20514
ASSESSMENTS — input tax — whether goods and cars “used or to be used for the purpose of [taxpayer’s] business”  (s24(1)(b) VATA) — associated company — no consideration — in the alternative whether assessment could be upheld on basis of output tax in a like amount — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
					PLATINUM ACQUISITIONS LTD	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal:    Elsie Gilliland (Chairman)
        Howard Middleton

Sitting in public in Manchester on 8 June 2007 and 24 October 2007

Peter Gladdish, VAT Consultant, for the Appellant 
 
Lisa Linklater, counsel, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	The appeal heard by the tribunal was that of Platinum Acquisitions Ltd (the Appellant) against a decision of Customs set out in a letter dated 31 August 2004 to assess the Appellant as per the Notices of Assessment dated 3 September 2004 in the sum of £37,418.00 plus interest.  This related to the periods 09/02 to 03/04.   
   
2.  	By the assessment, Customs disallowed input tax which had been claimed by the Appellant on the purchase of certain IT equipment and furniture apparently supplied by Grouptrade.com Ltd (Grouptrade) in 2002 and 2003 (the goods) and also input tax on the lease of two cars registration numbers YXO2 AOJ and RV02 ZNR (the two cars) supplied by Corporate Cars from 2002.  In respect of the goods Customs considered that these had been used not by the Appellant but by a related company All Day PA Ltd (All Day), which has since gone into administration and that there was no evidence that All Day had paid for them.  Thus s24 of the Value Added Tax Act 1994 (VATA) was not satisfied in that the goods were not “used or to be used for the purpose of any business carried on or to be carried on” by the Appellant nor was there a valid invoice or other documentation.  In its grounds of appeal set out in its Notice of Appeal dated 7 July 2006 the Appellant stated that the goods purchased had been “paid for and used in its business” and that it was entitled to a 50% recovery of input tax on the two cars.

3.  The sole director of the Appellant is a Mr Reuben Singh and he is also the sole proprietor of Corporate Cars.  All Day is an associated company as are Grouptrade and ADP Call Centres Ltd.  On 22 June 2004 Miss Joanna Mary Ainsworth, a VAT Assurance Officer of Customs made a VAT assurance visit to the Appellant at its premises at Isher House, Broadway, Manchester M50 2GY.  There she met Mr Bobby Singh, the Appellant’s financial controller and bookkeeper.  Mr Bobby Singh is not a director or shareholder in the Appellant.  He is an employee of the Appellant.  Miss Ainsworth’s evidence was that Mr Bobby Singh told her that the Appellant’s business was primarily that of leasing two other Mercedes cars registration numbers ML02 TBO and MLO2 TBU (the two Mercedes) to All Day and that in addition the Appellant had recently bought some IT equipment and office furniture from Grouptrade with the intention of selling it on to All Day.  She also was told that from March 2004 All Day had been paying a management charge to the Appellant covering administrative expenses such as petrol, and the use of the phones and a photocopier.  In cross-examination Mr Bobby Singh essentially confirmed this and he also explained that the management charge included payment for Mr Reuben Singh’s services.  At the time of her visit on 22 June 2004 All Day was carrying on the business of a call centre from Isher House.  Subsequently that business went into administration and the business was acquired by ADP Call Centres Ltd (ADP Call Centres) from the administrator.  ADP Call Centres has also acquired the benefit of the use of the two Mercedes.  Rental payments were made by All Day for the use of the two Mercedes and VAT has been duly accounted for in respect of these two vehicles.  No issue arises in respect of the input tax claimed by the Appellant in respect of them.

