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	United Kingdom VAT & Duties Tribunals (Excise) Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> United Kingdom VAT & Duties Tribunals (Excise) Decisions >> Bhanderi v Commissioners of Customs and Excise [2004] UKVAT(Excise) E00814 (23 September 2004) URL: http://www.bailii.org/uk/cases/UKVAT/Excise/2004/E00814.html Cite as: [2004] UKVAT(Excise) E00814, [2004] UKVAT(Excise) E814

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E00814

JURISDICTION – assessments to excise duty and value added tax notified to limited company – provisional liquidator appointed in respect of limited company - whether director of company has separate personal right of appeal to the Tribunal in his own name against the assessments – no - application to strike out appeal - allowed

LONDON TRIBUNAL CENTRE

HARISH BHANDERI

Applicant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE

Respondents

Tribunal: DR A N BRICE (Chairman)

Sitting in public in London on 8 July 2004

Andrew Young of Counsel, instructed by Vincent Curley & Co, for the Applicant

Ian Hutton of Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004


 



 


DIRECTIONS AND REASONS FOR DIRECTIONS

The application

1. On 5 June 2003 Customs and Excise applied for a direction that the appeal lodged by Mr Harish Bhanderi (the Applicant) on 4 March 2003 be struck out on the ground that the Applicant, who was a director of Turnstem Limited (Turnstem), did not have the right to lodge a notice of appeal against assessments to excise duty and value added tax notified to Turnstem.
2. Mr Alexander, the provisional liquidator of Turnstem, attended the hearing and explained the position regarding the winding up of Turnstem.

The facts

3. The following facts are relevant to this application.
4. Turnstem was incorporated on 13 January 1997 and, at all material times, its sole director was the Applicant. Turnstem carried on business trading in alcohol in bond.
5. In 2002 Customs and Excise commenced an investigation into the affairs of Turnstem and, in particular, investigated Turnstems' dealings with a firm called Seabrook & Smith who operated a bonded warehouse. By August 2002 Customs and Excise had identified twenty-seven consignments of goods, in the period from 5 October 2001 to 26 February 2002, which were said to have been exported from the United Kingdom to other member states but where Customs and Excise considered that the goods had not been exported but placed on the United Kingdom market without the payment of excise duty or value added tax.
6. On 14 August 2002 Customs and Excise issued a notice of assessment to Turnstem for excise duty of £2,305,447 and, on the same date, issued to Turnstem an assessment for value added tax of £403,453.
7. On 14 August 2002 Customs and Excise also applied to the Companies Court by petition that Turnstem be wound up under the provisions of the Insolvency Act 1986 and also applied for the appointment of a provisional liquidator. On the same date the Companies Court (Mr Justice Lightman) appointed a provisional liquidator. The Court also ordered that the functions and powers of the provisional liquidator included the function or power "to bring or defend or proceed with any action or other legal proceedings on behalf of the Company (Turnstem) and in its name or his own name as appropriate … and if so advised to compromise such proceedings". .
8. On 13 September 2002, on the application of Turnstem (by the provisional liquidator), the High Court issued a freezing order against the Applicant prohibiting him from removing any of his assets from the United Kingdom up to the value of £3M or disposing of any such assets.

