20956

Value Added Tax – Appeal against the disallowance of input tax and appeal against the Commissioners' decision to cancel a trader's registration – spurious invoices produced by the Appellant purporting to be in respect of services rendered to him  -  Appeal dismissed

LONDON TRIBUNAL CENTRE

	KULWANT AJAY SINGH T/A BOREALIS	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	HOWARD M NOWLAN (Chairman)
						SHAHWAR SADEQUE

Sitting in public in London on 14 January 2009

The Appellant in person

Richard Smith, counsel, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

Introduction

1.    This was a sad and an extraordinary case. It involved a fundamentally able Appellant, who claimed to have attended Cambridge University and who in the past had worked for Deloittes and Mckinsey, but who had more recently suffered a nervous breakdown and who now suffered from severe depression.   

2.    The first requirement in writing this decision is to deal correctly with the two technical points in dispute so that the decision dismisses the appeals and explains why they are dismissed.    

3.     Beyond this the greater challenge is to deal tactfully and considerately with the Appellant; to provide HMRC with a confirmation that in our view their officers have acted correctly, impeccably and with great sympathy and understanding so that if the Appellant continues his vendetta against HMRC by writing to various MPs as he said he was doing and would continue to do, this decision can be shown to anyone to whom HMRC might wish to show it; and most important of all it is to endeavour to explain to the Appellant in clear language that he must stop  endeavouring to prise money out of the Exchequer by making claims that we will endeavour to show are absolutely bogus. But for the understanding and sympathy of HMRC officers, and particularly of the officer who gave evidence before us, and but for the related feature that the Appellant's conduct resulted from his mental problems, the Appellant would have faced criminal charges for fraud as a result of the claims that he had made. 

4.     Whilst not strictly relevant to this appeal, the Appellant, as the sole director and owner of a company, had waged a long campaign with HMRC on behalf of his company to sustain very large bogus claims for input tax for VAT purposes. One claim for input tax related to a claimed supply of services for £28 million, and other significant claims had been made in an endeavour to obtain repayments of VAT that had never been paid by anyone. Whilst this former case was not strictly material, it is important to say that it had concluded by HMRC rejecting the claims for refunds of input tax and de-registering the relevant company. In addition, HMRC had placed some sort of "caution" on the data of the computer system dealing with new registrations, not to register the Appellant for VAT purposes in future, without making searching enquiries in relation to the genuineness of his business. For his part, the Appellant indicated that he would close down his company and "start again".

5.    On 3 January 2008 the Appellant sought registration for VAT purposes in his individual capacity, ostensibly trading as "Borealis", his business being described as that of providing IT consulting, particularly to regulated financial services clients.   Somewhat to the regret of HMRC, the caution on the computer was ignored, the Appellant was duly registered without any enquiry, and the error was compounded by HMRC back-dating the registration to 1 January 2001.

6.    The Appellant's first VAT return for the long period contained output tax of just over £14,000, input tax claimed of roughly £206,000, and it thus called for a repayment of £192,634.29. On enquiring into this return, HMRC dismissed the claims for input tax and de-registered the Appellant on the basis that he had not demonstrated that he was carrying on business, and that there was considerable evidence that the services for which the input tax had been claimed had not been rendered.     

7.    Whilst we applaud the Appellant for having advanced his case courteously, and for advancing an argument that at one point verged on making sense, we have to say that the Appellant was regrettably living in a dream world. Most of his arguments were either ridiculous or irrelevant. It was regrettably clear to us that the input claims were not substantiated, and it was not substantiated either that the Appellant was in fact carrying on business at all.   Accordingly his appeal is dismissed on both counts.  

The facts in more detail, the Appellant's contentions, and the evidence.

8.   The Appellant advanced his own case. He declined to be sworn in to give evidence on oath, and was accordingly not cross-examined. The two witnesses were thus Ms. Balameera Ravindrarajah of HMRC and the Appellant's mother, Dr. Kaur.   There had been no prior indication that the Appellant would call for evidence from Dr. Kaur, but we decided to accept the evidence and HMRC did not object to this course. 