4.  Mr Bobby Singh explained that the Appellant’s VAT records were kept on Excel spreadsheets and although he said that the disc containing the spreadsheets had been lost, he was able to provide Miss Ainsworth with print outs of the spreadsheets as well copies of the Appellant’s sales and purchase invoices and bank statements.  On examining these records it was clear that the only payments received by the Appellant from All Day were rental payments from July 2002 for the leases of the two Mercedes and the management charge which only started in March 2004.  The purchase day book and the purchase invoices also showed however that the two cars (the subject of the appeal) had been acquired by the Appellant and 50% of the input tax had been reclaimed.  Miss Ainsworth also noted that there were three invoices, apparently from Grouptrade respectively dated  15/9/02, 5/5/03 and 31/ 3/03, in respect of computer equipment and office furniture apparently sold to the Appellant and in respect of which the Appellant had also reclaimed input tax.  There was however nothing in the Appellant’s records to show that any payment had ever been received by the Appellant for these goods or for the use of the two cars or that the Appellant had paid for the computer equipment and the office furniture.  Copies of the invoices for the purchase of the computer equipment and the furniture are appended to Mr Bobby Singh’s witness statement dated 12 April 2007.  There is also appended to that statement a copy letter dated 6 May 2003 apparently typed on Mr Reuben Singh’s notepaper purporting to be a direction to Grouptrade to offset the Appellant’s “outstanding amount to you for goods that you have supplied” against Mr Reuben Singh’s directors loan account with Grouptrade.  The total amount was £221,069.38.  Miss Ainsworh did not see this letter dated 6 May 2003 on her visit and it was first produced along with copies of the three invoices which had been requested when the witness statement was served.  It is clear to us that by the end of her visit on 22 June 2004, Miss Ainsworth was under the impression that All Day was using the computer equipment and office furniture for the purpose of its business without making any payment to the Appellant and that it also had the use of the two cars without payment.

5.  Following her visit, Miss Ainsworth on 2 July wrote to the Appellant requesting further information.  She asked for copies of the three invoices for the computer equipment and office furniture, evidence such as bank statements that the invoices had been paid, copies of the contracts between the Appellant and All Day for all 4 cars and details of what was included within the service charge with a breakdown of the specific amounts involved.  Miss Ainsworth asked for copies of the three invoices because although she had seen copies on her visit she had only made notes of their contents and she wished to have copies before making any decision on whether or not to make an assessment.  There was no response from the Appellant and on 30 July 2004 she wrote again asking for this information.  In this letter she also stated that from the records she had seen on her visit there was no evidence that the Appellant had issued any invoices or received any payment from All Day for the office equipment, the computer equipment or for the two cars.  She then said “As no charges have been made the purchases cannot be regarded as having business purpose for [the Appellant].  In this case the input tax cannot be reclaimed”.  She then said that she had not been satisfied that the purchases had any business purpose and that she would be issuing an assessment in due course.  She also enclosed a schedule showing her preliminary calculation of the amounts of input tax wrongly claimed  and invited comments by 20 August 2004.On 31 August 2004 she wrote again stating that as she had not heard from Mr  Singh following her letter dated 30 July, she had proceeded to issue an assessment as detailed in her letter and on the enclosed sheets and that a formal assessment would follow.  She also requested Mr  Singh to provide any additional information within one month.  On 29 September Mr Bobby Singh replied saying that he had been away since 5 August with his mother in the United States.  He explained that she had been ill and that he assumed that Miss Ainsworth had not received his letter dated 5 August.  He enclosed a copy.  In that letter he said that he enclosed copies of the invoices, confirmed that the invoices had been paid via the directors loan account and that copies of the hire contracts for all 4 cars were also enclosed.  He disputed that the input tax could not be reclaimed.  On 15 October 2004 Miss Ainsworth wrote saying that none of the documents said to be enclosed with the letter dated 5 August had actually been enclosed and requested copies.  We are satisfied that the copy invoices were not actually supplied until Mr Bobby Singh’s witness statement was provided in 2007.  No copy of the rental agreements for the two cars has ever been supplied.  Nothing further appears to have been heard from the Appellant until the present appeal against the assessment was lodged on 7 July 2006.  In the meantime Customs on 9 January 2005 served a winding up petition against the Appellant.  So far as we are aware that petition is still outstanding and the present appeal seeks to challenge the debt upon which the petition was founded.    