The appeal of Turnstem

9. Meanwhile, on 21 August 2002 Turnstem purported to appeal against the value added tax assessment of 14 August 2002. The appeal was not made by the provisional liquidator.
10. Also on 21 August 2002 Messrs Vincent Curley & Co wrote to Customs and Excise to say that they acted for the director of Turnstem and asked for a review of the assessment to excise duty under section 14 of the Finance Act 1994. Customs and Excise replied to say that the Companies Court had appointed a provisional liquidator in respect of Turnstem and asked who Messrs Vincent Curley & Co represented. A reply was sent on 16 October 2002 to say that Messrs Vincent Curley & Co represented a director of Turnstem and, as the decision on review had not been given in the forty-five days mentioned in section 15(2), Customs and Excise was assumed to have confirmed the decision and the intention was to appeal to the Tribunal. On 29 October 2002 Customs and Excise purported to review the assessment for excise duty issued on 14 August 2002. The decision to assess was upheld but the review letter also indicated that there was a right of appeal to the Tribunal. On 27 November 2002 the Applicant as director of Turnstem purported to appeal to the Tribunal against the assessment for excise duty and against the review decision. Again the appeal was not made by the provisional liquidator.
11. On 25 February 2003 the Tribunal considered whether the notice of appeal of 21 August 2002 lodged in the name of Turnstem, and the notice of appeal of 27 November 2002 lodged by the Applicant as director of Turnstem, were effective to commence proceedings before the Tribunal. The Tribunal heard both parties and also heard the provisional liquidator who indicated that, if the appeals were effective appeals, he would withdraw them. The Tribunal decided that, since the appointment of the provisional liquidator, only he had the right to lodge and pursue appeals on behalf of Turnstem and that, so long as the appointment of the provisional liquidator lasted, that right had, by reason of the terms of the Order of the High Court of 14 August 2002, been held exclusively by the provisional liquidator. The Tribunal then directed that both appeals be treated as withdrawn forthwith.

The appeal of the Applicant

12. On 4 March 2003 the Applicant lodged a notice of appeal against the value added tax assessment of 14 August 2002 notified to Turnstem and also against the decision on review of 29 October 2002 relating to the excise duty assessment. On 5 June 2003 Customs and Excise applied for the appeal to be struck out and that is the application which is the subject of these directions.

The winding up of Turnstem

13. The petition of Customs and Excise for the compulsory winding up of Turnstem was originally opposed and was set down for trial from 13 January 2004. On 12 January 2004 counsel for Turnstem indicated that the petition would not be opposed. Accordingly on 13 January 2004 Mr Justice Lawrence Collins in the Companies Court treated the hearing of the petition as unopposed and made an order winding up Turnstem. On 30 January 2004 the Applicant made an application to rescind the winding up order. That application was heard by Mr Justice Lawrence Collins on 7 and 8 July 2004 and judgment was given on 23 July 2004 dismissing the application (Harish Bhanderi v The Commissioners of Customs and Excise [2004] EWHC 1765 (Ch)). The hearing in this application took place on 8 July 2004 when the fact that the application to rescind the winding up order was not known.
14. I was informed that there are breach of duty claims in the winding up made against the Applicant, and that the freezing order made against the Applicant was in respect of Turnstem's debts, but there has been no application to make the Applicant personally liable for Turnstem's tax debts.

The assessments issued to other persons

15. Customs and Excise also issued assessments against other persons who traded with Seabrook & Smith, including The Arena Corporation Limited and Jack Baars Wholesale. These persons have taken proceedings in the higher courts – see The Commissioners of Customs and Excise v (1) Jack Baars Wholesale, (2) Jack Baars and (3) Carol Baars [2004] EWHC 18 (Ch); The Arena Corporation (in provisional liquidation) v Peter Schroeder [2003] EWHC 3032 (Ch); and Commissioners of Customs and Excise v The Arena Corporation and Peter Schroeder [2004] EWCA Civ 371. In the latter appeal, leave to appeal to the House of Lords was refused on 14 July 2004.

The insolvency proceedings

16. Mr Alexander informed the Tribunal that, before a provisional liquidator was appointed, the High Court had to be satisfied that the company was unable to pay its debts as they fell due and that there was a debt which was due and owing and which was not disputed on substantial grounds. On a winding up petition in the Companies Court the directors could raise any argument they wished on a matter in bona fide dispute and, in the case of Turnstem, no such matter was raised. Mr Alexander confirmed that there was no prospect of any liability for the tax assessments falling on the Applicant. Although it was possible to get an order against a director for breach of duty (and a director could challenge any liability if it were relevant to any alleged breach of duty) any money recovered would be available for general distribution and not for specific debts. As provisional liquidator he had put in a report which was available to the Companies Court at the time of the winding up order. A copy had been sent to the Applicant who could have objected to the winding up.

