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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> 3D Micro Ltd v Customs and Excise [2005] UKVAT V18907 (17 January 2005) URL: http://www.bailii.org/uk/cases/UKVAT/2005/V18907.html Cite as: [2005] UKVAT V18907

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18907

ZERO-RATING – removal of goods to Republic of Ireland - documentary evidence failed to demonstrate that the goods had left the UK in accordance with the requirements of Customs Notice 703 – the goods assessed to VAT at standard rate – Appeal dismissed

LONDON TRIBUNAL CENTRE

3D MICRO LTD Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: MICHAEL TILDESLEY (Chairman)

JO NEILL ACA (Member)

Sitting in public in London on 29 November 2004

D Smith of Moore and Stephen, Chartered Accountants, for the Appellant

Hugh McKay Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004


 


DECISION

The Appeal

1. The Appellant has appealed against a Notice of Assessment dated 27 October 2000 for VAT in the sum of £234,748 which represented output tax on supplies of computer hardware.
2. The ground for the Appeal was as follows:

"Customs and Excise have raised an assessment based on the grounds that invoices issued net of tax on exports from the UK are claimed by Customs and Excise to have insufficient proof of being exported".

The Issue

3. The dispute concerned the supply of "Intel Pentium" microchips by the Appellant to three customers in the Republic of Ireland during the period 28 May 1997 to 7 September 1998. The Appellant contended that the supplies should be zero-rated for VAT purposes. Whereas the Respondents submitted that the Appellant failed to meet the conditions to enable it to treat the supplies as zero-rated, and instead should have accounted for the supplies at standard rate VAT.
4. The power to impose conditions for zero-rating removals of goods from the UK to Member States is set out in section 30 of the Value Added Tax Act 1994. The conditions themselves are contained in Regulation 134 of the Value Add Tax Regulations 1995 and VAT Notice 703 which has the force of the law. Under paragraph 8.4 of Notice 703 the trader is required within three months of the date of supply to obtain and keep valid documentary evidence that the goods have been removed from the UK in order to zero-rate the supplies. Paragraphs 8.7 and 8.9 of Notice 703 set out what would be considered acceptable documentary evidence of the removal of goods from the UK.
5. The issue was whether the Appellant could satisfy the Tribunal on the balance of probabilities that it had the documentary evidence as required by paragraphs 8.7 and 8.9 of Notice 703 to establish that the supplies of "Intel Pentium" microchips had been removed from the United Kingdom to its three customers in the Republic of Ireland.

The Evidence

6. Denis Kiely gave evidence on behalf of the Appellant. The Tribunal was presented with a bundle of documents.
7. Denis Kiely, Mark Northcliffe and Jason Hold, who previously worked together at Osmosis Technologies, established the Appellant company in 1996 as a brokerage company dealing in micro processor chips and memory modules. The Appellant traded in the Far East and in Europe. The estimated turnover for the company was £140m from 1996 to May 2001 when it ceased to trade. The Appellant was registered for VAT under registration number 672 1253 51 with effect from 1 March 1996. The Appellant's business address was Unit 14 Quayside Lodge, Watermeadow Lane, Townmead Road, London SW6 2RR.
8. The Appellant came to the attention of the Respondents in the course of an investigation undertaken by them. The Respondents ascertained that the Appellant had zero-rated supplies of goods to a number of companies in the Republic of Ireland which in the Respondents' view did not meet the conditions for zero-rating. Accordingly the Respondents raised an assessment for unpaid VAT in the sum of £464,068 together with £70,882 interest on 31 May 2000. The Appellant was able to satisfy the Respondents that some of the supplies were supported by clear documentary evidence of removal, such as, airway bills, manifests or invoices from freight forwarders or in cases where the goods were removed by individuals (Appellant's directors or employees) ferry or airline tickets in the names of those individuals. Thus on 27 October 2000 the Respondents amended the assessment to £234,478 which related to supplies where the evidence of removal from the UK was inadequate.
9. The details of the disputed supplies were as follows:

Date	No of Invoices	Purchaser	Quantity of Goods and Value	VAT due
28.5.1997	1	Cooladeer Ltd	1000 CPU* (£78,000)	£11,617
19.2.98 to 7.8.98	13	Cornish Enterprises Ltd	6920 CPU (£1,009,926)	£150,413
1.9.98 to 7.9.98	2	Cravendene Technology Ltd.	3000 (£488,250)	£72,718
Total	16		10920 CPU (£1,576, 176)	£234,748

Note: * CPU = central processor units (microchips)

10. Mr Kiely produced the following documentary evidence in respect of the transactions with the purchasers in the Republic of Ireland to substantiate the removal of goods from the UK.

Cooladeer Ltd

•    Invoice dated 28.5.97 describing the goods sold, unit price and total price addressed to Cooladeer Ltd, 18 Catherine Street, Limerick, Ireland with VAT number IE4811990A..

•    Despatch note issued by 3D Micro Limited , not signed as received.

•    Airline ticket in the name of Crawford/WMR dated 28 May 1997 between London Heathrow and Dublin.

Cornish Enterprises Ltd

•    Invoices dated for each transaction describing the goods sold, unit price and total price addressed to Cornish Enterprises Ltd, 81/82 North Strand Road, Dublin 3, Ireland with VAT number IE8268349L.

•    Internal documentation for each transaction identifying the salesman, delivery date, order details and profit and some delivery notes which were unsigned.

