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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Pexum Ltd v Revenue & Customs [2007] UKVAT V20083 (14 March 2007) URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20083.html Cite as: [2007] UKVAT V20083

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20083

VAT — input tax — company dealing in computer chips — entitlement to deduct input tax in respect of transactions for purchase and supply of CPUs — whether invoices held by the appellant company contain description sufficient to identify goods supplied within regulation 14(1)(g) of VAT Regulations 1995 — no — alternatively whether invoices contain details of quantity and nature of goods supplied within article 22(3)(b) of EC Sixth Directive — no — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

PEXUM LIMITED Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: David Demack

Marjorie Kostick BA FCA CTA

Sitting in public in Manchester on 24 – 28 October 2005 and 6 December 2006

Michael Patchett-Joyce of counsel, instructed by Hassan Khan, solicitors London, for the Appellant

Rupert Anderson QC and Andrea Lindsay Strugo of counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007


 


DECISION

Introduction

1. This is an appeal by Pexum Limited ("Pexum") against three decisions of Her Majesty's Commissioners for Revenue & Customs ("HMRC"), two by letter of 22 December 2004 and the third by assessment notified on 11 January 2005. Each one disallowed part of a claim for input tax. The sums disallowed and the periods to which those sums relate are £327,726, £536,959.20 and £718,300.80 in periods 07/04, 09/04, and 10/04, respectively.
2. The central issue for decision is whether Pexum has established a right to deduct input tax in respect of 12 transactions, or deals, it carried out in the three periods in question which were, or purported to be, for the purchase and supply of Intel Pentium 4 2.8GHz 800 Central Processing Units ("CPUs"), commonly referred to as computer chips. HMRC contend that that right has not been established since the "goods" in question were not as described or identified in the documents relied upon by Pexum to support its claims, but rather comprised bogus CPUs, incapable of being described as CPUs at all, still less Intel Pentium 4 2.8GHz 800 CPUs. Accordingly, they contend that Pexum has failed to establish an ingredient essential to the exercise of the right to deduct, namely the holding of an invoice or other relevant document drawn up in accordance with Article 22(3) of the EC Sixth VAT Directive 1977 ("the Sixth Directive") and / or Regulation 14(1)(g) of the VAT Regulations 1995 ("the VAT Regulations"). HMRC further contend that the transactions described in the invoices were fundamentally different from those which in fact took place.
3. Pexum was represented by Michael Patchett-Joyce of counsel and HMRC by Rupert Anderson QC and Andrea Lindsay Strugo of counsel.
4. The following witnesses gave oral evidence to us:

Elio Joseph Oscar Auletta, managing director of IT Wholesale Limited ("ITW") (by video link with Dubai);

Jamie Anthony Gibson, the sales director of Pexum;

Darren Richard Brown, another director of Pexum;

John Flynn, the product fraud manager of Intel Corporation (UK) Ltd;

David Alan Brown, the senior principal engineer in Intel's security department;

Paul Winston Price, the managing director of ADM Ltd, a computer forensic analyst used by Intel Corporation;

Jeffrey Leonard Howard, Simon Wayne Haggett, Derek Colin Peet, Robert John Poole, Jagjit Singh, Roger Mercott, Tarenjit Johal and Alison Marguerite Teal, all of whom are officers of HMRC, the last named being the assessing officer.

5. We were also presented with 13 bundles of copy documents. From the evidence as a whole, we find the following facts to have been established.

The Facts

6. Pexum was incorporated as Brolun Limited on 3 March 1998 and set up to hold intellectual property rights in computer software. On 9 August 1999 it changed its name to Guardian Business Solutions Ltd. Under that name, it registered for the purposes of value added tax on 1 September 1999. From registration until period 02/02 it developed computer software. It then provided licences to use the software packages developed. On 2 January 2004 the company's name was changed to Pexum. By letter of 7 January 2004, Pexum's accountant notified HMRC's VAT registration unit of a "change of direction" by Pexum, saying that it had "identified an opportunity involving the export of Computer Equipment, and with immediate effect [that was to be] the company's main activity". As Pexum thereafter expected to be a repayment trader, it applied for, and on 22 January 2004 was granted, permission to make monthly returns.
7. Between January 2004 and October 2004, Pexum carried on the business of buying and selling CPUs or, at least, goods that purported to be CPUs. It made purchases from UK VAT registered traders, and sold to traders outside the United Kingdom.
8. Having been notified of Pexum's intention to trade in CPUs, on 3 February 2004 HMRC wrote to it concerning MTIC (missing trader intra-community) fraud, that being a particular and rapidly increasing problem to them at the time. Their letter also gave an indication of the information which Pexum should obtain in relation to new or potential customers or suppliers with which it intended to trade, and required it to provide monthly purchases and sales listings.
9. As part of HMRC's programme to combat MTIC fraud, Mrs Teal visited Pexum on 1 March 2004. She issued Notices 726 (Joint and several liability in the supply of specified goods) and 700/52 (Notice of Requirement to give security to Customs and Excise), and HMRC's statement of practice entitled "VAT Strategy: Input Tax deduction without a valid VAT invoice". She also informed the company that further investigations would be carried out in relation to its suppliers. The issue of the two Notices was standard practice in the case of new traders in CPUs. At the time of Mrs Teal's visit, Pexum had completed deals in CPUs generating VAT repayments totalling £47,704.00. That sum was paid to it on 22 April 2004.
10. As we have indicated, the deals giving rise to the disputed decisions were undertaken by Pexum in accounting periods 07/04, 09/04 and 10/04. In them Pexum claims to have bought goods either from ITW or Kwik Move Limited ("Kwik Move"), both UK VAT registered traders, and in all cases sold and purportedly exported those goods to Best Concord Technology Limited ("Best Concord"), of Hong Kong. The goods involved in all the deals were purportedly P4 2.8GHz 800 CPUs manufactured by Intel Corporation ("Intel"), the world's largest manufacturer of CPUs.
11. Deals 26, 31 and 36, were said to have been carried out in period 07/04; deals 38, 40, 43 and 44 in period 09/04; and deals 46, 48, 50, 52 and 55 in period 10/04. Full particulars of the documents said to have evidenced the deals are contained in Schedules 1, 2 and 3 to our decision. Schedule 1 includes details of the documents evidencing the purchases and sales claimed by Pexum, the companies with which it contracted, the quantities of CPUs said to have been dealt in, their unit prices, and the contract prices, including VAT where appropriate. Schedule 2 shows the shipment dates, delivery dates, payment dates, and again, the contract prices. Schedule 3 lists all the box numbers purportedly forming part of each transaction allocated to the lot number indicated, including, in some cases, box numbers found in other, i.e. duplicated, transactions.
12. For each deal, Pexum prepared a "deal pack". By way of example, in relation to deal 52 the pack consisted of 29 documents including a declaration by ITW that the purchase price was no lower than that paid by ITW, that VAT would be paid by ITW on the transaction etc, confirmation from HMRC's specialist office at Redhill that ITW's registration was valid, shipping documents, bank statements and confirmation of receipts and payments by Pexum's bankers, HSBC. Significantly, in our judgment, despite being specifically asked to do so, ITW failed to confirm that a VAT check had been completed on its supplier. In relation to some of the deals, Allways Couriers Limited (now Allways Logistics Ltd) ("Allways") faxed Goods Received Reports to Pexum after it had instructed Allways to export the goods, or after the goods had been exported. In evidence, Mr Brown claimed that in such circumstances, Pexum would previously have been informed of the results by telephone. We are not satisfied on the evidence that that was the case.
13. Pexum claimed that an open box inspection was carried out on six of the 12 deals in point in the appeal so that it has no evidence of the contents of the boxes comprising the remaining six deals. (An open box test involves breaking the manufacturer's original seal in opening the box and removing the internal packaging in order to compare the lot numbers stamped on the individual items inside it against the numbers recorded on the external box label).
14. Most of the deals Pexum entered into were with ITW. In evidence, Mr Auletta of that company claimed that in trading in IT components ITW sourced supplies from within the United Kingdom and sold them mainly outside the European Union. In any given period he said that ITW traded with only one or two customers. Between July and October 2004 the only customer with which it dealt was Evergreen Technology Enterprise Ltd ("Evergreen") of Hong Kong, a company described as a "sister company" of Best Concord, each company having a single, common director. The reason for that, he claimed, was ITW's "need to cover the negative situation which arises from exporting goods and the depletion of funds resulting from certain deals last year [2004] in respect of which ITW was not paid for goods it supplied". He explained the "negative situation" as being represented by the difference ITW had to pay for the goods purchased in the UK (i.e. with VAT) and the price it received on their sale, either to a company in another Member State or outside the European Union (i.e. without VAT). ITW therefore sought other companies to export to customers on its behalf. Pexum agreed to assist in that process. It began trading with ITW in July 2004, their first deal taking place on 8 July.
15. Mr Auletta claimed to have become aware through Evergreen that Best Concord wished to purchase stock both from ITW and from Pexum. As a result of its funding problems, he further claimed that ITW was not in position to export goods to Best Concord. Consequently, he said he approached Pexum "to see if it could export goods to Best Concord on ITW's behalf", confident that Pexum would not "steal" ITW's customer by cutting it out of the supply chain.
16. Essentially, we were told, the oral agreement reached between ITW and Pexum, which incidentally contradicted ITW's written terms and conditions of trade, provided for ITW to supply goods to Pexum, and for Pexum to supply them onward to Best Concord, payment only becoming due from Pexum to ITW on Pexum being paid by Best Concord. The goods were to be supplied at "market prices"; there were no special deals or discounts. From the documentary evidence before us, we are satisfied that the payment arrangements explained by Mr Auletta were in fact implemented. In Mr Auletta's evidence there were no indications of how or when ITW paid for the goods it bought, or from whom it made purchases. In the absence of any such indications, we are not satisfied that its purchases were genuine. Neither ITW nor Pexum ever carried out any checks on Best Concord, both apparently considering themselves at no commercial risk in dealing with it.
17. We were told that when Best Concord wished to purchase stock it placed a purchase order with Pexum, having previously ascertained from ITW what stock was available on the market. Once Pexum received the purchase order, it would contact ITW and check the market price of the products required. ITW would report to Pexum, and Pexum would submit its purchase order to ITW. Having ascertained the availability of the required goods in the market, ITW would then send a pro-forma invoice for Pexum to sign confirming that ITW was to purchase the stock. We find that Pexum never came into physical possession of or itself inspected the goods, nor did ITW; and on Pexum supplying them to Best Concord, they were carried by air from the UK to Hong Kong by FedEx Corporation ("FedEx"), the world's largest express transportation company. In all the deals, other than numbers 26 and 31, the documents show that some or all of the goods were dispatched to Best Concord at an address other than that to which the associated documents were addressed. We accept that the documentation relating to each deal was as described to us, but not that it correctly identified the goods in fact consigned to Best Concord.
18. When Pexum first commenced trading with ITW, on the instructions of ITW it used a company called Hawk as freight forwarder. Pexum was unhappy with that choice as Hawk was unable to carry out open box tests and chip tests. (A chip test involves a chip being inserted into a CPU tester to ensure that it is fully functioning). Consequently, Mr Auletta suggested that Allways be substituted for Hawk. He said he did so because he knew Allways' directors; it had a secure bonded warehouse; and ITW's suppliers' stock was always held by Allways. Pexum agreed, and we find that all the transactions the subject of this appeal involved Allways as freight forwarder. We also find that throughout Pexum's "ownership" of goods purchased from ITW for onward sale to Best Concord they were held by Allways; Pexum never inspected the goods, nor did ITW.
19. Mr Auletta did not elaborate on a statement he made in evidence that ITW's suppliers' stock was always held by Allways. Whether he meant that prior to ITW acquiring it, it was held by Allways, or simply that following acquisition the goods were held by Allways and never came into ITW's possession was unclear. Nor did he give any details of its sources of supplies. In the absence of any evidence from him as to why Best Concord wished to purchase goods from Pexum when it could have purchased direct from ITW, and how ITW was able to finance its own purchases when it had not been paid for its sales to Pexum, we place little reliance on Mr Auletta's evidence as a whole, he proving a less than satisfactory witness.
20. Mr Brown of Pexum arranged to visit Allways on 26 July 2004, i.e. after the first two disputed deals were carried out. He agreed with Allways that he should be shown its warehouse. As he was told the warehouse was on an industrial estate in Slough and was somewhat difficult to find, Mr Brown arranged to meet Mr O'Brien and Mr Blake of Allways at a petrol station just off the M4 motorway. He was then taken to an address he later gave to Mrs Teal as Unit H, Hamilton Road, Slough. On arrival at the unit, he found it to contain no indication of its occupier, but claimed in evidence not to consider that strange as none of the premises of the freight forwarders with which Pexum dealt contained any indication of their owners or occupiers. Mr Brown went on to say:

"I viewed the premises and security arrangements, that is the closed circuit TV equipment and the strong room. I also viewed the CPU testing unit and saw microchips being tested on it. I was satisfied with the facilities".

(We were informed, and accept, that a CPU testing unit is similar in size and weight to a personal computer, so that it is light and easily portable).

21. Pexum carried out no further checks of Allways and continued to deal with it as freight forwarder throughout July, August, September and October 2004.
22. Subsequently, HMRC made enquiries of Slough Estates Ltd, the owner of the warehouses and other properties in Hamilton Road, Slough, only to be informed that there was no such property as Unit H. Further enquiries revealed that the property which Mr Brown visited was in fact known as Unit 8H and had from May 2004 been leased to Flostream Ltd ("Flostream") – a company with no connection whatsoever to Allways. Mrs Johal of HMRC visited Flostream on 18 October 2004 and obtained evidence, which we accept as fact: (1) that Flostream had never stored CPUs at Unit 8H, Hamilton Road, Slough; (2) that there was no equipment for testing CPUs on its premises; (3) that in July 2004 a Mr Paul Gerrish of Seabourne Couriers enquired of Flostream whether it could assist his brother-in-law's business, Allways, in providing secure storage facilities for another business. As the enquiry indicated the possibility of Flostream obtaining new business, it agreed to Allways having access to Unit 8H for the purpose of showing the potential new customer around it; (4) on or about the 26 July 2004, two members of Allways, identified by Mr Weaver, the managing director of Flostream, as "Nick" and "Chris", brought a number of CPUs to Unit 8H, which they proceeded to arrange on a workbench within the warehouse; (5) on the "potential new customer" arriving at Unit 8H its representative was shown around the warehouse; (6) after the potential new customer left, the Allways representatives collected the stock they had brought, packed up, and left shortly afterwards. Flostream had no further contact with Allways. From enquiries later made by those representing Pexum, Mr Weaver came to understand that Flostream's potential new customer was Pexum.
23. The HMRC officer responsible for Allways' VAT registration was Mr Mercott. On the morning of 10 November 2004, he visited what he understood to be Allways' principal place of business – its "administration office" – which turned out to be a small private dwellinghouse at 2 Leeson Gardens, Eton Wick, Windsor. He saw Mr Nick Pearson and Mr Chris Blake, directors of Allways and Mr Nick O'Brien, its logistics manager. The last mentioned dealt with Mr Mercott.
24. Mr Mercott asked if Allways had any other premises, to which Mr O'Brien replied that it operated from the Windsor address and, if the company needed any temporary storage, it would rent a lock-up at the Big Yell storage depot in Hounslow. Thus whilst not directly answering Mr Mercott's question, Mr O'Brien clearly indicated that Allways had no business premises other than the house at Windsor.
25. Mr O'Brien explained that Allways normally collected customers' goods for dispatch from another freight forwarder. Sometimes, Allways would make arrangements for a van to be met somewhere and for goods to be exchanged in the street. Edgware High Street was quoted as an example of where goods had been exchanged. Mr O'Brien added that goods were brought back to the Windsor house for storage in the kitchen / diner of the property.
26. Mr O'Brien further explained that Allways charged "whatever it could get away with" for inspecting goods entrusted to it, took digital photographs of them for customers, and tested CPUs. Mr Mercott was shown no photographs, nor did he see a CPU testing device. Some invoices shown to Mr Mercott showed a charge for x-raying products. Mr O'Brien explained that Allways did not carry out x-rays itself, but used a machine "at the airport". Following inspections of goods, they would be repacked at the Windsor house. Overall, Mr Mercott was satisfied with the records maintained by Allways.
27. There are three further matters concerning Allways with which we may now usefully deal, and which led HMRC to suspect that inspection reports it prepared were "entirely fictitious", to quote Mr Anderson. First, the closed box inspection Goods Received Report which Allways faxed to Pexum for Deal 48 was in all material respects identical to the Goods Received Report Allways faxed to Merian Ltd in relation to a separate deal by Merian Ltd also carried out on 19 October 2004. As appears from the final column of the entry relating to Deal 48 in Schedule 3 to our decision, a number of boxes said to have been included in lot number Q339A345 and exported by Pexum, were also said to have been supplied by Merian Ltd on the same day. Secondly, the closed box inspection Goods Received Report faxed by Allways to Pexum in relation to deal 55 was in all material respects identical to the Goods Received Report faxed by Allways to Libra Tech Limited in relation to the deal Libra Tech Ltd purportedly carried out on 27 and 28 October 2004 (see the final entry in Schedule 3 to our decision). In other words, all 34 boxes said to have been sold and exported by Pexum on 28 October 2004 were also said to have been bought by LibraTech Limited from Rapid Global Ltd on 27 October 2004 and sold by LibraTech Limited to Best Concord on 28 October 2004. Further, nine of the same 34 boxes were said to have been sold by Aston Technology Partners Limited to Gemini Media Group Limited on 27 October 2004, and thereafter sold by the latter to Best Concord on 27 October 2004. Against that factual background, we find it impossible to say which of Pexum, LibraTech Limited or Gemini Media Group Limited, or indeed whether any of them, sold whatever goods were exported to Best Concord in the deal covered by Pexum's documents relating to deal 55. We are certainly not prepared to find that they were supplied by Pexum. Thirdly, as is shown clearly in the final column of the Third Schedule to our decision, some unique box numbers of CPUs appeared in more than one transaction entered into by Pexum, whilst other box numbers were included in sales transactions entered into by other traders contemporaneously with sales by Pexum.
28. We find that Allways had no "secure bonded warehouse"; indeed it had no warehouse. We were provided with a number of documents, including photographs said to have been the results of checks by Allways of goods the subject of Pexum's deals with ITW and Kwik Move. Against the background of facts we have found about Allways, we are unable to accept any of them as the true results of checks carried out by Allways, if indeed any checks were carried out by that company. We agree with Mr Anderson that Allways' inspection reports to Pexum were "entirely fictitious", so that we place no reliance whatever on any of them. Nor are we prepared to rely on any other documents prepared or completed by ITW for Pexum. We consider the facts we have found about Allways to speak for themselves. None of the documents prepared by Allways can be relied upon to establish the true nature of the goods supplied by Pexum.
29. On 2 December 2004, a consignment of goods was detained for examination by HMRC at Birmingham Airport. The goods had been bought by First Talk Mobile Limited ("First Talk") from Digimate Limited ("Digimate") and sold and consigned by First Talk to Hanton Technology Co Ltd of Taiwan ("Hanton"). Pexum had no connection with Digimate, First Talk or Hanton, and was not involved in any way with the goods in question. The goods detained were labelled as 2016 Intel P[entium] 4 2.80 800 GHz CPUs, and consisted of 15 boxes which bore (or purported to bear) Intel lot numbers Q339A345 and 7432A795. HMRC detained no other shipment of goods at Birmingham Airport late in 2004.
30. On the same day, Mr Howard visited the courier shed of FedEx at Birmingham Airport where the boxes detained were held in the "hold section", a Customs' controlled area which FedEx had an obligation to keep in a secure state. The boxes were in four larger export cartons marked (or deemed to be marked) "KI", "K2", "K3" and "K4". Each carton bore a label showing air waybill reference number 8394-4195-7772. Some of the inner boxes bore lot number Q339A345 and others lot number 7432A795. Each box contained two blocks of six layers of six plastic trays filled with "CPUs". Each layer contained 24 "CPUs" and was said by Mr Howard on the basis of his visual inspection to be "as per the invoice description". Mr Howard photocopied the reference numbers shown on each tray, together with the labels found on each of the smaller boxes containing the "CPUs". He then stamped and sealed the boxes with plain tape. On 3 December 2004, as Mr Singh "was not happy with the quality" of the CPUs detained, he contacted Mr Price with a view to his analysing them. On 6 December 2004, Mr Howard returned to FedEx and removed one chip sample from each box, placing each chip removed in an individual box with an identifying label. He then placed all the bags in a single bag and sealed it under number 246417B.
31. On 7 December 2004, Mr Price examined a sample of "CPUs" selected by Mr Singh and Mr Howard. He noticed that the heatsink plates had come off a number of them revealing pieces of green plastic manufactured to look like circuit boards. It appeared to him that the heatsinks were glued in place on the green plastic boards. None of the "CPUs" Mr Price examined had silicon cores, and all were what he described as "non-functioning units". (Without silicon cores CPUs cannot function as they do not have any electrical circuits). The units were packaged in such a way as to appear to a casual observer that they were genuine, functioning Intel CPUs. Mr Price concluded that the "CPUs" were counterfeit because of their lack of silicon cores. He was also informed that the lot number on the CPUs did not match Intel's records. Mr Price completed an Intellectual Property Rights Statement of Opinion in which he stated that he had examined the sample under seal no. 246417B. In the statement he said:

"The CPUs are of inferior quality. On inspection they do not contain any silicon and therefore are not an integrated circuit. These items are worthless pieces of plastic and will never be able to function as a microprocessor. They bear the Intel trademark without authorisation of the company."