The arguments

17. For Customs and Excise Dr Hutton argued that the Applicant had no right to appeal against either assessment. As far as the excise duty assessment was concerned the Applicant did not come within the provisions of section 14(2) of the Finance Act 1994. As far as the value added tax assessment was concerned the Applicant did not have a sufficient interest to appeal because he was not the person assessed and had no liability to pay. He accepted that there was a right to effective judicial control but argued that it was Turnstem and not the Applicant who was entitled to such control in respect of the assessments and that such control had to be by the Companies Court in the winding up and not by the Tribunal. Finally, Dr Hutton argued that the issues now raised by the Applicant were res judicata and an abuse of process.
18. For the Applicant Mr Young argued that the Applicant had a right of appeal against the assessment to excise duty under section 16 of the Finance Act 1994 and also a right of appeal against the value added tax assessment as Rule 13 should be construed to give the Applicant protection. The Applicant was entitled to effective judicial control and the right to be heard. The Applicant had an interest in the appeal because he had a potential personal liability for the value added tax and excise duty assessed and, as a director and a shareholder, he had a financial interest in Turnstem.

Reasons for Decision

19. The arguments of the parties raised the following questions:

(1) does the Applicant have the statutory right to appeal against the assessment to excise duty?

(2) does the Applicant have the statutory right to appeal against the assessment to value added tax?

(3) does the right to effective judicial control mean that the Applicant has a non-statutory right to appeal to the Tribunal?

(4) Is this matter res judicata ?

20. Before turning to consider these questions it is convenient to summarise the position of Turnstem as the person to whom the assessments were issued and who has the liability to pay them. After the appointment of the provisional liquidator only he had the right to lodge or pursue an appeal on behalf of Turnstem. The question in this application, therefore, is whether, on that basis, the Applicant has a separate, personal right to appeal against the same assessments.

(1) - The excise duty assessment

21. The right of appeal against an assessment to excise duty is contained in sections 14 to 16 of the Finance Act 1994. Section 14 applies to a number of stated decisions including (at section 14(1)(b)) a decision that a person is liable to any duty of excise. Section 14(2)(a) provides that: "any person who is a person whose liability to pay any relevant duty is determined by, results from or is or will be affected by any decision" to which the section applies may require Customs and Excise to review that decision. Section 15 provides that where Customs and Excise are required to review a decision they shall do so. Section 15(2)(a) provides that if Customs and Excise do not give a determination on review within forty-five days then they are assumed to have confirmed the decision. Section 16 provides that an appeal lies to the Tribunal with respect to a decision on review under section 15 and section 16(2) provides that an appeal under the section shall not be entertained unless the appellant was the person who required the review in question.
22. The question is, therefore, whether the Applicant is a person "whose liability to pay any relevant duty is determined by, results from or will be affected by" the decision to assess Turnstem to excise duty within the meaning of section 14(2)(a). I accept the argument of Mr Young that section 14(2) refers to "any person" and that indicates that there could be more than one appellant. However, it is clear that the Applicant has no personal liability to pay the excise duty and, as there is no liability to pay, such liability could not be "determined by, result from or be affected by" the decision to assess Turnstem.
23. Mr Young argued that the Applicant would be "affected by" the assessment because he had had his assets frozen and, if there had been any misfeasance in the running of Turnstem, the liquidator could seek compensation from the Applicant to satisfy the creditors. However, Mr Alexander made it clear that, although it was possible to get an order in the insolvency against a director for breach of duty, any money recovered was available for general distribution and not for specific debts. Further, if the Applicant wishes to challenge either the freezing order or any action for misfeasance, that should be done before the Companies Court and not before the Tribunal.
24. Mr Young also argued that section 16(2) of the Finance Act 1994 provided that an appeal should not be entertained unless the appellant was the person who required the review in question. His case was that the letter of 21 August 2002 made it clear that the review was being requested by the Applicant who was the director and who had power to challenge the winding up petition. However, in my view the purported review of 29 October 2002 was a nullity because it had not been requested by a person with the statutory right to request a review. (It was also a nullity because, by the time it was given, the forty-five days mentioned in section 15(2)(a) had passed.) Section 16(2) of the Finance Act 1994 means that only a person who has properly required and received a review could be an appellant before the Tribunal.
25. I conclude that the Applicant had no separate personal statutory right of appeal to the Tribunal in respect of the assessment to excise duty. The right of appeal lay with Turnstem whose rights were exerciseable only by the provisional liquidator.