6.	The only witnesses who have given evidence before us are Mr Bobby Singh on behalf of the Appellant and Miss Ainsworth.  We are satisfied that the assessment made by Miss Ainsworth was made to the best of her judgment and the contrary has not been suggested by Mr Gladdish who represented the Appellant.  In these circumstances the burden is upon the Appellant to show that the assessment was wrongly made.  The ground of appeal in the Appellant’s Notice of Appeal dated 7 July 2006 is given as: “The Appellant contends that good (sic) purchased have been paid for and used in its business and it is therefore entitled to input tax recovery.  It further contends that it is entitled to 50% VAT recovery on the lease of motor cars which has been disallowed by the Commissioners”.  It is however clear from the case as actually put by the Appellant at the hearing that it is not being said that the computer equipment and the office furniture were actually used by the Appellant in its business.  The case as put forward on behalf of the Appellant by Mr Gladdish in his skeleton argument is that the goods were purchased in 3 consignments with the intention that the Appellant should sell them to All Day but that the sale to All Day did not proceed and that the goods were put into store while another buyer was found.  No buyer was found until May 2006 when the computer equipment was sold for £43,295 plus VAT of £7576.  The sale was to a company called GGS 400 Investments Ltd whose address is given as being at the premises where the goods are said to have been stored that is at 110-114 Cheetham Hill Road, Manchester M4 4FG.  It is unclear whether that company is associated with the Appellant or not.  It is also unclear what effect the winding up petition had on that sale.  There is a suggestion that a validation order had been obtained to authorise the sale but no documentation has been produced.  Any such sale clearly produced a significant loss for the Appellant since the total purchase price for the computer equipment according to the invoices dated 15 September 2002 and 5 May 2003 amounted to £132,825 plus VAT.  It was Mr Bobby Singh’s evidence that the computer equipment and the furniture had remained in storage at all times since its acquisition until disposal and that the furniture was still in store. At one point in cross-examination Mr Singh said that the computer equipment had remained in its boxes.               

7.  	We cannot accept the evidence of Mr Bobby Singh that the computer equipment was purchased by the Appellant with the intention that it and the furniture was to be sold to All Day but that as the sale did not proceed, the goods remained in storage at all material times.  If that had been the true position it is in our view not credible that Mr  Singh did not explain any of that to Miss Ainsworth on her visit on 22 June 2004.  By that time the goods on Mr Singh’s evidence had already been in storage for over a year.  We also find support for the conclusion that the goods were not put into storage in the three invoices each of which states that the prices include a charge for delivery and installation.  Mr Singh suggested that installation merely meant the loading of software on to the machines and did not mean that the equipment had actually been installed at the premises.  That was in our view an unconvincing attempt to explain away the clear terms of the invoices.  We are satisfied and find that no mention was ever made to Miss Ainsworth that the goods were in storage and we accept her evidence that Mr Singh actually said to her that  the goods were in use.  The computer equipment was suitable for use by a call centre and Miss Ainsworth reasonably assumed that it was being used by All Day in connection with its call centre.  Mr Singh did not say anything to the contrary.  Miss Ainsworth did look into a room at the premises which was being used as a call centre and she saw various items of computer equipment and furniture in use.  She did not check that the items were the same as those mentioned in the three invoices.  Mr Bobby Singh suggested that the equipment had been purchased for use in a second call centre which had not yet materialised, but again if that had been the case it is in our view inconceivable that he would not have told Miss Ainsworth of that on 22 June 2004.  He did not do so.  It is clear to us that the substance of Miss Ainsworth’s view on 22 June was that although the Appellant had apparently purchased the goods it was not using them but that they were being used by All Day in connection with its business and without any payment being made to the Appellant.  That in Miss Ainsworth’s view was uncommercial and indicated that the goods had not been purchased by the Appellant in the course or furtherance of any business carried on by the Appellant.  She also was concerned why a company whose main business was the renting of cars should be purchasing a significant amount of computer equipment and office furniture when it did not seem to have any need for it.  Those are also matters of concern to us and no real explanation has been given by the Appellant as to why it should purchase the goods in 3 separate lots over a period of nearly 8 months from one associated company for onward sale to another associated company when if the purchases were intended to be used by All Day, All Day could prima facie itself have acquired the goods direct from Grouptrade.  There is no explanation why the Appellant rather than All Day should have been the purchaser.  It is also unexplained why having purchased £25,000 worth of computer equipment in September 2002 which on Mr Singh’s evidence the Appellant could not dispose of to All Day, it should have spent over £55,000 on furniture in March 2003 and a further £107,825 in May 2003 on yet more equipment it did not intend to use itself but to pass on to All Day which also had no immediate use for it.  No evidence has been produced to establish that there ever was any intention that All Day should establish a second call centre and there is no evidence that any steps were ever taken to establish such call centre and no explanation has been given why any such project did not proceed.  All that is known is that All Day on some unknown date went into administration.  If All Day were encountering financial difficulties in 2003 or 2004, it is inconceivable that this would not have been known to Mr Reuben Singh who is supposed to have paid for the goods by way of offset against his director’s account with Grouptrade in May 2003.  It is unfortunate that Mr Reuben Singh  was not called by the Appellant as a witness since he as the directing mind of the Appellant might have been able to cast some light on the background to the transactions and how they were paid for and what was the Appellant’s intention in relation to the purchases.   No such evidence was however given and Mr Bobby Singh although the financial controller of the Appellant was merely an employee and was not in our view in a position to give authoritative evidence as to the Appellant’s intentions.  We are satisfied and find that the goods were purchased by the Appellant not for the purpose of or in furtherance of its business but in order that they would be available for use by All Day without All Day having to pay for the goods or for the use of them.  The transaction was in our view wholly uncommercial and was not entered into for the benefit of the Appellant.  The goods were in our view moved without consideration from the Appellant to All Day for some unexplained reason and that transaction did not in our opinion amount to a supply of goods within VATA s4.  Neither did it constitute a supply of services within s5(2)(b) because no consideration existed.       