9.    The evidence accompanying the Appellant's first VAT return for the long period ending 29 February 2008 was sketchy. We were shown only one invoice issued by the Appellant in respect of services ostensibly rendered by him, this being against a firm called Absolute Return Partners, for £293.75. We saw no evidence that the invoice had actually been sent to Absolute Return Partners or that it had been paid. Although it was not specifically drawn to our attention during the hearing, there was in the file of documents a letter from Absolute Return Partners LLP confirming that Mr. Ajay Singh “had been hired as an outside contractor to our business from the 23 January 2008 until 29 February 2008, and that he had been hard working, detailed in his analysis, polite and easy to work with”. The letter was addressed to "To whom it may concern".

10.  The evidence supporting the claimed input tax consisted of five invoices plus substantial claims for taxi fares and phone calls, often amounting to £100 a day. 

11.  Three of the invoices, plainly made out by the Appellant on his note-paper, purported to reflect supplies from Burton Copeland, a firm of solicitors. The VAT inclusive charges recorded in the three invoices were for £117,500, £235,000 and £235,000. Burton Copeland confirmed that they had rendered services to the Appellant, but that the total charge had been of less than the VAT comprised in these three invoices. It also appeared that the services related to the claim by the Appellant's former company to sustain its invoices, and its claims for refunds of input tax. 

12.    The fourth invoice was from accountants Raja & Co, made out on paper with that firm's address at the top, but not on their headed paper. Again Raja & Co confirmed to HMRC that they had rendered services to the Appellant, but not for the consideration asserted in the invoice written out by the Appellant, and also it appeared probably to do with some earlier dispute that the Appellant had had in relation to the closure of some water park in Bolton, Lancashire. 

13.   The fifth invoice reflected a charge for 10 people to attend a course on real property promoted by a firm called Inside Track Seminars Limited. This firm confirmed that the Appellant had attended a conference and that they had invoiced him for the attendance of one person and not ten people at the conference.    

14.   Since the Officer enquiring into the validity of the Appellant's return noted that all five invoices had been written out by the Appellant and contained vastly inflated numbers and all five appeared not to relate to his current IT business, and because the taxi and phone call claims for input tax were all unrealistically large and not confirmed by any evidence whatsoever, all the claims should be dismissed, and the Appellant should be de-registered on the basis that he was not carrying on business at all. 

15.   We intimated, perhaps rather obviously, that we were far from satisfied that the Appellant was going to satisfy us in relation to the validity of any of the claims for input tax, but that we might have more difficulty in deciding whether he was not conducting business at all, which was technically relevant to the question of whether he had rightly been de-registered. In response to this, the Appellant asked his mother, Dr. Kahn, to give evidence which she did. In response to the question of whether he had rendered services in the course of his business she confirmed that he had assisted her in her practice as a GP by giving help with computers, and she had paid him, and similarly he had helped his aunt, who we believe was also a GP, and she had also paid him.

16.  The Appellant had provided three different addresses, and in response to questions from us as to whether he had any business premises, it emerged that one address was his home in Bolton, one was another house in London where he was able to stay from time to time, and the third was a Letter Box system in central London where there were communal meeting rooms that could be used by the "tenants" and a mail box in which post could be collected. 

The relevant law

17.   It is obviously necessary for the Appellant to produce evidence to sustain his claim for input deductions, and in the light of the obvious doubt cast in relation to all aspects of the claim it is fair to observe that the Appellant has the burden of proof to establish, to our satisfaction, that on the balance of probabilities his claims are valid.    As regards de-registration, the position is that a person carrying on business is entitled to be registered for VAT purposes, even if his turnover is below the compulsory registration threshold, and is bound to be registered if his turnover is above that level.    It follows from this that since a trader is entitled to remain registered, even with lower turnover than that at which registration becomes compulsory, de-registration must be based on the proposition that the person claiming to be entitled to be registered is in fact not so entitled to be registered. This requires the Commissioners to be satisfied that the person in question is neither "making taxable supplies" nor "carrying on a business and intending to make such supplies in the course or furtherance of that business".