(2) - The value added tax assessment

26. There is no equivalent in the value added tax legislation of section 14(2)(a) of the Finance Act 1994 (which gives a right of appeal to any person whose liability to pay is determined by, results from or will be affected by an assessment). Also, there is no equivalent of section 16(2) of the same Act, which identifies the appellant in an appeal as the person who required a review. Section 83 of the Value Added Tax Act 1994 sets out the value added tax matters which may be the subject of an appeal to the Tribunal but does not identify the appellant. Dr Hutton, for Customs and Excise, referred to section 84(2) of the Value Added Tax Act 1994 for the principle that it was the person who made the returns who could appeal. Section 84(2) provides that an appeal shall not be entertained unless the appellant has made all the returns which he was required to make and has paid the amounts shown in the returns as payable. It seems to me that all that section 84(2) is saying is that, if an appellant has to make returns, then he has to make them, and pay the tax, before he can appeal. It leaves open the question as to whether a person who does not have to make any returns can appeal.
27. That question has, however, been addressed by the Tribunal and Mr Young cited the decision in Mr Brian Gilbourne v The Commissioners of Customs and Excise (July 1974) VAT Decision 109. There the appellant was not a taxable person but was the recipient of a supply which, he argued, should be zero-rated and which Customs and Excise argued should be standard-rated. The Tribunal took the view that the only way in which the appellant's liability to pay the tax to his supplier could be decided was by way of the appeal and also held that the appellant had a sufficient legal interest to maintain his appeal. The facts in that appeal were unusual and the Tribunal gave its decision "in the circumstances peculiar to the appeal". However, the general principle that a recipient of a supply has a sufficient interest to maintain an appeal was established in Williams & Glyn's Bank Ltd v Commissioners of Customs and Excise (October 1974) [1974] VATTR 262 and has been followed ever since. In value added tax appeals that principle is no more than an application of the wider principle that a person who has a liability to pay should have a right of appeal. In the case of value added tax the taxable person has to account for the tax but it is the consumer (in his capacity as the recipient of the supply) who has to pay the tax.
28. In this appeal the Applicant was not the recipient of a supply and, in any event, has no personal liability to pay the tax.
29. Mr Young, for the Applicant, also argued that the Applicant's financial interest as a director or shareholder in Turnstem was enough to give him an interest sufficient to support a right of appeal. Here, however, the rules relating to winding up and Rule 13 of the Value Added Tax Tribunals Rules 1986 SI 1986 No. 590 are relevant. The winding up rules mean that when a company is being wound up all the rights and liabilities of the shareholders and directors are dealt with in the winding up. Rule 13 assumes that the interest of an appellant passes to another person on insolvency. In this appeal the interest of Turnstem passed to the provisional liquidator and for that reason the Applicant's financial interest as director or shareholder cannot give the Applicant an independent right of appeal. Mr Young argued that, as far as Rule 13 was concerned, it was possible that the liability could pass back to the Applicant under insolvency law because there was a freezing order against the Applicant and he could be divested of his assets to pay the debts of Turnstem. Here, however, I rely upon the statement of Mr Alexander that there was no prospect of any liability for the tax assessments falling on the Applicant and that, although it was possible to get an order against a director for breach of duty, any money recovered would be available for general distribution and not for specific debts.
30. I therefore conclude that the Applicant has no separate personal statutory right of appeal to the Tribunal in respect of the assessment to value added tax. The right of appeal lay with Turnstem whose rights were exerciseable only by the provisional liquidator.