32. Also on 7 December Miss Jenny Ballam of Intel informed Mrs Teal that goods bearing the same lot numbers as those in Pexum's July, September and October deals had been detained by HMRC, and were suspected of being counterfeit CPUs. Mrs Teal had earlier been told of the detention of a shipment of Intel Pentium 4 CPUs at Birmingham Airport, but was not aware of its having any connection with Pexum.
33. The samples examined by Mr Price were not re-sealed. As a result, when Mr Howard returned to the premises of FedEx to conduct a further examination of the four boxes, he removed further CPU samples from each box. He placed the latter samples in a bag with an identifying label, recording the box and lot numbers of the "CPUs" in each box. The lot numbers were either 7432A795 or Q339A345. Mr Howard issued a notice of seizure.
34. On 10 December 2004, officers Haggett and Peet examined a random sample of "CPUs" which were produced by officers Ferguson and Poole. Mr Haggett found each of the "CPUs" he examined either to have a loose metal cover or to have lost its cover entirely. He noted:

"On scrutiny the chips with no cover did not have a microprocessor present, only a blob of glue. None of the chips that I examined had the product markings that the lntel Corporation had previously advised me that their genuine product should have."

35. Mr Haggett explained that Intel had informed him that its genuine products were marked with a black bar to be found on each CPU with printing on it. Mr Brown of Intel confirmed that a black bar was to be found on all genuine Intel CPUs, and added that most of them would also show a bar code.
36. On 20 December 2004, Mr Howard returned to FedEx and removed the four boxes and their remaining contents. He then removed one block of the trays from Box K2 and locked it in a sample cupboard as an example of counterfeit / bogus chips. He placed the remaining boxes and their contents in four separate plastic bags and sealed them. They were then transferred to the Customs Red Point Lock-Up at Birmingham Airport.
37. On 11 January 2005, Mr Howard produced the same four sealed bags to Mr Price for examination. Mr Price conducted a further examination of random samples of "CPUs" from the seven boxes and concluded that none of them was in fact a CPU. He did so because all the units lacked silicon cores. Mr Price accepted that the alleged "CPUs" he examined may have looked like genuine CPUs to a casual observer, but explained that they were in fact just worthless pieces of plastic with metal pins and a metal heatsink glued onto the plastic. They could not function as CPUs, or as anything else. He added, "The items I examined were worthless; a piece of junk, they had no value at all". He also said that it would have been very easy to find out whether the items he examined were not genuine CPUs: all one had to do was to prise off the heatsink cover with a small flat edge screwdriver to reveal the absence of a silicon chip. Further, the pins on the items examined were of poor construction, Mr Price doubting whether they could have been inserted into a computer motherboard. Even had it been possible to insert the pins into a motherboard, he explained that it would have been immediately obvious that a CPU was not genuine because the computer would simply not have started.
38. After Mr Price's examination, Mr Howard removed a box (with its "Intel" label) from the box marked K4 as a sample to assist HMRC's future investigation. It consisted of one tray of "CPUs" from the large box marked K2, and one inner box showing an "Intel" label taken from the large box marked K4. We accept that he did so purely to obtain an example of bogus CPUs, and an example of an inner box in which bogus CPUs had been stored, so that the information on the label could be examined if necessary.
39. We have dealt with the evidence relating to the goods detained at some length as Mr Patchett-Joyce made much of the continuity of the custody of the First Talk Mobile consignment suggesting that there was scope for someone within FedEx to have swapped or tampered with the boxes detained by HMRC. Pexum adduced no evidence whatsoever to suggest that swapping or tampering occurred, but relied for its suggestion on minor discrepancies in the evidence of the various witnesses who dealt with the "CPUs" at Birmingham Airport. Having examined all the evidence most carefully, on the balance of probabilities we are satisfied that the goods detained were not swapped or tampered with: they were held by FedEx in a Customs controlled area to which there was no public access, and no evidence was presented to us to establish, or even to indicate, that FedEx's security arrangements were in any way inadequate. From our own examination of some of the "CPUs" forming part of the consignment detained by HMRC at Birmingham Airport, as confirmed by the various HMRC officers who dealt with those items and Mr Price, we find that they were not genuine CPUs, but rather were worthless pieces of plastic with metal pins and a metal heatsink glued onto the plastic.
40. As mentioned in paragraph 4, we took oral evidence from John Flynn and David Alan Brown of Intel. They explained that Intel supplies Intel Corp (or "Intel ®") CPUs in two formats: individual retail boxed CPUs (complete with cooling fan), and cartons containing trays of CPUs ("tray CPUs") supplied without fans, the latter being primarily intended for original equipment manufacturers (OEMs).
41. Each carton / box of Intel tray CPUs has affixed to it at the factory an Intel label showing the following numbers:

(a) a lot number (alternatively known as a "finished product order" or "FPO" number); the lot number identifies the manufacturing batch for those CPUs;

(b) an S Spec number, which identifies the speed and electronic specification of the CPUs;

(c) a unique carton/box number, selected randomly by the Intel computer, identifying the particular box;

(d) an Intel "product number"; this number has either the prefix BV, which indicates it is intended to be split up and the CPUs repackaged as individual boxed products, or RK, which indicates that the CPUs are intended to be supplied to the customer as tray CPUs.

With one exception (which relates to CPUs returned to Intel unused and undamaged and which are not returned to the market for over six months, which happens rarely if at all. We consider the possibility of any such box being included in a Pexum transaction as so remote as not to warrant consideration), the use of a carton / box number that already exists cannot occur for the Intel computer will reject it.

42. We remind ourselves that the goods that were purportedly bought and sold by Pexum were packed in cartons/boxes bearing, or purporting to bear, lot numbers 3291A173, 7432A795 and Q339A345. The lot numbers set out in Pexum's Goods Received Reports corresponded with the lot numbers shown on photographs which were purportedly sent to Pexum by A1lways in respect of each deal.
43. The three lot numbers referred to in the last preceding paragraph were interrogated by Mr Flynn and Mr Brown on Intel's electronic database system known as its Integrated Lot Traceability System ("ILTS"). ILTS analyses and tracks products (such as CPUs or memory chips) as they move between manufacturing stations inside Intel's factories. It also enables Intel to prepare lists of customers receiving CPUs from a specific FPO lot such as Q339A345. ILTS can also report details about the laser marking manufacturing process for FPO lots. The "Customer Shipment" ILTS query is programmed to report only on routine shipments and ignores "exception shipments". The "Customer Shipment" query is the check which Mr Flynn is trained to carry out and the only check he has had reason to use. When a lot number is entered into the ILTS, if it is valid the system will accept it and will move that number onto a different field on the screen. If the lot number is invalid, it will not be accepted. It is not possible to print a document showing that the lot number is invalid. On the ILTS it is also possible to run a "Detailed Genealogy" report to look at what Mr Flynn described as "data deeper inside the Intel factories". Such a report gives a history of a lot number from the beginning of manufacture to shipment.
44. Mr Flynn confirmed that he had checked lot No. 3291A173 on the ILTS and found that it did not exist. He confirmed that lot No. 7432A795 did exist when the ILTS was interrogated in October 2004, but that the shipment of products bearing it did not commence until 18 December 2004. Consequently, at the time of Pexum's transactions, no products bearing lot No. 7432A795 had been shipped by Intel.
45. Intel shipped 1107 units of product bearing lot No. 7432A795 between 18 December 2004 and 14 January 2005. The products in question were much different from those which Pexum claimed to have supplied to Best Concord under that lot number; they were Celeron CPUs, which do not have pins but have instead a grid array of small balls of solder that melt when soldered to a motherboard and are used in the production of laptops.
46. Both Mr Flynn and Mr Brown confirmed that lot No. Q339A345 did exist, but went on to explain that the genealogy checks carried out on the ILTS demonstrated that:

(a) it originally comprised 2296 CPUs;

(b) 11 units failed tests and were destroyed so that only 2285 CPUs bearing that lot number were released to Intel's finished goods warehouse for shipment to customers;

(c) of those 2285, 1955 were shipped to ordinary customers and 330 to customers under an "exception process", i.e. they formed a non-standard shipment. Of the 1955 shipped to ordinary customers, 73 were sold to customers in individual retail box packaging and the remaining 1882 were shipped as tray CPUs in cartons / boxes. Most, 1440, were sent to Dell Computer Corporation in Austin, Texas, USA and the remainder to eight other OEMs;

(d) of the 330 CPUs shipped to "exception customers", 80 were shipped to Maxdata Systeme GmbH and 250 to Laser Computer Ltd.

47. Further, Mr Brown explained that the cart used to move the CPUs bearing a particular lot number at the Intel factory holds a maximum of 2,400 CPUs and, since at the start of processing of a CPU lot all material for that lot must be on the same cart, a lot cannot exceed 2,400 in number. Any CPU shipment consisting of more than 2,500 units bearing a single lot number is suspicious.
48. Mr Patchett-Joyce submitted that the Intel evidence should be excluded on the basis that there was inequality of arms between the parties (see Commissioners of Customs and Excise v Anglo Overseas Ltd [2004] EWHC 2198 (Ch)). We are unable to accept that case as authority for so doing for, as Mr Anderson maintained, the observations of the court on the equality of arms were made in the context of the court deciding whether to exercise its discretion to make a winding-up order where the validity of the assessment made by HMRC had not been properly tested: a completely different situation from the one before us. In any event, there is no suggestion in the Anglo Overseas judgment that any inequality of arms should have influenced the subsequent decision of the tribunal which dealt with the case.
49. Mr Patchett-Joyce also invited us to treat the evidence of Mr Flynn and Mr Brown as "wholly unreliable". We accept that the evidence of those two witnesses was given against a background of Intel being most reluctant to disclose the security measures it has in place to protect its products, so that not everything Pexum would have liked revealed was disclosed. But we do not accept that that reluctance undermines the evidence of those witnesses.
50. To summarise our findings of fact on the Intel evidence, any goods that Pexum may have bought (or purported to buy) from ITW and Kwik Move forming part of lots numbered 3291A173, 7432A795 and Q339A345 and may have sold (or purported to sell) to Best Concord were not the goods described in the invoices on which it based its claim for input tax deduction, namely Intel P4 2.8GHz 800 CPUs. Lot No. 3291A173 did not exist at all; lot No. 7432A795 did exist as a number, but items bearing the number were not shipped to any customers until December 2004; and while lot No. Q339A345 did exist, all of the CPUs which were manufactured and shipped bearing its number were accounted for by Intel, and were never manufactured in the quantities purportedly exported by Pexum.
51. Kwik Move was involved in but two deals, numbers 46 and 50. The only evidence adduced in relation to them was confined to the documents relating to the deals, particulars whereof are contained in the three schedules hereto. We find that Pexum never inspected the goods it claimed to have purchased from Kwik Move, and they were from their ownership by Kwik Move until transported to Best Concord held by Allways.
52. On 22 December 2004 Mrs Teal wrote to Pexum formally informing it that HMRC were satisfied that the supplies referred to in certain July 2004 invoices did not take place, and consequently it was not entitled to recover the input tax claimed on them. She added that HMRC would be making a without prejudice assessment to VAT for £327,726 in relation to deals 26, 31 and 36, that sum having earlier been repaid to Pexum. As mentioned earlier, that assessment was made on 11 January 2005.
53. Mrs Teal also wrote the two further letters of 22 December 2004 in respect of Pexum's September and October 2004 returns. For the same reasons she had given for rejecting some of its July 2004 input tax claims, she also rejected parts of its September and October claims.