8.  It was put to Mr Bobby Singh in cross -examination that the goods had never existed with the implication that the three invoices were not genuine .  Mr  Singh denied that this was the case.  We accept his denial.  Although Mr  Singh did not produce copies of the invoices when asked for them in correspondence after the visit on 22 June 2004, Miss Ainsworth did see them on her visit and this is not a case where invoices have been manufactured after a visit from Customs.  The likelihood in our view is that the goods did exist.  Claims for the recovery of input tax were made in the relevant quarters.  Miss Ainsworth did see computer equipment and furniture in use at a call centre on her visit.  Nothing was said to her to suggest that the goods which she saw were not the goods in the invoices and as we have already observed it is inconceivable that Miss Ainsworth would not have been told that the goods were in storage if that had been the case.  It is also significant in our view that no documentary evidence has been produced by the Appellant to show that VAT had been paid by All Day prior to September 2003 in respect of the call centre equipment at the premises or that the goods which Miss Ainsworth saw were different goods.  Miss Ainsworth gave evidence that inquiries had been made shortly before the hearing and that there was no record of Grouptrade  having accounted for output tax on the proceeds of the sale of the goods in its returns.  The amount of any output tax which had been accounted for by Grouptrade was far less than the input tax of over £32,924 charged to the Appellant.  However while that would be consistent with the goods not existing, we are not satisfied that this negates the fact that the three invoices are on their face regular VAT invoices, that claims for the recovery of input tax were made and that a call centre was being operated at the premises.  The position appears to have been  that the various companies connected with Mr Reuben Singh were not profitable and it is quite likely in our view that if it is correct that Grouptrade did not account for output tax on the disposal of the goods to the Appellant, that was because it did not have the means to pay the tax.  On the limited available evidence it seems clear that no cash actually passed to Grouptrade and payment was said to have been made by a reduction in the amount of Mr Reuben Singh’s director’s account.  Miss Linklater has also queried the validity of the instruction to deduct the director’s loan account.  The evidence in relation to the loan account is unsatisfactory.  No copies of the account or of the accounts of Grouptrade have been produced and there is no evidence how if at all the Appellant became liable to repay Mr Reuben Singh the amount allegedly debited to his loan account.  However the clear conclusion at which we have arrived is that the whole arrangement between the Appellant and All Day in relation to the goods was not a commercial arrangement in any proper sense of the term.  The arrangement was not in our opinion one entered into in furtherance of the business of the Appellant or for any genuine consideration.

