20796

Practice – MTIC appeal – Late evidence by Customs – Four statements admitted – Two refused

LONDON TRIBUNAL CENTRE

	EUROPEANS LTD	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	THEODORE WALLACE (Chairman)
						MRS SHAHWAR SADEQUE MBCS

Sitting in public in London on 1 September 2008

Kieron Beal, instructed by BDO Stoy Hayward, for the Appellant

Andrew Westwood, instructed by Howes Percival LLP, for the Respondents

© CROWN COPYRIGHT 2008

DECISION ON APPLICATION

1.	This is an appeal dated 30 April 2007 against a decision dated 24 April 2007 refusing claims for input tax credit totalling £1,256,675 on five purchases of mobile phones in June and July 2006.  It is what is known as an MTIC appeal.

2.	The appeal was listed in April for an eight day hearing starting on 15 September, a fortnight after the application hearing.  By a notice served on 4 August, Customs sought leave to serve six additional witness statements.  The Tribunal refused leave in respect of two.  We have been asked for our reasons.

3.	Witness statements were to have been exchanged by 31 August 2007 with supplementary statements in reply by 28 September under agreed directions given on 2 August 2007.  The dates were varied by agreement to 26 October and 30 November.  One statement was served by each party in October. After further extensions Customs served a supplementary statement by Mia Stevenson, the officer in charge of the case, on 9 January 2008.  On 15 February Customs informed the tribunal that their time estimate was 8 days and that Miss Stevenson was the only witness at that stage.  On 9 April Customs informed the Tribunal that they would be seeking leave to call Roderick Stone and Andy Monk.  Following this the appeal was listed.

4.	On the chairman’s instructions the appeal was listed for a pre-trial review on 7 July.  On 19 June Customs applied with the Appellant’s agreement for the pre-trial review to be adjourned “to enable the parties to agree timetables … for statements of undisputed facts etc.” because a conference with trial Counsel had been fixed for that day.

5.	On 15 July Customs served statements by Mr Monk and John Fletcher and on 25 July served a further supplementary statement by Miss Stevenson and statements by Mr Stone, Kirsty Jolliffe and Chris Solway.  The Appellant opposed those by Mr Fletcher, Miss Stevenson and Mr Solway, but did not oppose the others subject to cross-examination.

6.	We gave leave in respect of the statements by Mr Monk, Mr Stone and Miss Jolliffe during the hearing and reserved our decision in respect of the other three.  In our direction released on 2 September we allowed that by Mr Solway but refused those by Miss Stevenson and Mr Fletcher.

7.	The case for Customs was that each of the five purchases was part of a fraudulent chain leading back to one of two missing traders and that the Appellant knew or ought to have known of this.  The case therefore involves allegations of dishonesty against the Appellant and other participants.

8.	Miss Stevenson’s first statement dated 24 October 2007 contained 54 pages and 1161 pages of exhibits.  Her second statement dated 9 January 2008 contained 20 pages and 318 pages of exhibits.

9.	The statement which was the subject of the application was much shorter with 5 pages but contained a further 119 pages of exhibits.  The statement covered four topics.  Paragraphs 4 to 11 referred to the conviction of the father of Tarek Meghrabi, director of the Appellant, of offences under section 328 of the Proceeds of Crime Act; the statement referred to Mr Meghrabi’s witness statement and to a number of documents exhibited to her earlier statement. Mr Westwood said that Customs did not rely on the conviction as evidence of the Appellant’s dishonesty but that it was relevant for cross-examination as to credit of Mr Meghrabi since it conflicted with paragraph 5 of his statement.  Mr Beal did not dispute the right of Customs to put the father’s conviction and sentence in cross-examination.  We allowed in Mr Solway’s statement which deals with the conviction.

10.	Paragraphs 12 to 15 set out information received from the Luxembourg tax authorities in connection with the Appellant’s sole customer in the July 2006 deals.  The statement exhibits material obtained under the exchange of information provisions of Regulation 2003/1798/EC.  Form SCAC 2004 contains no indication as to when the information was requested or when it was provided.  Nor is it apparent exactly what information was requested. The replies contain material which the Appellant would have needed a proper opportunity to investigate. It is hearsay evidence which would have limited probative value without corroboration, particularly given that dishonesty is alleged.

11.	Paragraph 16 contained nothing of substance, being covered by Miss Jolliffe’s statement.

12.	Paragraphs 17 to 21 give further material in relation to one of the two defaulting companies.  Most of the material was substantially after the event.  Due to pressure of time at the application hearing which lasted for nearly 3 hours these paragraphs were only addressed in passing. Provided it is shown that some of the material is relevant the Tribunal would be prepared to consider an application at the hearing to allow them in Mr Beal would have an opportunity to resist such application.  

13.	This brings us to Mr Fletcher’s statement.  It was dated 10 July 2008 and extended to 47 pages with 10 pages of appendices and three ring binders of exhibits, two of which are over full.  Although expressed as a witness statement, it is in fact an expert report, Mr Fletcher being a chartered accountant with an MBA who is a principal adviser with KPMG.  The statement contains an analysis of the grey market for mobile phones during 2006 and considers the Appellant’s trading in the light of that analysis.