The Relevant Legislative Provisions

54. Section 4 of the Value Added Tax Act 1994 ("VATA") provides as follows:

"(1) VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.

(2) A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply."

55. Section 24(1) of VATA defines "input tax" as:

"'VAT on the supply to him of any goods or services ... being (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him."

56. Section 24(6)(a) VATA provides that regulations may 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."

(Section 24(6)(a) gives effect to Article 18 of the Sixth Directive, which refers to the documentary requirements which must be satisfied in order to exercise a right to deduct).

57. Section 25(2) of VATA provides:

"Subject to the provisions of this section, he [the taxable person] is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him."

58. Regulation 13(2) of the VAT Regulations provides that the particulars of the VAT chargeable on a supply of goods shall be provided on a document containing the particulars present in Regulation 14(1).
59. Regulation 14(1)(g) of the VAT Regulations provides that:

"a registered person providing a VAT invoice ... shall state thereon the following particulars –

(g) a description sufficient to identify the goods or services supplied."

60. Regulation 29(2) of the VAT Regulations provides:

"At the time of claiming deduction of input tax ... a person shall, if the claim is in respect of –

(a) a supply from another taxable person, hold the document which is required to be provided under regulation 13; ... provided that where the Commissioners so direct, either generally or in relation to particular cases or classes of cases, a claimant shall hold or provide such other evidence of the charge to VAT as the Commissioners may direct."

61. The foregoing provisions implement, and are to be interpreted consistently with, the Sixth Directive and, in particular, Articles 2,5(1), 17(1), 17(2)(a), 18(1)(a), 22(3)(a) and 22(3)(b) thereof.
62. Article 2 of the Sixth Directive provides, so far as material:

"The following shall be subject to value added tax:

The supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such; …"

63. Article 5(1) of the Sixth Directive provides:

"'Supply of goods' shall mean the transfer of the right to dispose of tangible property as owner …"

64. Article 17 of the Sixth Directive provides (so far as material):

"Origin and scope of the right to deduct -

The right to deduct shall arise at the time when the deductible tax becomes chargeable.

In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) value added tax due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person; …"

65. Article 18(1)(a) of the Sixth Directive provides:

"Rules governing the exercise of the right to deduct

1. To exercise his right of deduction, a taxable person must:

(a) in respect of deductions pursuant to Article 17(2)(a), hold an invoice drawn up in accordance with Article 22(3); …"

66. Article 18(2) of the Sixth Directive provides:

"The taxable person shall effect the deduction by subtracting from the total amount of value added tax due for a given period the total amount of the tax in respect of which, during the same period, the right to deduct has arisen and can be exercised under the provisions of paragraph I."

67. Article 22(3)(a) of the Sixth Directive provides:

"3(a) Every taxable person shall ensure that an invoice is issued, either by himself or by his customer, or in his name and on his behalf, by a third party, in respect of goods or services which he has supplied or rendered to another taxable person or to a non-taxable legal person. Every taxable person shall also ensure that an invoice is issued, either by himself or by his customer or, in his name and on his behalf, by a third party, in respect of the supplies of goods referred to in Article 28b(B)(1) and in respect of goods supplied under the conditions laid down in Article 28c(A).

Every taxable person shall ensure that an invoice is issued, either by himself or by his customer or, in his name and on his behalf, by a third party, in respect of any payment on account made to him before any supplies of goods referred to in the first subparagraph and in respect of any payment on account made to him by another taxable person or non-taxable legal person before the provision of services is completed … Member States may impose on taxable persons an obligation to issue an invoice in respect of goods or services …. which they have supplied or rendered on their territory."

68. Article 22(3)(b) of the Sixth Directive provides (so far as material):

"Without prejudice to the specific arrangements laid down by this Directive, only the following details are required for VAT purposes on invoices issued under the first, second and third subparagraphs of point (a): the quantity and nature of the goods supplied …"

69. Article 22(8) of the Sixth Directive provides:

"Member States may impose other obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion, subject to the requirement of equal treatment for domestic transactions and transactions carried out between Member States by taxable Persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers."

Submissions and Conclusions

The Right to Deduct

70. Mr Anderson submitted that the right to deduct input tax was not an absolute right. The mere fact that a trader had entered into a contract for the purchase and sale of something did not give rise in itself to a right to deduct: he must enjoy the entitlement not only to the right to deduct, but also the right to exercise the right to deduct. That right involved the need to hold an invoice (or other document), which identified or described the transaction at issue. Put another way, he contended that there were two conditions precedent which must be satisfied by a taxable company in order to establish a right to deduct, namely:

(a) The goods or services forming the subject matter of the transaction must have been delivered or performed (see Article 17(1)(a) of the Sixth Directive); and

(b) The company must hold a valid invoice, or the document which a Member State considered to serve as an invoice, in respect of the deduction claimed at the time of making the claim (see Articles 18(2) and 22(3)(a) of the Sixth Directive).

71. The existence of those conditions was, in Mr Anderson's contention, confirmed by the Court of Justice of the European Communities ("the ECJ") in Case C152/02 Terra Baubedarf-Handel GmbH v Finanzamt Osterhok-Scharmbeck [2005] STC 525 at 538. At paragraph 34 the ECJ stated that:

"... the deduction referred to in article 17(2) thereof must be made in respect of the tax period in which the two conditions required under the first paragraph of article 18(2) are satisfied. In other words, the goods must have been delivered or the services performed and the taxable person must be in possession of the invoice."

72. Mr Anderson observed that the importance of invoices was emphasised in Joined Cases 123/87 and 330/87 Léa Jorion, née Jeunehomme, and Société anonyme d'étude et de gestion immobiliére 'EBGI' v Belgian State [1988] ECR 4517, where the ECJ held at paragraph 14:

"In order to be entitled to deduct the value-added tax payable or paid in respect of goods delivered or to be delivered or services supplied or to be supplied by another person, a taxable person must hold an invoice drawn up in accordance with Article 22(3) of the Sixth Directive (Article 18(1)(a)). Under that provision, the invoice must state clearly the price exclusive of tax and the corresponding tax at each rate as well as any exemptions .... and the Member States are to determine the criteria for considering whether a document serves as an invoice (subparagraph (c))"

73. Similarly, in Case C-338/96 EC Commission v Kingdom of the Netherlands (United Kingdom intervening) [2003] STC 1506, the ECJ held that the Netherlands had failed to fulfil its obligations under the EC Treaty by permitting certain taxable persons to recover input tax credit in circumstances where there was no possibility of an invoice, or a document considered to be an invoice, being delivered to that taxable person from the supplier. That was because it was apparent from the wording of Articles 18(l)(a), 22(3)(a) and (c) of the Sixth Directive that:

"In order to make the deduction referred to in art 17(2)(a) of that Directive, the taxable person must in principle hold an invoice or a document considered to be an invoice, issued to him by another taxable person."

74. Furthermore, Mr Anderson submitted, HMRC's position was consistent with the case law in relation to the taxability of non-existent supplies. It was settled law that the mere fact, e.g. that a taxable person held documents in respect of purchases purporting to be VAT invoices and which purported to show that VAT had been paid by him did not, of itself, give any right to deduction or refund where no underlying supply had taken place: see Case 342/87 Genius Holding BV v Staatssecretaris van Financiën [1991] STC 239 at 250, paras 8-20 (ECJ) and Customs and Excise Commissioners v Pennystar Ltd [1996] STC 163 at 165f (Macpherson of Cluny J).
75. In the Genius Holding case, the principle of fiscal neutrality was relied upon by a taxpaying company which had been wrongly invoiced VAT contrary to the domestic rules. At paragraphs 12 - 15, of its judgment, the ECJ made the following observations in response:

"12. In that regard, it should be pointed out, ... that in drafting art 17(2)(a), the Council departed both from the wording of art l1(a) of EC Council Directive 67/228 of 11 April 1967 (the Second Directive) and from that of art 17(2)(a) of the Commission's proposal for a Sixth Directive ((1973) OJ C80), provisions under which the taxable person was entitled to deduct any tax invoiced to him in respect of goods or of services supplied to him.

13. It must be inferred from the changes made to the above-mentioned provisions that the right to deduct may be exercised only in respect of taxes actually due, that is to say, the taxes corresponding to a transaction subject to VAT or paid in so far as they were due …

15. According to art 18(1)(a), to exercise his right to deduct, the taxable person must hold an invoice, drawn up in accordance with art 22(3), which requires the invoice to state clearly the price exclusive of tax and the corresponding tax at each rate as well as any exceptions. In accordance with that provision, mention of the tax corresponding to the supply of goods and services is an element in the invoice on which the exercise of the right to deduct depends. It follows that that right cannot be exercised in respect of tax which does not correspond to a given transaction, either because that tax is higher than that legally due or because the transaction in question is not subject to value added tax."

76. Genius Holding was, in Mr Patchett-Joyce's submission of no assistance in the instant case: it concerned the question whether a main contractor, who had wrongly been charged VAT by a sub-contractor, had a right to deduct the VAT because it appeared on an invoice. The ECJ decided that the right to deduct was exercisable only in respect of taxes actually due. He maintained that the critical difference between the Genius Holding case and the instant one was that in the latter the transactions were subject to VAT, whereas in the former they were not so subject.
77. Mr Patchett-Joyce submitted that HMRC had sought to introduce an unnecessary conceptual problem by suggesting that a party must have "a right to exercise a right" in addition to the entitlement to the right itself. He maintained that such a distinction was meaningless because a right to exercise a right was necessarily implicit in the enjoyment of an entitlement to a right. More importantly, Mr Patchett-Joyce further submitted, the wording of article 17(2)(a) of the Sixth Directive – "goods … supplied or to be supplied to [the taxable person]" – did not impose a condition precedent that goods must have been delivered in order for the taxable person to be entitled to deduct input tax. In view of the fact that it was no part of HMRC's case that Pexum or its suppliers were knowingly a party to any fraudulent activity, he contended that it must follow that, as between ITW and Kwik Move (on the one hand) and Pexum (on the other), the stated quantities of CPUs were to be supplied by the former to the latter. Moreover, since the supply of those goods was subject to VAT, and the suppliers charged output tax on those supplies, the requirements of article 17(2)(a) had been fully satisfied. Further, as HMRC accepted that invoices were raised by the suppliers and were held by Pexum, articles 18(2) and 22(3)(a) of the Sixth Directive had also been fully satisfied.
78. For those claims, Mr Patchett-Joyce relied upon the judgments in Terra Baubedarf-Handel GmbH v Finanzamt Osterholz-Scharmbeck Case C-152/02 [2005] STC 525, EC Commission v Kingdom of the Netherlands Case C-338/98 [2003] STC 1506 and Reisdorf v Finanzamt Koln-West Case C-85/95 [1997] STC 180. In particular, he relied upon the fact that the right to deduct had been held to be conditional upon the possession of an invoice or:

"A document to be considered an invoice" (EC Commission v Kingdom of the Netherlands) at para 74;

"The document which, under the criteria determined by the Member State in question, may be considered to serve as an invoice" (Terra Baubedarf-Handel GmbH) at para 32; and

"Any other document serving as an invoice that fulfils the criteria determined by the Member States themselves" (Reisdorf v Finanzamt Koln-West at para 31).