The Appellant's initial grounds of appeal, and subsequent contentions

18.   The Appellant's initial written ground of appeal was somewhat novel and it set the tone for much of the argument before us.  The ground for appeal was as follows:-

"I humbly submit that the time-honoured techniques of building a personally and socially constructive life & business, as demonstrated by such illustrious entrepreneurs as Sir Richard Branson, and Sir Philip Green, are ones which HMRC have a moral duty to accept on an equal basis.
More specifically, I am disputing the decisions made at Wembley VAT office, to:
1.	De-register myself, Kulwant Ajay Singh, as a trading individual for VAT;
2.	Adjust the return to nil i.e. refuse my claim for input tax
3.	To not ask, and discuss with me, my underlying motives (and, if desired, take legal undertakings about these) since, despite individual liberty, there is undoubtedly a legitimate interest of the state's in knowing the activities of the private sector, and I believe that this is a key basis on which some massive infringements of draconian VAT laws are allowed (some would say encouraged)".
19.  During the course of the hearing a slightly more technical contention was advanced, along the lines that:

•	a trader receiving services is in certain circumstances entitled to make out an invoice in respect of services supplied to him;
•	a trader can value services received by himself;
•	in this case the essence of the transactions was that all the transactions were barter transactions, where those businesses rendering services to the Appellant themselves received services in return from the Appellant;
•	in response to the obvious observation that were this so on the facts, it should result in matching increases in both the Appellant’s outputs and inputs, it was suggested that "perhaps there were bad debts in relation to the liability of those rendering services to the Appellant in paying the invoices in respect of the services rendered in return by the Appellant";
•	the services rendered in return by the Appellant were variously described as being IT services or the service of being "nice and courteous".
20.   Four additional and different lines of argument were advanced, either in dialogue with HMRC before the hearing or before us, as follows:-

•	a BBC television programme had made some references to Sir Richard Branson's companies having received favourable VAT treatment, and implicitly a number of high-profile businessmen had also received such treatment so that the Appellant should do likewise;
•	HMRC were stupid not to appreciate what was meant by "constructive accounting" and such accounting was readily accepted by all the large firms of accountants, and that was all that he had done in the present case;
•	the Appellant was only asking for the small sum of approximately £190,000, and if HMRC would not give it to him, or at least make a down payment of £100,000, he would not be able to take up some critical course on computers at Oxford University; and that
•	since the government had recently given billions to the banks in the City, it was absurd that HMRC was wasting its time, and his time (that they ought to be paying for at £500 an hour) in debating this minor claim. 
Our decision

21.   We deal first with the easier part of this decision, namely the question of whether the Appellant has sustained his claim for the various claimed input deductions. 

22.   We have no hesitation in saying that the excess of the invoiced prices reflected in the invoices that the Appellant produced in respect of services rendered to himself, over the prices actually charged and invoiced by the suppliers themselves, did not reflect real services that the Appellant had received. The vast exercise in ballooning these invoices on the pretext that more services had been provided, and that the absence of cash payment by the Appellant resulted from barter transactions under which he had simultaneously provided services in return to the various providers, was regrettably absolutely nonsense, and a fiction in the mind of the Appellant, and in no way based on reality. It is regrettably absolutely obvious that he had not invoiced the various suppliers for his own services, that they had not paid him, and that the story about bad debt claims was all an obvious figment of the Appellant's imagination. The whole notion of ballooning these invoices was a startlingly unsubtle raid on the Exchequer which stood no chance of succeeding, and it is a tribute to the good sense and understanding of the HMRC officers, and in particular a tribute to Balmeera Ravindrarajah, that the Appellant was not subjected to a criminal prosecution for fraud.

23.   This still leaves the question of whether the Appellant has persuaded us that the more modest services that had been rendered to him qualified as inputs of his sole tradership. Since the invoices from the solicitors related to his battle to sustain input deductions for his previous company, they are disqualified on that basis. Similarly it appears that the accountant's invoices related in some way to the Bolton water park project, and had nothing to do with the Appellant's current claimed business.     HMRC disallowed the charge from Inside Track Seminars Limited on the basis that it related to property projects, and thus appeared to have nothing to do with the Appellant's IT business. In the light of an absence of any evidence rebutting this suggestion from the Appellant, we reject this claim for input deduction. No evidence whatsoever was given in relation to apparently large taxi and telephone expenses, so that again we reject the claim for these deductions on the basis that there was no evidence produced to sustain the claims. 

24.   We deal now with the more difficult issue of whether we consider that the Appellant has established that he was even carrying on business. In reality we have no doubt that his reported figure of outputs (generating output tax of roughly £14,000) was also dreamt up by the Appellant, but we do point out that since this was his declared figure of outputs, and we have no hesitation in disallowing the input deductions, the consequence of our deciding that the Appellant was conducting business would be that he had a large liability to VAT since the declared outputs vastly exceed the accepted inputs. Even if we were to allow the only invoice that even seems debatable, namely the invoice for the attendance of one person at the property conference, the Appellant would still have a large net liability to VAT.