9.	By a late amendment to Customs case but which was not objected to, Customs took the point that if contrary to their primary submission that there had not been a supply of the goods to the Appellant, nevertheless there had been a valid supply, there would have been a liability on the Appellant to account for output tax on the goods in question supplied to All Day and the amount of that liability would have equalled the amount of the input tax which had been reclaimed.  The consequence would be that the Appellant was still liable to repay an amount equal to the input tax and reference was made to the decision of the Court of Appeal in Revenue & Customs Commissioners v BUPA Purchasing Ltd [2007] EWCA Civ 542.  Mr  Gladdish in response submitted that there was no supply of the goods to All Day but at most a supply of services to which VATA Schedule 6 para.7 (b) would apply with the consequence that  the value of the supply would be the full cost of the taxable person of providing the services.  That cost was not he submitted the same as the purchase price of the goods to the Appellant since the residual value of the goods would still have to be deducted from the original cost.  In the present case there is no evidence that there ever was any sale of the goods to All Day.  The clear inference is that there was no sale or transfer of the property in the goods to All Day.  Indeed on the limited evidence the Appellant has resold the computer equipment.  That could only lawfully be done if the property in the goods were in the Appellant.  In our view, Mr  Gladdish is correct that the goods were not supplied to All Day and at most All Day had the use of the goods for no  consideration.  Such use, subject to one point, would be a supply of services within VATA Schedule 4 para 5(4) and come within Schedule 6 para 7(b).  Thus the amount of any output tax would not necessarily be equal to the amount of the input tax.  This would mean that any output tax could only be assessed on at most the difference between the original cost of the goods and in the case of the computer equipment the resale proceeds and in the case of the furniture its residual value.  In the present case however, if the question is asked what was the cost to the Appellant of supplying the goods to Allday, then in the absence of any satisfactory evidence that the Appellant has come under any liability to reimburse Mr Reuben Singh the amount debited to his loan account, it is difficult to see what cost the Appellant has actually incurred in providing  All Day with the use of the goods for no consideration.  We are not satisfied that Customs has established that the Appellant has incurred any actual cost in making the goods available to All Day and there is also no evidence to show what a reasonable hire or other charge would have been.   The above comments assume that the present case would fall within VATA Schedule para 5(4).  However it seems to us that this is not actually correct because para 5(4) only applies where goods are “held or used for the purposes of [a] business” and are then put to another use.  In the present case however we do not consider that the goods were held for the purposes or were used for the purposes of the Appellant’s business.  As we have already found the goods were not supplied to the Appellant to be used for the purpose of any business carried on or to be carried on by the Appellant within VATA s.  24 (1)(a) and this conclusion is in our view fatal to any claim based on  Schedule 6 para 7 (b).

10.  We are satisfied that Customs is entitled to assess the Appellant in the full amount of the input tax on the computer equipment and office furniture and we uphold the assessments in respect of those items.  In relation to the input tax on the two cars we also uphold the assessments.  Mr Bobby Singh said the two cars had been allocated to Mr Reuben Singh and to  Banni Singh and that 50% use had been in the Appellant’s business.  However Miss Ainsworth  said that Mr Bobby Singh had told her on her visit in June 2004 that the two cars had never been used by the Appellant but had been given for the use of All Day.  We accept that  this is what he told Miss Ainsworth and on the balance of probabilities this is in our view likely to have been correct.  In any event there is no satisfactory evidence to support an alleged 50% apportionment of use for the purposes of the Appellant’s business.  No records have been produced to show that any business use was made of the cars by either of the alleged drivers.  No insurance documents have been produced and there is no evidence to show what the drivers were doing when using the cars.   

11.	The result is that the appeal is dismissed.  

12.	Customs have asked for a direction that the Appellant should pay the costs.  We make no direction.  Although the appeal was brought late there was a serious issue to be decided and the appeal although unsuccessful was not in our view frivolous.

ELSIE GILLILAND
CHAIRMAN
Release Date: 28 December 2007
MAN/06/0845