader might reasonably conclude that any such numbers were valid.  We do not consider that the previous failure to identify that the number was invalid amounted to HM Customs & Excise misleading the Appellant company.  Nor do we accept that this failure to identify the invalid number amounted to a practice upon which the Appellant was entitled to rely.  Mr Cameron said the company was aware of the conditions necessary for zero-rating.  In order to avoid being penalised in the event of a number being found to be invalid, a trader will be required to show that it has taken all reasonable steps to ensure that its customer is registered for VAT. This is particularly so where, as in the instant case, the purchase is substantial.

24.	Other issues raised by McClure Watters in its closing submissions relating to loss sustained as a result of the conduct of HM Customs & Excise and estoppel are not matters for this appeal.  

25.	In conclusion, therefore, we find no basis upon which the assessment should be set aside and the appeal must fail.

25.	Mr Cannan made no application for costs and we made no Order.

HEATHER GIBSON QC
CHAIRMAN

RELEASED: 6 September 2007

LON 2005/0423