79. Mr Anderson maintained that those references to "documents" in addition to "invoices" did not detract from the force of HMRC's submission, and did not assist Pexum. He did so on the following basis:

(a) It was uncontroversial that Member States had the power to prescribe what documents would be considered to "serve as an invoice" enabling a taxpayer to establish his right to deduct, subject to the requirements of the Sixth Directive.

(b) The authorities referred to by Pexum concerned the nature and scope of Article 22(3)(c) of the Sixth Directive (now amended), which provided that "the Member State shall determine the criteria for considering whether a document serves as an invoice".

(c) It was clear that where a Member State exercised its power under Article 22(3)(c) of the Sixth Directive, and imposed requirements for the invoice to include particulars other than those set out in Article 22(3)(b), they must be limited to what was necessary to ensure the correct levying of VAT and to permit supervision by the tax authorities. Moreover, "such particulars must not, by reason of their number of technical nature, render the exercise of the right to deduction practically impossible or excessively difficult" (see Jeunehomme at paras 17 and 18).

(d) However, in stating that "to exercise his right to deduction, a taxpayer must hold a valid VAT invoice", HMRC did not seek to exclude those "documents" which a Member State considered to "serve as an invoice". That would clearly be absurd since such documents effectively constituted invoices, as defined by a particular Member State. Mr Anderson maintained that Mr Patchett-Joyce had mis-stated HMRC's position.

(e) The "invoices" / "documents" which were provided by Pexum to HMRC did not satisfy the requirements for a valid invoice as defined by either Regulation 14(2)(g) or Article 22(3)(b) of the Sixth Directive.

(f) For the avoidance of doubt, Mr Anderson added that HMRC also accepted that a Member State might accept alternative documents as evidence that the claimed supply had taken place where the taxpayer was unable to produce a document which was a valid invoice (or served as a valid invoice) by satisfying all of the criteria set down in Regulation 14. However, that could only be done in the exercise of that Member State's discretion. In the instant case, alternative documents had not been produced to establish to the requisite standard that the claimed supply actually took place.

80. We have set out the submissions of both parties on the right to deduct at length and, having considered them against a background of the legislative provisions in point, we hold the "invoices / documents" provided by Pexum to HMRC not to satisfy the requirements of a valid invoice as defined either by regulation 14(2)(g) of the VAT Regulations 1995, or article 22(3)(b) of the Sixth Directive. In so concluding, we accept the submissions of Mr Anderson in their entirety, and reject those of Mr Patchett-Joyce.

The Significance of a Proper Identification of the Supply

81. Mr Anderson observed that it was a mandatory requirement of the Sixth Directive that an invoice provided details of "the quantity and nature of the goods supplied ...". That was reflected in Regulation 14(2)(g), which required the invoice to contain "a description sufficient to identify the goods or services supplied". The reason for providing a proper description of "the quantity and nature of the goods supplied" was considered recently by Advocate General Jacobs in Case C-90/002 Finanzamt Gummersbach v Bockemuhl [2005] STC 934, in which he observed:

"71. The significance of particulars such as those under examination, and their contribution to the proper functioning of the VAT system, in particular to ensuring the correct collection of the tax and the prevention of evasion, are self-evident and confirmed ... by their inclusion in the list of compulsory statements following amendment by Directive 2001/115.

72 …

Identification of the taxable transaction is clearly of great practical importance for determining what provisions are applicable. It is evident that, when mentioned, the taxable transaction must be defined correctly in accordance with the categories in the directive, since a different qualification may trigger the application of different provisions of the directive and possibly different tax rates. Definitions which are not accurate in that regard may prejudice the application of the directive and distort competition."

82. In Mr Anderson's submission, it was of fundamental importance that taxable persons included on the invoice an accurate description of the goods or services supplied. The fact that in the present case the goods listed on the invoice and the "goods" which were in fact supplied did not have different tax consequences were entirely irrelevant: the underlying principle that an invoice should contain a proper description of the transaction must be upheld, without exception.
83. Mr Patchett-Joyce relied on paragraph 74 of the Advocate General's opinion in Bockemuhl as indicating that HMRC were concerned with matters extraneous to the VAT rules:

"In the case at issue, the invoice mentioned construction work done whereas the tax authorities consider that it should have mentioned the supply of staff to do that work. If a description of services invoices is incorrect and thus liable to give rise to an incorrect application of VAT, it seems to me that the invoice may legitimately be regarded as invalid for VAT purposes in accordance with such rules as a member state has adopted to that effect. It seems however that in Mr Bockemuhl's case the tax authorities may have been motivated principally by concerns relating to the possible circumvention of national provisions of employment and social security law. Such concerns, whilst clearly very important, are extraneous to the VAT rules and should not in my view be regarded as relevant to the ruling to be given in this case".

84. Any suggestion that HMRC were so influenced was, in Mr Anderson's submission, without foundation. Further, he observed, Pexum failed to refer to the critical passage which followed that upon which it relied:

"75. My view is none the less that the applicable version of the Sixth Directive allows Member States to require suppliers to indicate their name and address and to identify accurately the nature of the supply, on any invoice used for VAT purposes, and thus to refuse the recipient a right to deduct if those particulars are absent or materially incorrect".

85. Mr Anderson added that the importance of an accurate description was also raised in Jeunehomme by Advocate General Slynn. Among other things, that case concerned whether the Belgian State was permitted to require certain particulars to be stated on invoices in order to exercise the right to deduct. Whilst the ECJ provided guidance on the permitted scope of such particulars, it left the national court to decide whether the particulars accorded with the criteria it prescribed. Advocate General Slynn, however, observed:

"The requirements of Article 2 of the Royal Decree No 1 do not seem to me to go beyond what is reasonably necessary for the purposes of verification and fiscal control and they are not disproportionate to that aim nor do they have the effect of rendering it virtually impossible or difficult in practice for a taxable person to exercise his right to deduct input tax. These rules seem to me to reflect the legislation of several if not many Member States. The date of the operation, the event giving rise to chargeability and the information needed to decide what rate of tax is applicable are all justified. By way of example it seems to me that the serial number of the invoice is reasonably necessary in order to check against the accounts of the buyer and seller; the names and addresses of the VAT registered person and his supplier, the description of the goods and a statement of the price are all necessary if there is to be adequate monitoring of the collection and paying in of VAT and prevention of fraud".

86. The Advocate General also stated that, in his view, there was no risk of "fundamental particulars such as the name and address of the supplier and the (correct) identification of the taxable transaction" rendering the right to deduct practically impossible or excessively difficult.
87. Again, we accept the submissions of Mr Anderson and reject those of Mr Patchett-Joyce. It is plain from paragraph 75 of the ECJ judgment in Bockemuhl that the accurate identification of the nature of supply must be indicated on any invoice used for VAT purposes, and in its absence or material incorrectness, as in the instant case, the revenue authority may refuse the recipient a right to deduct input tax.

The Relevance or Otherwise of a Contractual Analysis

88. Mr Patchett-Joyce made much of the contractual position between Pexum and ITW, with a view to showing that Pexum intended to buy and sell genuine Intel Pentium CPUs, and that because the deals were only voidable, the ordinary tax consequences should flow. He added that as a matter of fact, in the case of each deal, the supplier intended to supply CPUs, and thought that it had done so. Equally, in respect of each deal, Pexum intended to buy CPUs, and thought that it had done so.
89. In Mr Anderson's submission, that was irrelevant. The real issue was whether the deals involved what the invoices showed them as involving. That was a matter of fact, unaffected by what Pexum may or may not have believed or intended: it was a matter of fact, in relation to which the burden rested on Pexum. It was clear from the case-law that the nature of the supply must be examined objectively, without recourse to the subjective intentions of the parties: see, e.g. Customs and Excise Commissioners v Pennystar Ltd [1996] STC 163, in which Macpherson of Cluny J held that notwithstanding that the taxpayer had been the victim of a fraud, he could not recover input tax credit when there had not in fact been any supply.
90. Mr Patchett-Joyce contended that the invoices held by Pexum fulfilled all three requirements of a VAT invoice, namely (1) they enabled Pexum to prove its right to deduct input tax; (2) they identified the applicable rate of VAT as 17.5 per cent; and (3) they enabled HMRC to carry out fiscal controls on both suppliers and recipients. The invoices were of themselves sufficient to prove Pexum's entitlement to the input tax it claimed, so that its appeal should be allowed. Alternatively, Pexum's secondary case, premised on our not being satisfied that the invoices were sufficient to prove the entitlement to deduct input tax, was based on HMRC's VAT Strategy whereby, by paragraph 6, "a taxable person may be able to make claims for input tax, but these claims are subject to Custom's discretion". Paragraph 18 of the Strategy explained how HMRC could exercise their discretion in relation to "computers and any other equipment" in the following terms:

"… claimants will be expected to answer satisfactorily all or nearly all of the questions at Appendix 2. In addition, they are likely to be asked further questions by Customs in order to test whether they took reasonable care in respect of transactions to ensure that their supplier and the supply were 'bonafide'."

91. We agree with Mr Anderson that ITW and Kwik Move may have intended to supply CPUs to Pexum, and thought they had done so, and that Pexum may have intended to buy CPUs, and thought it had done so, are irrelevant. The deals into which Pexum entered into did not, in our judgment, involve what the invoices showed them as involving.

The Nature and Scope of HMRC's discretion

92. In relation to discretion, Mr Anderson submitted that when an invalid VAT invoice was produced by a taxpayer in support of a claim to deduct input tax, the taxpayer could not exercise his right to deduct. HMRC were, however, empowered by Regulation 29(2) to exercise their discretion in favour of the taxpayer to allow deduction based on other evidence: they might accept such other evidence of the charge to VAT as they directed.
93. Mr Anderson maintained that the power to accept additional evidence in support of the claim for input tax was limited in an important respect: the evidence must show that the transaction in respect of which the deduction was claimed actually took place: see, e.g. paragraph 31 of Reisdorf v Finanzamt Koln-West in which the ECJ confirmed that:

"... art 18(a) and art 22(3) of the Sixth Directive permit the member states to regard as an invoice not only the original but also any other document serving as an invoice that fulfils the criteria determined by the member states themselves, and confer on them the power to require production of the original invoice in order to establish the right to deduct input tax, as well as the power, where a taxable person no longer holds the original, to admit other evidence that the transaction in respect of which the deduction is claimed actually took place".

94. He observed that the Tribunal applied that principle in Elite Designs International Ltd v CCE (2000) VAT Decision no. 16925, as follows:

"32. The proviso to Regulation 29(2) speaks of 'other documentary evidence of the charge to VAT'. Reisdorf speaks of 'cogent' evidence. But that does not mean that, where the document produced by the supplier as an invoice is invalid for some technical reason, such as a clear misprint of a number, that there must be some other cogent document - to act as an invoice. Customs could in an appropriate case regard the defective invoice itself as cogent documentary evidence where the surrounding circumstances, whether evidenced in a documentary form or otherwise, clearly corroborate that the relevant transaction occurred".