25.   We consider however that the Appellant was not conducting business at all.   There is something distinctly curious about the way in which the Appellant's VAT return attached one invoice issued in respect of output supplies to the firm, Absolute Return Partners LLP; something very curious about the "To whom it may concern letter", which is not the sort of letter one expects to see from normal customers and clients, and something very odd about the fact that the only invoice produced was for £250, exclusive of VAT, whereas the letter suggests that he had worked for 5 weeks.   We also note that when the only evidence of this supply of services was an invoice prepared by the Appellant and that all of the invoices in respect of services received were prepared by the Appellant and were worse than dubious, we had no confidence in accepting this particular invoice at face value. It was regrettable that the Appellant asked his mother to give evidence, since it resulted in four people in court ending up in tears. We accept her evidence to the effect that the Appellant had helped her and his aunt in working their computers, and we accept that each may have paid him.    This however sounds like a family arrangement, and it also sounds as if the family will have subsidised the Appellant in other ways in recent years. Indeed, the Appellant claimed as much when he said that the vast losses ostensibly incurred in his business had been financed in this way, albeit that the reality was that the losses were imaginary, so that family finance would not have been required to bear the cost of a loss well in excess of £1 million.   

26.    In the light of the complete absence of other evidence of trading, the lack of any evidence of having received payment from anyone (even indeed Absolute Return Partners), the distinct oddity of the dealing with Absolute Return Partners and the fact that the only other transactions sound like friendly family arrangements, we conclude that the Appellant's business was a figment of his imagination, and not a reality. As we have said above, this in fact should save the Appellant the substantial net VAT liability that he would otherwise be liable for, albeit we accept that we have little doubt but that the declared outputs were as imaginary as the inputs. 

27.   We asked the Appellant whether his ostensible trade had been mentioned to HMRC in relation to any claims for losses, or claims to set losses against other income for direct tax purposes, and he said that he knew nothing of this. This seems to tally with the Appellant's general belief that he can raid HMRC for input tax refunds by dreaming up fictitious invoices and then complaining bitterly, and indeed in a threatening manner that we have chosen not to reveal in this decision, when HMRC treat him precisely as they treat the multitude of other taxpayers. The absence of accounts, of any evidence of supplies, of payment, or reporting for direct tax purposes all seem to confirm that there was only one thing in the imagination of the Appellant, and that any other evidence of any reality was totally absent. 

28.   We accordingly dismiss the appeal and confirm that the Respondents were right to challenge all the input deductions and to de-register the Appellant for VAT purposes. 

29.   We cannot conclude this decision without applauding HMRC for the way in which they have handled the case. In the face of repeated criticism from the Appellant, and of serious threats, and of arguments along the lines that a mere £190,000 should be handed to the Appellant so that he could invest it in his business and go off to some course at Oxford University, particularly when others were rumoured to have got away with larger VAT savings, it is surprising that HMRC have dealt with this case as sympathetically as they have done. The Appellant repeated complained that he was busy and that this dispute was wasting his time. We pointed out to the Appellant that his ludicrous claims had in fact involved HMRC in considerable expense, with several HMRC officers attending the hearing, and with counsel being briefed on their behalf.  The "boot", I am afraid is "on the other foot".  It is the Appellant who has wasted everyone's time, and whilst we consider that they have indeed acted correctly in the light of the Appellant's mental state, we applaud HMRC and their counsel for their exemplary conduct of the proceedings. Should the Appellant persist in trying to persuade MPs to join his crusade against HMRC, we hope that HMRC will feel able to pass either this decision, or this concluding paragraph of the decision to those receiving the Appellant's complaints.

30.    So far as the Appellant is concerned, we accept that he appears to have a most impressive CV, and it is clear that at one point he suffered a personal tragedy that occasioned a nervous breakdown and subsequently mental depression.  We hope that he will make a full recovery, and that part of that process will be that he can draw a firm line under this fixation with trying to extract illegitimate VAT refunds from the Exchequer. 

HOWARD M NOWLAN
CHAIRMAN

RELEASED: 11 February 2009

LON 2008/1352