19033

Practice – Standover Application – Input Tax – Alleged carousel – Opposed application by Customs to standover for ECJ in Bond House Systems – Severe financial impact on Appellant – Guarantee required for provisional repayment – Preliminary issue on facts already directed – Time estimated 1 –2 days – Stand over refused

LONDON TRIBUNAL CENTRE

	F OPTIONS LTD	         Appellant

-	and –

	THE COMMISSIONERS OF HM REVENUE & CUSTOMS 	           Respondents

				Tribunal: MR THEODORE WALLACE (Chairman)

Sitting in public in London on 19 April 2005

Mrs Sally Saltissi, of Byrne & Co, Solicitors for the Appellant  

Ben Lask, counsel, instructed by the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	This was an application by Customs for the appeal to be stood over for 6 months pending the decision of the European Court of Justice in the joined cases of Optigan Ltd, Fulcrum Electronics Ltd and Bond House Systems Ltd (C-354/03, C-355/03 and C-484/03), in which the opinion of the Advocate General, was delivered on 16 February 2005.

2.	The appeal is against a decision dated 24 Mach 2004 disallowing input tax of £234,774.94 for period 07/03.  The decision was made on the footing that the four transactions giving use to the input tax claim were part of a circular chain involving a carousel fraud; it is not alleged that the Appellant was a party to the fraud.

3.	On 6 January 2005 the Tribunal directed by consent that the following preliminary issue be tried:

“Whether the Tribunal is satisfied on the balance of probabilities that, in relation to each of the transactions in respect of which input tax has been disallowed

(a)	There was a defaulting trader.
(b)	That the purchase and sale by the Appellant formed part 
of  supply that was circular in nature.

4.	The direction laid down a specific timetable with a view to an early hearing starting with service by 25 February 2005 of statements by all witnesses on whom Customs rely exhibiting all necessary documents, followed by statements by the Appellant, any statements in response by Customs and provision of dates to avoid by 24 March.

5.	On 24 February Customs served a statement of just over 9 pages by James Marshall Wilson, exhibiting 32 documents. Mr Lask told me that Customs do not intend to rely on any further witnesses unless any are necessary in response to the Appellant’s witnesses.

6.	On the same day as the witness statement was served Customs made the application now being considered.  The Appellant deferred serving witness statements until this application was heard in order to minimise costs.

7.	The opinion of the Advocate General Maduro considered that a transaction in a supply chain must be considered individually when considering whether it qualifies as an economic activity. He said,

“Transaction forming part of a circular supply chain in which a trader misappropriates the amount paid to it as VAT instead of accounts for those amounts to the tax authorities do not on that account cease to constitute an economic activity within the meaning of Article 4.2 of the Sixth Directive”

It is clear that if the opinion of the Advocate General is followed by the Court the Appellant will succeed whether or not the preliminary point is decided in favour of Customs.

7.	Mr Lask, for Customs, said that it would be sensible to stand the case over pending the decision of the Court of Justice.  He said that in 80 per cent of cases the Opinion of the Advocate General is followed.  If that happened no appeal hearing would be needed in the Tribunal.  If the Court of Justice does not follow the Advocate General, he said that the relevant facts may change in the light of the decision.

9.	He said that it is not in the public interest for Customs to use resources preparing cases and for the Tribunal to devote time to hearing a case, which has an 80 percent chance of being rendered unnecessary.

10.	He said that it might be difficult to hear an appeal before judgement is given by the Court of Justice if that is before the summer break.  He estimates that a hearing would take 1 to 2 days.

11.	He said that Customs would be willing to repay the input tax on a without prejudice basis if a bank guarantee is provided.  He said that Customs are currently in the process of producing a standard form guarantee showing the terms required by Customs including a requirement that the money be repayable on demand.

12.	Mrs Saltissi, for the Appellant, opposed the application.  She said that  it is nearly two years since the input tax was incurred and that pending the repayment the Appellant is unable to trade.  All the Appellant wants is for the appeal to be heard.  By the time of the decision of the Court of Justice the Appellant may have gone under.  It is a small business suffering severe financial hardship.

13.	She said that the Appellant was trying to get a bank guarantee but no draft had yet been provided by Customs although the matter had been raised in February.  It would be vary difficult to get a guarantee given the need for security and it would be expensive.  The Appellant had an overdraft before the repayment was refused.

14.	Mrs Saltissi said that the Appellant had asked for repayment pending the appeal with one-half paid to the Appellant and one-half to his solicitors’ client account.  This had been rejected.

15.	She said that the witness statement for the Appellant could be ready in 7 to 14 days and the appeal heard in 6 weeks.  She said that the Appellant has no dates to avoid.  She said that the preliminary issue could be heard in one day.  She said that Customs would fail on the facts.

Conclusion

16.	Any application for an appeal to be stood over has to be considered on its own facts.

17.	In principle an Appellant is entitled to a speedy determination of the appeal, see Rule 19 (3) 

18.	By the time the decision refusing input tax was given on 24 March 2004 nearly seven months had passed since the original claim.  It is now a year farther on.

19.	This is not a complicated case on its facts.  The Statement of Case was not settled by Counsel.  A hearing should be comfortably over in two days.  It is quite different from other carousel cases where many times more transactions are involved.  An early hearing would have no material effect on listing other cases.

20.	The Appellant takes the view that it has a strong case on the facts.  This may or may not turn out to be true.  However the Appellant is willing to risk the costs of an early hearing.

21.	It is a small company which is being severally prejudiced by the failure to recover its input tax.  The power of the Tribunal to award interest under Section 84(8) will not compensate the Appellant for any loss suffered.

22.	Although Customs have indicated that repayment would be made without prejudice subject to a guarantee, it is clear that a guarantee would require security to be provided and would not be inexpensive.

23.	It seems to me that there is a considerable possibility to say the least that the judgement of the Court of Justice will not be given until the autumn. The reference involves important matters of principle and the only Member States to intervene have supported the United Kingdom.

24.	I have concluded that it would be wrong to deny to the Appellant the early hearing envisaged in the agreed directions of 6 January 2005.  The application for a stand is refused.

25.	I give the following further directions:

1.	That by 29 April 2005 the Appellant serves any witness statements;

2.	That by 13 May 2005 Customs serve any witness statements in response;

3.	That by 13 May 2005 both parties serve dates to avoid for a 1½ day hearing in June or July;

4.	That Customs shall open the appeal since the burden of establishing the preliminary facts rests on them;

5.	That Customs shall provide a common bundle indexed and paginated with their witness statements cross-indexed thereto

THEODORE WALLACE
CHAIRMAN

RELEASED: 25 April 2005

LON/04/830