95. Mr Anderson accepted that HMRC were required to take into account all the evidence, and determine whether the supply claimed took place: that was the proper extent of their discretion in a case of this nature. The exercise was not simply a matter of answering the questions set out at Appendix 2 of the VAT Strategy, but of considering the totality of the evidence.
96. He submitted that it was clear from the evidence, and particularly that of Mrs Teal, that HMRC properly reviewed all the available evidence and concluded that it was insufficient to show that any supplies had been made of goods of the description contained in documents on which Pexum relied. He added that Mrs Teal's decision not to repay the input tax claimed was reasonable since there were no grounds to treat the documents relied on by Pexum as if they did in fact evidence supplies of goods of the description contained in those documents.
97. To the very limited extent that the adequacy of Pexum's due diligence checks were relevant, Mr Anderson maintained that HMRC did not accept that it did carry out the necessary checks, or that Mrs Teal had no cause for concern. Indeed, he contended, had Pexum carried out further checks as advised by HMRC in their VAT Strategy, it was highly unlikely it would have found itself in the position it did find itself.
98. Mr Patchett-Joyce submitted that HMRC did not enjoy a true "discretion" because the VAT Strategy had spelt out, in express detail, how the proviso to regulation 29(2) of the VAT Regulations was to apply to taxpayers dealing in, e.g. CPUs. In other words, he maintained, to the extent that the proviso to regulation 29(2) could properly be described as creating a discretion to allow deduction of input tax without a valid invoice, the exercise of that "discretion", in the present context, was fettered by the VAT Strategy. A party without a valid VAT invoice but within the VAT Strategy was entitled to deduct input tax. Alternatively, he maintained that HMRC could not be said to have exercised their discretion in a defensible manner if they acted contrary to their own VAT Strategy, see Kohanzad.
99. Once again, we accept the submissions of Mr Anderson. The VAT Strategy is but HMRC's interpretation of how the discretion should be applied. It is not binding on us, and is not intended comprehensively to cover every possible permutation of factual situations in which taxpayers may seek to recover input tax. As paragraph 31 of the Reisdorf judgment clearly indicates, articles 18(a) and 22(3) of the Sixth Directive permit member states to regard as an invoice not only the original invoice but also "any other document serving as an invoice that fulfils the criteria determined by the member states themselves". That statement is in the clearest possible terms, and requires no elaboration by us.

HMRC's Statement of Practice on Invalid Invoices

100. HMRC issued the statement of practice entitled "VAT Strategy: Input Tax deduction without a valid VAT invoice" in July 2003. It clarified their policy in respect of claims for input tax supported by invalid VAT invoices. As mentioned in paragraph 9 of our decision the VAT Strategy was served on Pexum on 1 March 2004. It explained the changes as necessary to address the increasing threat to VAT receipts by the use of invalid VAT invoices and emphasised that in order to exercise a right to deduct, a person must hold a valid VAT invoice. It continued by explaining that, in the absence of such an invoice, "a taxable person may be able to make claims for input tax, but these claims are subject to Customs' discretion". Under "How will Customs apply their discretion?", it stated that in respect of e.g. "supplies of computers and any other equipment", claimants would be expected to be able to answer satisfactorily a number of questions such as whether they had documentary evidence of a supply other than an invoice, or evidence of payment. It further continued "In addition, they are likely to be asked further questions by Customs in order to test whether they took reasonable care in respect of transactions to ensure that their supplier and the supply were 'bona fide'". And if the claimant could provide satisfactory answers to those questions and to any additional questions that HMRC might ask, input tax could be permitted. After the list of questions the note alerted the reader to the fact that "this list is not exhaustive and additional questions may be asked in individual circumstances".
101. Accordingly, Mr Anderson submitted, it was not sufficient for Pexum to refer to those questions alone when challenging the exercise of the Commissioners' discretion: all depended on the circumstances of a particular case.
102. Furthermore, he maintained, it was implicit in the VAT Strategy that in considering all the circumstances of the case, HMRC must be satisfied that the claimed supply actually took place. Thus, where the VAT Strategy referred to the provision of "alternative evidence" by the taxpayer company, he contended that it was evidence which showed that "the supply of goods or services had been made". The instant case was not one of an invoice containing a minor technical error, such as an incorrect date, which might be corrected by later evidence.
103. In cases such as Pexum's, the scope of HMRC's discretion was to undertake a review of the relevant material rather than to exercise a free-standing discretion, as suggested by Mr Patchett-Joyce. The purpose of due diligence was to assist companies in identifying suspect deals, but it did not in itself give rise to deduct in cases such as the present one.
104. Mr Patchett-Joyce claimed that the focus of attention in HMRC's Statement of Practice which formed part of their VAT Strategy as a whole was, quite rightly, the supplier to the party claiming a right to deduct input tax without a valid VAT invoice: it was not on any other party, particularly the freight forwarder used in any transactions, the carrier, or the purchasing customer. It was also to be noted that the party claiming a right to deduct input tax was expected to "undertake normal commercial checks", and to take "reasonable care". In other words, in Mr Patchett-Joyce's submission, the requirement to be satisfied was that of commercial reasonableness, and nothing higher.
105. Mr Patchett-Joyce then took us through the various questions set out in appendix 2 to the Statement of Practice to illustrate that Pexum had dealt with the various deals sensibly and as advised by HMRC.
106. As to the note at the end of appendix 2 indicating that the list of questions was not exhaustive, and that additional questions might be asked in individual circumstances, Mr Patchett-Joyce maintained that it was quite clear from the context that it was for HMRC to ask further questions if they saw fit to do so. He submitted that Pexum was well able to, and indeed had, answered all the questions put to it, so that it had passed the required standard of commercial reasonableness on all counts.
107. Mr Patchett-Joyce made much of paragraph 2 of the Summary of Responses where it is said that "If taxpayers follow the guidance in the Statement of Practice and are able to demonstrate satisfactorily that they took reasonable steps to establish the bona fide nature of their supply and supplier, they will not be caught by this measure". He particularly claimed that HMRC had wholly failed to carry out an independent central review as promised in the Statement before invoking the provision. They had therefore behaved procedurally improperly and, on that ground alone, their decision against Pexum could not be allowed to stand.
108. Next, Mr Patchett-Joyce noted that in the Summary of Responses HMRC indicated that the new measure applied only in cases where there was economic substance to the transactions, and so could not apply in a situation such as that found in the Bond House v Commissioners of Customs and Excise [2006] STC 419 case, adding that in HMRC's reformulated Statement of Case they had expressly put their case "additionally, or in the alternative" on the basis that there was no sufficient evidence that the supplies in question were economic activity. He therefore submitted that HMRC were pursuing two mutually incompatible cases: on the one hand, in purporting to refuse Pexum input tax deduction on the basis of an invalid invoice, they accepted that the transactions in question had economic substance; yet on the other hand, their secondary case was expressly premised on the absence of economic substance in the same transactions. And since HMRC did not pursue that secondary case in the tribunal, they must accept that Pexum's deals did have economic substance.
109. In relation to a further provision in the Summary of Responses that HMRC would apply the rules fairly, Mr Patchett-Joyce observed that Pexum had obtained a letter from ITW and Kwik Move confirming that each had accounted for all output tax due on its deals with Pexum. As Mrs Teal did not dispute that evidence in cross-examination, he maintained that we must be satisfied that they did so account. And since it was necessarily implicit in HMRC's case that the deals did involve economic substance, Mr Patchett-Joyce contended that, in direct contravention of the stated intention of the VAT Strategy, HMRC had refused to allow Pexum's input tax claim, notwithstanding their statement and the proper accounting treatment by ITW and Kwik Move. He submitted that it followed that in that regard HMRC were acting in breach of their VAT Strategy and, again, on that ground alone, their refusal to repay could not be allowed to stand.
110. Finally, in relation to the VAT Strategy, Mr Patchett-Joyce submitted that when the extensive documentary checks, and various on-line and credit checks carried out by Pexum on its suppliers were evaluated against the checks contemplated in the VAT Strategy, there could be no doubt that it passed the required standard of commercial reasonableness on all counts.
111. In the light of all the foregoing submissions on the VAT Strategy, Mr Patchett-Joyce further submitted:

(a) in all respects, Pexum had satisfied HMRC's VAT Strategy and was entitled to deduct input tax in accordance therewith;

(b) to the extent that the application of the VAT Strategy involved the exercise of discretion by HMRC, they had exercised that discretion in an indefensible manner on the facts; and

(c) to the extent that Mrs Teal purported to exercise her discretion she did so unreasonably.

112. Having once again reminded ourselves that the VAT Strategy is but HMRC's statement of intention as to how they should apply their discretion in cases involving invalid invoices, whereas we must apply the relevant law, we yet again conclude that the submissions of Mr Anderson are correct, and thus to be applied, whilst those of Mr Patchett-Joyce must be rejected. As Mr Anderson observed, HMRC must be satisfied that the claimed supplies took place. They were not satisfied that they did so; nor are we. Pexum appears not to have noticed that all its deals were said to have involved CPUs in but three Intel lot numbers. That fact alone should have put Pexum on notice that something was amiss. Further the VAT Strategy, being a general statement was not devised to deal with HMRC's retro-engineering (to use Mr Patchett-Joyce's description) necessary in the instant case to deal with the facts which emerged after Pexum's various deals.

The Nature and Scope of the Tribunal's Jurisdiction

113. Mr Anderson maintained that the limited nature of the tribunal's jurisdiction in respect of a challenge such as that of Pexum to the exercise of HMRC's discretion was well-established in case law. As Schiemann J held in Kohanzad v Commissioners of Customs and Excise [1994] STC 967 at 968:

a. It was established that the tribunal, when considering a case where HMRC had a discretion, exercised a supervisory jurisdiction over the exercise of that discretion.

b. It was not an original discretion of the tribunal, but rather one where it considered whether HMRC had exercised their discretion in a defensible manner.

c. The supervisory jurisdiction was to be exercised in relation to materials which were before HMRC, rather than in relation to later materials Commissioners of Customs and Excise v Peachtree Enterprise Limited [1994] STC 747.

d. The burden of proof lay on an appellant to satisfy the tribunal that the decision of HMRC was incorrect.

114. Kohanzad was followed in Elite Designs where the tribunal stated at paragraph 31:

"When Customs and Excise have failed to exercise their discretionary power under the proviso to regulation 29(2) to allow a deduction, the issue on an appeal to the tribunal is whether Customs and Excise in that failure acted in a manner in which they could not reasonably have acted. When considering that question the relevant material is the material that was available to Customs when it made its decision and it is for the taxpayer to satisfy the tribunal that Customs failed to act reasonably and properly".

115. There being no argument as to the nature and scope of the tribunal's jurisdiction, we accept Mr Anderson's submissions.