(3) - Effective judicial control

31. Both parties agreed with the general principle of effective judicial control, at least as regards matters governed by Community law. They differed as to who should be entitled to exercise that right (whether the Applicant as argued by the Applicant or Turnstem as argued by Customs and Excise). They also differed as to whether such judicial control should be by the Tribunal (as argued by the Applicant) or by the High Court in the winding up (as argued by Customs and Excise).
32. For the reasons already given it is my view that Turnstem should have the right to effective judicial control of the two assessments and not the Applicant. Dr Hutton cited Kingdom of Belgium v Commission of the European Communities Case 234/84 [1986] ECR 2263 at 2289 paragraph 27 for the principle that, in order to respect the principle of the right to be heard, the person against whom an administrative procedure has been initiated must be afforded the opportunity to make his views known. In my view, in this application the person against whom the proceedings (the two assessments) were initiated was Turnstem and it alone had the right to make its views known. That means that I do not have to decide in which court the Applicant had the right to have his views made known but as arguments were put I briefly express my views.
33. Dr Hutton for Customs and Excise argued that the Court of Appeal in paragraphs 32, 33, 53 and 87 of its decision in Arena had decided that national authorities had scope for discretion and that effective judicial control could be determined by the Chancery Division of the High Court and the Court of Appeal. He cited Jeroen van Schijndel and Johannes Nicolaas Cornelis van Veen v Stichting Pensioenfonds voor Fysiotherapeuten Joined Cases C-430/93 and C431/93 [1995] ECR I-4705 at 4737 for the principle that it is for the domestic legal system of each member state to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derived from the direct effect of Community law. He also cited Dorch Consult Ingenieurgesellschaft mbH v Bundesbaugegesellschaft Berlin mbH Case C-54/96 [1997] ECR I-4705 at 4996 at paragraph 40 for the principle that it is for the legal system of each member state to determine which court or tribunal has jurisdiction to hear disputes involving individual rights derived from Community law. He argued that, in this appeal, the right to be heard was available in the High Court in the winding up proceedings and not before the Tribunal. The Applicant should have raised his concerns in the High Court in the winding up proceedings.
34. For the Applicant Mr Young accepted that member states could designate the courts and tribunals having jurisdiction in particular matters but they had to respect the fundamental principles of Community law including the right to effective judicial control. He relied upon Article 6 of the Convention in the Schedule to the Human Rights Act 1998 (the Convention) and argued that the Applicant was entitled to a fair trial; the Applicant had effectively been accused of fraud and he needed to cross-examine witnesses which he could not do in the higher courts. The High Court had jurisdiction in insolvency matters but did not give effective judicial control of issues concerning the liability for excise duty. For that reason the Companies Court was not the right forum for the Applicant's appeal. He argued that the issues had not been properly argued in the cases brought in the higher courts by the other customers of Seabrook & Smith. No authorities had been cited in Arena and a number of arguments were raised late in Jack Baars. He relied upon paragraph 43 of the judgment in Jack Baars as indicating that the Court was of the view that the best place for arguments was in the Tribunal. In any event the issues in this appeal were issues of fact and Parliament had intended the Tribunal to adjudicate on issues of fact relating to excise duty because the Tribunal was the fact-finding body and could find the appropriate facts. He cited Rheinmühlen-Düsseldorf v Einfuhr-und Vorratsselle für Getreide und Futtermittel Case 166/73 [1974] ECR 33 for the principle that the Tribunal was not always bound by the higher courts in a matter of Community law. The Tribunal should construe the Rules so as to give effect to the principles of Community law and, if necessary, dis-apply a rule (Rule 13) as had been done in Coleman v The Commissioners of Customs and Excise [1999] VATTR 133.
35. In considering these arguments I bear in mind that the Tribunal is a statutory Tribunal and, unlike other courts, does not have an inherent jurisdiction. The Tribunal may only exercise jurisdiction over those matters which are specifically mentioned in the relevant legislation as being within the jurisdiction of the Tribunal. In particular, the Tribunal cannot usurp the jurisdiction of the High Court in the winding up proceedings. In my view there has been effective judicial control over the two assessments by the High Court in the winding up proceedings. It was open to the Applicant to make representations in the winding up proceedings, both at the time of the petition and at the time of Mr Alexander's report, and it would then have been for the High Court to decide how the issues he wished to raise should have been dealt with. Article 6 of the Convention applies to the determination of a person's civil rights and obligations. The two assessments are obligations of Turnstem and not of the Applicant and so Article 6 does not apply to the Applicant in respect of the two assessments. The two assessments do not accuse the Applicant of fraud (and do not accuse Turnstem of fraud either). If there are allegations of fraud they will be allegations in the winding up proceedings and that is the correct forum in which they should be determined.
36. In Jack Baars some of the facts were similar to those in this appeal save that there had been a valid appeal to the Tribunal. Lindsay J at paragraph 43 found the petition debt to be bona fide disputed upon substantial grounds and, in those circumstances, decided that the appeal before the Tribunal should continue. That decision pre-supposes a valid appeal and, in my view, the appeal of the Applicant is not valid. It also demonstrates that the decision to allow the appeal to proceed to be heard by the Tribunal was made by the Companies Court and there has been no such decision in this appeal. Rheinmühlen-Düsseldorf is authority for the principle that a judge of a first instance national court has power to refer a question to the Court of Justice even though he is bound on points of law by the rulings of a superior court which had already expressed a view. In my view that does not amount to a general principle that the Tribunal is not always bound by the higher courts in a matter of Community law.
37. I conclude that the person entitled to exercise the right of effective judicial control is Turnstem and not the Applicant and that such judicial control should be exercised by the High Court in the winding up.