14.	Both counsel produced full skeleton arguments which we do not rehearse in this decision.

15.	At the outset of the oral submissions Mr Westwood said that the effect on the length of hearing if the statements were allowed might not matter so much because in that event the Appellant would ask for an adjournment which Customs would not oppose.

16.	In relation to Mr Fletcher’s statement, Mr Westwood said the grey market evidence followed observations by the Tribunal in other cases; he said that the first time this type of evidence from KPMG had been deployed was in May of this year.  His statement was an attempt to respond to points made In Mr Meghrabi’s statement as to a grey market.

17.	Mr Beal said that the Appellant wished to keep the appeal date which was fixed for 15 September.  The Appellant was being kept out of its money.  The Appellant had not objected to the statements by Stone, Monk and Jolliffe which would not defeat the 8 day listing.  He said that following Miss Stevenson’s second statement dated 9 January there had been nothing until June and even then there was no indication that further evidence was coming.  There had been no application to amend the Statement of Case although part of the new material was not part of the pleaded case.

18.	Mr Beal said that in Berezovsky v Abramovich [2008] EWHC 1138 (Comm) Judge Mackie QC said at [13] that a claim of fraud must be specifically pleaded.  In Revenue and Customs Commissioners v Dempster [2008] EWHC 63 (Ch) Briggs J said at [26] that allegations of fraud must be clearly pleaded and put in cross-examination.  In Revenue and Customs Commissioners v Brayfal Ltd, 4 March 2008, Lewison J upheld the refusal by the Tribunal to allow further evidence during the hearing; he referred particularly to [33] to [42].  In Sosnowska v Director of the Tax Chamber of Wroclaw (Case C-25/07) 10 July 2008 the Court of  Justice held that the right to deduct input tax is an integral part of the VAT scheme and as a general rule may not be limited; measures to prevent abuse must be proportionate see at [33].  If Customs allege fraud or allege that the Appellant ought to have known of facts, this should have been pleaded in good time.  The Appellant would suffer undue prejudice if required to meet the new allegations, in particular through loss of the trial date.  No explanation had been given as to why the evidence had not been produced earlier.  Mr Stone had given evidence relying on a KPMG Report as to the grey market in Olympia Technology Ltd v Revenue and Customs Commissioners (Decision No.20570) which was heard in January.

19.	Mr Westwood accepted that if the evidence was admitted the hearing date would have to be vacated.  He said that the fact of adjournment “went with the territory”.  The additional evidence was plainly relevant.  He said that there is a presumption that all relevant evidence should be admitted unless there is a compelling reason to the contrary, see Lightman J in Mobile Export 365 Ltd v Revenue and Customs Commissioners [2007] EWHC 1737 (Ch).  Any prejudice to the Appellant could be remedied by an adjournment.  If ultimately successful the Appellant could apply for interest under section 84(8) of the Finance Act 1994.

20.	The main issue for the Tribunal concerned the evidence of Mr Fletcher.  No satisfactory reason was given as to why this extensive material was only produced in July three months after the hearing had been listed for September on the basis of a time estimate which took no account of that material and eight months after the date for supplementary statements.  Mr Beal pointed out that evidence in Olympia relying on KPMG material as to the grey market had been produced in January so that Customs knew of its potential relevance.

21.	Several hundred MTIC appeals have been lodged with the London Tribunal.  None of such cases is short.  Active case management is needed to prevent the whole tax appeal system being swamped by these appeals.  The normal practice of the Tribunal is not to list such appeals for hearing until all the evidence has been lodged.  The directions in this case and the listing were on this basis. Inevitably there are cases where new facts become known and further evidence is admitted. Again if the other party does not object additional material which does not affect the time estimate will normally be admitted: that happened here with three statements. Another circumstance may be when a superior court gives a ruling which makes evidence desirable the relevance for which was not previously realised. None of the above factors was present in the case of Mr Fletcher’s evidence. It is most important, particularly when, as here, a case involves allegations of dishonesty, that Customs address the evidence to be adduced at an early stage and before the appeal is listed and consult counsel where necessary in proper time: two months before an appeal already listed is too late for MTIC appeals.

22.	The Appellant was fully entitled to object to an adjournment.  Quite apart from the delay the additional evidence would have added to the costs at risk. If the Appellant succeeds interest could not cover the loss of business meanwhile.

23.	Apart from the effect on the Appellant, the adjournment of the appeal would have serious implications for the Tribunal.  Another appeal could not be listed at this notice and a re-listed appeal would occupy time when another appeal or appeals could otherwise be heard. MTIC appeals are producing serious listing difficulties for the Tribunal

24.	For the above reasons we refused to admit Mr Fletcher’s witness statement.

25.	The same factors are also relevant to Miss Stevenson’s statement particularly in relation to paragraphs 12 to 15.  It appeared that once Mr Solway’s statement was allowed in paragraphs 4 to 11 added nothing of real relevance: Mr Westwood stated that no allegation was made based on the transfer of funds from the bureau.  Most of the material in paragraphs 17 to 21 concern matters after the event, however we have indicated that we would be prepared to consider an application at the hearing to allow this evidence subject to any submissions by Mr Beal, provided always that it would have no material effect on the time estimate.

THEODORE WALLACE
CHAIRMAN

RELEASED: 10 September 2008

LON 2007/811