The Burden of Proof

116. Mr Anderson submitted that the burden of proof was on Pexum to make out its claim for input tax deduction: once HMRC had discharged the evidential burden of putting in doubt that the goods in fact supplied were as described in the invoices, the legal burden of establishing that the goods corresponded with those described in the invoices rested throughout on Pexum. He contended that the legal burden rested upon Pexum was evident from Grunwick Processing Laboratories Limited v Commissioners of Customs and Excise [1986] STC 441; [1987] STC 357 (CA). In that case, the appellant sold silver scrap, a by-product of its film processing business, but it did not include those sales in its VAT returns. The Commissioners assessed tax on the basis of purchase notes which they obtained from dealers in silver and which they alleged related to sales of silver by the company. The appellant company appealed against the assessment, contending that the amount of silver represented by the purchase notes exceeded the amount of silver which it produced. It submitted that some of the notes· should be excluded as relating to silver which came from other sources. The Tribunal held, and the High Court confirmed, that the burden of proving, on the balance of probabilities, that any particular note did not relate to a was on the company. As Macpherson J observed (see page 445):

"At no time do the Commissioners have any burden to prove anything before the tribunal. Neither its case nor any aspect of the matter, factually or evidentially, carries any burden imposed on the Commissioners. It is throughout, in my judgment, up to the taxpayer company, if it can, to attack the assessment in whole or in part. If it could have shown that some of the notes should have been excluded, then just as in connection with the pilferage in Van Boeckel v Commissioners of Customs and Excise, [[1981] STC 290] the assessment might have been pro rata reduced, but even if some of the notes may not have related to Grunwick silver but had come from another source, that was not a matter proved that the end of the day by the taxpayer company to be so on the balance of probabilities."

The Court of Appeal agreed that the decision of the VAT Tribunal disclosed no error of law: see [1987] STC at page 360.

117. Mr Anderson also relied upon the Opinion of Advocate General Slynn in Jeunehomme, in which he observed:

"An invoice which complies with the rules is the 'ticket of admission' to the right to deduct. subject to its subsequently being shown by the tax authorities to be false; if the invoice does not comply, it may be that the taxpayer can prove the genuineness of the transaction and that his supplier accounted for the VAT which he has paid as 'input tax', but if the invoice is incomplete in a material respect the onus is on him to establish his right to deduct."

118. From those authorities Mr Anderson submitted that the onus was on Pexum to prove the genuineness of the transactions, namely, that they did involve the purchase and supply of Intel P4 2.8GHz 800 CPUs.
119. Mr Anderson also submitted that were we to be satisfied that HMRC did not reach conclusions which no reasonable body of Commissioners could have reached, the issues were essentially those of fact, the burden of proof in respect whereof rested on Pexum. If Pexum had not established that the supplies in respect of which it made its input tax claims were of Intel P4 2.8 GHz 800 CPUs, its appeal must fail.
120. While accepting that the legal burden of proof was on Pexum, Mr Patchett-Joyce maintained that it could satisfy, and had satisfied, the evidential burden by producing the invoices from its suppliers in respect of the transactions in issue: the evidential burden then shifted to HMRC to satisfy the burden of adducing cogent contrary evidence. He contended that the true position was that once Pexum had discharged the evidential burden of adducing the relevant documents requested by HMRC, the evidential burden shifted to HMRC to establish, by cogent evidence, that the invoices and other documents produced were not in compliance with the statutory requirements, or those of their VAT Strategy.
121. We have carefully considered the submissions of both parties on the burden of proof, but since our findings of fact would not differ even were the burden of proof on all matters to fall entirely on HMRC, we consider it unnecessary to deal with this matter further. We are quite satisfied that the conclusions reached by HMRC were those which any reasonable body of Commissioners would have reached.

Conclusion

122. In our judgment, the invoices held by Pexum in support of its claim for input tax deduction, were not valid VAT invoices for the purposes of VATA or the VAT Regulations since they did not give a "description sufficient to identify the goods ... supplied", as required by Regulation 14(l)(g). Likewise those invoices did not contain details of "the ... nature of the goods supplied" as required by Article 22(3)(b) of the Sixth Directive. If any goods were supplied by Pexum at all:

(a) the goods that were in fact supplied were not capable of being described as "CPUs", having regard to their physical characteristics and their lack of functionality; and/or

(b) the goods that were in fact supplied were not in any event genuine Intel P4 2.8GHz 800 CPUs or capable of being described as such.

123. We therefore hold that Pexum had no right to deduct the input tax claimed because its purchase invoices described the goods purportedly bought by it as "Intel P4 2.8GHz 800" CPUs, manufactured by Intel.
124. We dismiss the appeal, and direct that Pexum pay HMRC's costs of and incidental to and consequent upon the appeal to be assessed on the standard basis. If the parties are unable to agree the costs, we direct that they be assessed by a costs judge.

DAVID DEMACK

CHAIRMAN
Release Date: 14 March 2007

MAN/05/0004


 


Schedule 1 – Deals between Pexum and Best Concord showing inter alia VAT paid by Pexum

Deal	Deal Check Sheet	Purchase Order Date	Purchase Order no	Proforma Invoice Date	Proforma Invoice No	Invoice Date	VAT Invoice Number	Seller	Buyer	Quantity of CPUs	Unit Price	Net Price	VAT	Total
26	13-Jul-2004	13/07/2004	ITW 10	13/07/2004	268	not listed or in file		ITW	Pexum	6,048	£91.50	£553,392.00	£96,843.60	£650,235.60
£650,235.60	£650,235.60	13/07/2004	PO-40058			13/07/2004	PE1363	Pexum	Best Concord	6,048	£96.30	£582,422.40	£0.00	£582,422.40
31	19-Jul-04	16/07/2004	ITW 13			16/07/2004	271	ITW	Pexum	5,760	£91.50	£527,040.00	£92,232.00	£619,272.00
£619,272.00	£619,272.00	16/07/2004	PO-40061			19/07/2004	PE1368	Pexum	Best Concord	5,760	£96.30	£554,688.00	£0.00	£554,688.00
36	27-Jul-04	27/07/2004	ITW 19	27/07/2004	278			ITW	Pexum	8,640	£91.70	£792,288.00	£138,650.40	£930,938.40
£930,938.40	£930,938.40	27/07/2004	P-40070			27/07/2004	PE1373	Pexum	Best Concord	8,640	£96.30	£832,032.00	£0.00	£832,032.00
38	21-Sep-04	21/09/2004	ITW 21	22/09/2004	299			ITW	Pexum	3,456	£86.60	£299,289.60	£52,375.68	£351,665.28
£351,665.28	£351,665.28	23/09/2004	ITW 22	23/09/2004	300			ITW	Pexum	5,184	£86.60	£448,934.40	£78,563.52	£527,497.92
£527,497.92	£527,497.92	21/09/2004	PO-40127			21/09/2004	PE1375	Pexum	Best Concord	8,640	£90.95	£785,808.00	£0.00	£785,808.00
£785,808.00	£785,808.00	not on spreadsheet				21/09/2004	PE1375	Pexum	Best Concord	3,456	£90.95	£314,323.20	£0.00	£314,323.20
40	27-Sep-04	27/09/2004	ITW 23	27/09/2004	301			ITW	Pexum	8,640	£86.60	£748,224.00	£130,939.20	£879,163.20
£879,163.20	£879,163.20	27/09/2004	PO-40129			27/09/2004	PE1378	Pexum	Best Concord	8,640	£90.95	£785,808.00		£785,808.00

Deal	Deal Check Sheet	Purchase Order Date	Purchase Order no	Proforma Invoice Date	Proforma Invoice No	Invoice Date	VAT Invoice Number	Seller	Buyer	Quantity	Unit Price	Net Price	VAT	Total
43	29-Sep-04	29/09/2004	ITW 25	29/09/2004	307			ITW	Pexum	8,640	£86.60	£748,224.00	£130,939.20	£879,163.20
£879,163.20	£879,163.20	29/09/2004	ITW 26	29/09/2004	308			ITW	Pexum	2,880	£86.60	£249,408.00	£43,646.40	£293,054.40
£293,054.40	£293,054.40	29/09/2004 (20.22)	PO-41033			29/09/2004	PE1381	Pexum	Best Concord	11,520	£90.95	£1,047,744.00	£0.00	£1,047,744.00
£1,047,744.00	£1,047,744.00	29/09/2004 (20.54)	PO-41034
44	30-Sep-04	30/09/2004	ITW 27	30/09/2004	309			ITW	Pexum	6,624	£86.60	£573,638.40	£100,386.72	£674,025.12
£674,025.12	£674,025.12	30/09/2004 (19:35)	PO-40136			30/09/2004	PE1382	Pexum	Best Concord	6,624	£90.95	£602,452.80	£0.00	£602,452.80
46	13-Oct-04	15/10/2004	KM 1			15/10/2004	1030	Kwik Move	Pexum	11,520	£84.00	£967,680.00	£169,344.00	£1,137,024.00
£1,137,024.00	£1,137,024.00	14/10/04 (faxed 15/10/04 at 15:22)	PO-40142			15/10/2004	PE1384	Pexum	Best Concord	11,520	£88.20	£1,016,064.00	£0.00	£1,016,064.00
48	19-Oct-04	19/10/2004	ITW 30			20/10/2004	335	ITW	Pexum	11,520	£84.00	£967,680.00	£169,344.00	£1,137,024.00
£1,137,024.00	£1,137,024.00	19/10/04 (22:10)	PO-40146			19/10/2004	PE1386	Pexum	Best Concord	11,520	£88.20	£1,016,064.00	£0.00	£1,016,064.00

Deal	Deal Check Sheet	Purchase Order Date	Purchase Order no	Proforma Invoice Date	Proforma Invoice No	Invoice Date	VAT Invoice Number	Seller	Buyer	Quantity	Unit Price	Net Price	VAT	Total
50	21-Oct-04	21/10/2004	KM2			21/10/04 (01.36)	1037	Kwik Move	Pexum	10,080	£84.00	£846,720.00	£148,176.00	£994,896.00
£994,896.00	£994,896.00					21/10/04 (00.33 Credit Note)	1038	Kwik Move	Pexum	-4,320	£84.00	-£362,880.00	£63,504.00	£426,384.00
£426,384.00	£426,384.00	20/10/04 (21:35)	PO-40148			21/10/2004	PE1388	Pexum	Best Concord	5,760	£88.20	£508,032.00	£0.00	£508,032.00
52	26-Oct-04	26/10/2004	ITW 33	26/10/04 (14:51)	340			ITW	Pexum	10,080	£83.60	£842,688.00	£147,470.40	£990,158.40
£990,158.40	£990,158.40	25/10/04 (23.47)	PO-40151			26/10/2004	PE1390	Pexum	Best Concord	10,080	£88.20	£889,056.00	£0.00	£889,056.00
55	27-Oct-04	27/10/2004	ITW 36	27/10/2004	342			ITW	Pexum	10,080	£83.60	£842,688.00	£147,470.40	£990,158.40
£990,158.40	£990,158.40	26/10/04 (01.48)	PO-40152			28/10/2004	PE1393	Pexum	Best Concord	10,080	£88.20	£889,056.00	£0.00	£889,056.00