(4) Res judicata

38. Dr Hutton argued that the issues raised in this appeal were res judicata and an abuse of process because these issues had been heard and decided at the hearing on 25 February 2003. Insofar as there were any new points they should have been taken at the previous hearing. If the Applicant had disputed the previous directions of the Tribunal he should have appealed to the High Court. He cited Henderson v Henderson (1843) 3 Hare 100 313 at 319 and Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581 at 589 for the principle that where a matter becomes the subject of litigation the court requires the parties to bring forward their whole case and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of a matter which might have been brought forward at the right time but was omitted.
39. Mr Young, however, argued that, at the hearing on 25 February 2003, he was instructed by the Applicant who wanted to bring an appeal in the name of Turnstem. He now accepted that the Applicant as director of Turnstem could not act in the name of Turnstem following the appointment of the provisional liquidator. In this appeal he was instructed by the Applicant who wanted to appeal in his own name and that was a different appeal. The Applicant had not appealed the direction of 25 February 2003 because he did not have any locus standi in the appeal of Turnstem. At the hearing on 25 February 2003 he had mentioned that the Applicant would appeal in his own name and no objection had been taken then. The matters in the Applicant's personal appeal had not been fully argued at that time.
40. It seems to me that the position of the Applicant in bringing an appeal as director of Turnstem in the name of Turnstem on the one hand, and the position of the Applicant in bringing an appeal as director of Turnstem but in his own name on the other hand, are very hard to distinguish. However, because of my previous conclusions, the application of Customs and Excise of 5 June 2003 has to be allowed and so I do not need to reach a final view on the question of res judicata.

Direction

41. For the above reasons I conclude that the Applicant did not have the right to lodge a notice of appeal against the assessments to excise duty and value added tax notified to Turnstem.
42. That means that the application of Customs and Excise of 5 June 2003 is allowed AND I DIRECT ACCORDINGLY.

Costs

43. On behalf of Customs and Excise Dr Hutton applied for a direction as to costs and handed in a costs schedule showing an estimated total of £9,911. Mr Young asked for an opportunity to put arguments about the amount of the costs.
44. I DIRECT that the Applicant shall pay to Customs and Excise its costs of and incidental to and consequent upon this application, the amount of such costs to be agreed between the parties. Failing agreement either party may apply to the Tribunal for a direction under Rule 29 and the Tribunal will then decide whether to specify a sum or to direct that the costs be taxed.

DR A N BRICE

CHAIRMAN

RELEASE DATE: 23 September 2004

LON/2003/8066

45. 09.04