Schedule 2 – Table showing Pexum deals shipped by FedEx to Best Concord and related payment amounts and dates

Deal	No. of Lots	No of boxes	FedEx Courier Shipment date	Delivered	Allways Certificate of Shipment	Quantity of CPUs	Payment	Payment Date	Amount	Bank Statement
26	3	21					Pexum to ITW	15/07/2004	£650,235.60	not in file
not in file	not in file	not in file	13/07/04	15/07/2004	12/07/2004	6048	Best Concord to Pexum	15/07/2004	£582,415.45	not in file
31	3	20					Pexum to ITW	21/07/2004	£619,272.00	21/07/2004
21/07/2004	21/07/2004	21/07/2004	19/07/04	22/07/2004	19/07/2004	5760	Best Concord to Pexum	15/07/2004	£582,415.45	21/07/2004
36	3	30					Pexum to ITW	28/07/2004	£450,000 & £480,938.40	28/07/2004
28/07/2004	28/07/2004	28/07/2004	27/07/04	30/07/2004	27/07/2004	8640	Best Concord to Pexum	28/07/2004	£832,024.94	28/07/2004
38	3	12
		18					Pexum to ITW	24/09/2004	£400,000 & £479,163.20	24/09/2004
24/09/2004	24/09/2004	30	23/09/04	25/09/2004	23/09/2004	8640	Best Concord to Pexum	24/09/2004	£785,800.84	24/09/2004
40	3	30					Pexum to ITW	no printed sheet	£400,000 & £479,163.20	28/09/2004
28/09/2004	28/09/2004	28/09/2004	27/09/04	02/10/2004	27/09/2004	8640	Best Concord to Pexum	27/09/2004	£785,800.88	28/09/2004
43	3	30					Pexum to ITW	30/09/2004	£400,000 & £479,163.20	Sheet No. 43 undated
Sheet No. 43 undated	Sheet No. 43 undated	10					Pexum to ITW	30/09/2004	£293,054.20	Sheet No. 43 undated
Sheet No. 43 undated	Sheet No. 43 undated	40	30/09/04	02/10/2004	29/09/2004	11520	Best Concord to Pexum	30/09/2004	£785,800.84 & £261928.82	Sheet No. 43 undated

Deal	No. of Lots	No of boxes	FedEx Courier Shipment date	Delivered	Allways Certificate of Shipment	No. of pieces	Payment	Payment Date	Amount	Bank Statement
44	3	23	Allways FedEx form date 30/9/04				Pexum to ITW	05/10/2004	£400,000 & £274,025.12	Sheet No. 43 undated
Sheet No. 43 undated	Sheet No. 43 undated	Sheet No. 43 undated	01/10/04	04/10/2004	30/09/2004	6624	Best Concord to Pexum	05/10/2004	£602,445.60	Sheet No. 43 undated
46	3	40					Pexum to Kwik Move	15/10/2004	£400,000 & £400,000 & £168,512 & £168,512 = £1,137,024.00	Sheet No. 45 undated
Sheet No. 45 undated	Sheet No. 45 undated	Sheet No. 45 undated	15/10/04	18/10/2004	15/10/2004	11520	Best Concord to Pexum	15/10/04 & 19/10/2004	£508,024.83 & £508,024.83	Sheet No. 45 undated
48	3	40					Pexum to ITW	20/10/2004	£450,000 & £237,024 & £450,000	20/10/2004
20/10/2004	20/10/2004	20/10/2004	20/10/04	23/10/2004	20/10/2004	11520	Best Concord to Pexum	20/10/2004	£1,016,056.85	20/10/2004
50	2	20					Pexum to Kwik Move	21/10/2004 & 22/10/04	£497,448 & £71,064	21/10/2004
21/10/2004	21/10/2004	21/10/2004
			22/10/04	25/10/2004	22/10/2004	5760	Best Concord to Pexum	21/10/2004	£508,024.91	21/10/2004
52	3	35					Pexum to ITW	27/10/2004	£495,000 & £495,158.40	27/10/2004
27/10/2004	27/10/2004	27/10/2004	26/10/04	no tracking print out for this deal	26/10/2004	10080	Best Concord to Pexum	27/10/2004	£889,048.98	27/10/2004
55	3	35					Pexum to ITW	28/10/2004	£495,000 & £495,158.40	28/10/2004
28/10/2004	28/10/2004	28/10/2004	FedEx form not available	01/11/2004	29/10/2004	10080	Best Concord to Pexum	28/10/2004	£889,048.98	28/10/2004

Schedule 3 – Pexum Deals showing Lot Numbers and Box Numbers of items shipped to Best Concord,
together with errors in box numbers and duplicate box numbers identified by HMRC.

Deal	No. of Lots	No of boxes	Lot No: 3291A173 Box Numbers	Lot No: 7432A795 Box Numbers	Lot No: Q339A345 Box Numbers	Box Number if different)	Total Quantity	Duplicate Box Numbers- (as marked (*) in Lot Numbers)
26	3	21	XQ33S: H66, K60, K63, K66, K78, K88, K99, L02	XB1H2C: 59, 66, 77, 80, 83	XY06: D057, D066, D099, E213, E220, E228, W238, E255		6,048
31	3	20	XQ33: 5L26, 5L62, SL00, SL39	XB162D23, XB1H2: C90, C96, D03, D08	XY06: A533, B007, E283, E299, E313, E333, E382, E539, E550, E553, E558	XB16D23 = XB1GD23 & XY06E553 = XYQE553	5,760
36	3	30	XQ33S: 055, 089, 093, 099, P03, P10, P17, P28, P33, P40, P49, P52, P57	XB1G2I: 09, 12, 17, 25, 52, 29, 35, 50	XY06E: 589, 611, 616, 618, 623, 632, 643, 655, 658		8,640
38	3	12	XQ33S: (5)W11, W28, X00, X15, X26, Y39, (6)W09	XB152LF6, XB1G2L: 02, 14, C9, P7, K0	XY06F: 521, 538, 563, 576, 584, 595, 705, 748, 919, 920, 938 & XY06G: 012, 110, 148, 216, 224	XQ335W28, XQ335X00, XQ355X15, XQ335X26, XQ335Y39	8,640
		18	18	18	18	18	18	18
18	18	30	30	30	30	30	30	30
40	3	30	XQ33T: 129, 132, 148, 153, 167, 174, 185	XB1G: 2088, 2LUG, 2LX1, 2N03, 2Q23, 2Y32, 3008, 3023, 3031, 3047, 3054, 3066, 3088	XY06G: 335, 340, 359, 529, 601, 611, 629, 630, 648, 652	XB1G2N05	8,640
43	3	30	XQ33: 5Z29, 5Z33, SZ54, SZ67, SZ75, SZ86, T376, T384	XB1G3: 011, 029*, 152, 402, 517, 523, 536, 545	XY06G: 680, 699, 723, 940, 958, 961, 977, GY18 & XY06H: 360, 375, 389, 391, 408, 412, 445, 465, 476, 484, 497, 503, 539*, 541*, 692, 707	XY06G718, XY06H446	11,520	XB1G3029 - also sent in deal 48, XY06H539 - exported by Glare Electronics Ltd on 7/10/04, XY06H541 - exported by Merian Ltd on 20/10/04
XB1G3029 - also sent in deal 48, XY06H539 - exported by Glare Electronics Ltd on 7/10/04, XY06H541 - exported by Merian Ltd on 20/10/04	XB1G3029 - also sent in deal 48, XY06H539 - exported by Glare Electronics Ltd on 7/10/04, XY06H541 - exported by Merian Ltd on 20/10/04	10	10	10	10	10	10	10
10	10	40	40	40	40	40	40	40
40
44	3	23	XQ33: 5Y41, 5Y58, 5Y62, S212, T196, T218	XB1G2M: 01, 19, 22, 38, 43, 57	XY06G: 288, 293, 307, 314, 326, 361, 378, 382, 397, 982, XY06H357	XQ33SZ12	6,624
Deal	No. of Lots	No of boxes	Lot No: 3291A173 Box Numbers	Lot No: 7432A795 Box Numbers	Lot No: Q339A345 Box Numbers	Box Number if different)	Total Quantity	Duplicate Box Numbers- (as marked (*) in Lot Numbers)
46	3	40	XQ33T: 478, 483, 497, 503, 516, 524, 535, 540, 555, 680	XBIG3: 120, 131, 618, 644, 656, 665, 689, 691, 708, 712, 727	XY061252, XY06G: 167, 173, 194, 205 & XY06H: 856, 863, 877, 882, 898, 901, 919, 922, 930, 949, 968, 972, 987, XY06I273	XQ33T482, XY06I252	11,520
48	3	40	XQ33T: 564, 576, 583, 597, 616, 625, 634 647, 691, 604	XBIG: 2068, 3029*, 3109, 3118, 3257, 3264, 3276, 3285, 5070, 5089	XY061: 006, 014, 025*, 034, 046, 067*, 072, 088, 142*, 158, 163*, 177, 184, 196*, 205, 210*, 229, 231*, 248*, XY06H993		11,520	Boxes XY061: 025, 067, 142, 163, 196, 210, 231, 248 - exported by Merian Ltd on same date
50	2	20	NONE	XB1G: 3555*, 3733**, 4974*, 5042*, 5061*, 4966, 4996, 5004, 5017, 5023, 5038, 5059	XY06: 1286, 1316, 1362, H184, I139, I324, I337, I379	XBIG: 4966, 4996, 5004, 5017, 5023, 5038, 5059 & XY06I: 286, 316, 362	5,760	XB1G35555 - exported by Glare Electronics Ltd on 07/10/04, XBIG3733 - exported by Glare Electronics on 07/10/04 and Silvereef Ltd on 22/10/04 XBIG: 4974, 5042, 5061 - exported by Silvereef Ltd on 22/10/04
52	3	35	XQ33T: 653, 675, 728, 822 & XQ33U: 199, 200, 219, 221, 238, 242, 257, 263, 284, 295, 304, 306	XBIG5: 490, 501, 519, 522, 538, 543, 557, 564, 606, 614, 942	XY06I294*, XY06N: 760, 781,818, 883, 926, 963, 982	XBIG = XB1G	10,080	XY06I294 - exported by Merian Ltd on 20/10/04
55	3	35	XQ33U276 NB: all boxes for this deal are marked as duplicate	XB1G5: 595*, 923* & XBIG5: 576, 585, 790, 804, 917, 938	XY06N338, XY06M302 & XY06N: 383, 727, 738, 836, 843, 859, 110, 129*, 131, 148, 152, 173, 205, 281, 319, 338*, 343, 357* & XY08R: 509, 570*, 603, 631*, 813*, 893*	XB1G: 576, 585, 790, 804, 917, 938 & XY06E338, XY06H302	10,080	All boxes bought by Libra Tech Ltd from Rapid Global Ltd on 27/10/04 and sold by Libra Tech to Best Concord on 28/10/04. Also 9 boxes: XBIG5: 595, 5923, XY08N: 129, 338, 357, XY08R: 570, 631, 813, 893 - sold by Aston Technology to Gemini Media on 27/10/04 and exported by Gemini to Best Concord on 27/10/04