•    The supplier's invoice of the goods to the Appellant for most of its invoices.

•    Fax Payment Advice from Barclays Bank stating the amount credited to the Appellant's account and details of the customer (Cornish Enterprises Ltd, Athol St, Douglas, Isle of Man), in respect of all invoices except invoice no 3048. There were minor discrepancies in some of the transactions between the amounts recorded on the invoice and payment advice .

•    Purchase Order from Cornish Enterprises Ltd for invoices 2960 (signed by Rita Herbert, Company Secretary), 2760, 2759, 2753, and 2727.

•    Travel documentation:

~ Invoice No 3048: Irish Ferries Ticket in the name of Mr Preece, Holyhead to Dublin, 0345 hrs on 8 August 1998.

~ Invoice No 3041: Irish Ferries Ticket in the name of Mr Holmes, Holyhead to Dublin, 0300 hrs on 6 August 1998.

~ Invoice No 3038: Irish Ferries Ticket in the name of Mr Holmes, Holyhead to Dublin, 0300 hrs on 6 August 1998.

~ Invoice No 2960: Stena Line return Ticket in the name of Foley, Holyhead to Dun Laoghaire, 0410 hrs on 25 June1998 return at 0640 hrs 28 June 1998.

~ Invoice No 2768: no travel documentation

~ Invoice No 2761: Air Lingus Flight Ticket in the name of McClean and Keane travelling between Dublin and London Heathrow on 11 March 1998

~ Invoice No 2759: Air Lingus Flight Ticket in the name of McClean and Keane travelling between Dublin and London Heathrow on 11 March 1998

~ Invoice No 2753: Air Lingus Flight Ticket in the name of McClean and Keane travelling between Dublin and London Heathrow on 10 March 1998

~ Invoice No 2727: Air Lingus Flight Ticket in the name of McClean and Keane travelling between Dublin and London Heathrow on 24 February 1998

~ Invoice No 2726: Air Lingus Flight Ticket in the name of Herbert travelling between Dublin and London Heathrow on 23 February1998

~ Invoice No 2715: Air Lingus Flight Ticket in the name of McClean and Keane travelling between Dublin and London Heathrow on 19 February 1998.

Cravendene Technology Ltd

•    Invoices dated for the two transactions describing the goods sold, unit price and total price addressed to Cravendene Technology Ltd, Shannon Business Centre, Shannon, Co Clare, Ireland with VAT number IE8275036E.

•    Internal documentation for each transaction identifying the salesman, delivery date, order details and profit and delivery notes which were unsigned.

•    Fax Payment Advice from Barclays Bank stating the amount credited to the Appellant's account and details of the customer (Cravendene Technology Limited, 88 Kingsway, Holborn, London).

•    Travel documentation:

~ Invoice No 3114: Stena Line boarding pass, two day return for one car (l157 SNV) and two adults Holyhead to Dun Laoghaire, 2305 hrs on 4 September 1998.

~ Invoice No 3105: Stena Line boarding pass, two day return for one car (A929 XGH) and two adults Holyhead to Dun Laoghaire, 0855 hrs on 2 September 1998.

11. Mr Kiely told the Tribunal that the disputed supplies constituted less than one per cent of the Appellant's transactions during the five years of trading. On most occasions the Appellant arranged for transport of the goods itself by engaging carriers and obtaining the necessary documentation to prove that the goods had left the UK. On the remaining occasions the Appellant would use other methods of carriage, such as the Appellant's directors and employees taking the goods themselves or the customer making his own arrangements for collection. The disputed supplies involved the situation where the customer collected the goods. Mr Kiely said that this would happen particularly with a new customer who visited the Appellant's office to introduce himself.
12. Mr Kiely on behalf of the Appellant produced photo-copies of tickets or boarding passes for flights or ferry crossings as proof of export for the disputed supplies. He explained that the Appellant's directors or employees would take the goods to Heathrow Airport for collection by the customer. The goods transported by road would generally be collected at the Appellant's office. According to Mr Kiely, Customs and Excise Officers who carried out regular inspections of the Appellant's accounts did not challenge the Appellant's practice of relying on airline and ferry tickets as proof of export. The Appellant was subject to the monthly accounting scheme of VAT returns. Customs and Excise officers only objected to the Appellant's practice of relying on these tickets after the investigation in 2000. The investigation was principally aimed at bringing criminal proceedings against companies other than the Appellant. In Mr Kiely's opinion, Customs and Excuse officers without notice raised the standard for what constituted satisfactory documentary evidence to prove removal of goods for the purposes of zero-rating. Since the investigation the Appellant ensured that it transported the goods itself for export. It no longer allowed customers to make their own arrangements. The Appellant had nothing in writing from Customs and Excise indicating that its officers accepted flight or ferry tickets as acceptable proof of export.
13. Mr Kiely was unable to point to any document which was stamped with a receipt from the purchaser of the goods. Mr Kiely, however, doubted whether a receipt stamp was better evidence of removal of goods from the UK than the plane ticket of the person to whom the Appellant's directors or employees gave the goods.
14. Mr Kiely stated that the Mr Crawford referred to in the airline ticket for the Cooladeer Ltd supplies was an officer of that company who called into the Appellant's office to collect goods. Mr Kiely was unable to identify Messrs Holmes and Preece, the holders of the Irish Ferry tickets on the 6 & 8 August 1998. He believed that "Foley" named on the Stena Line return ticket of 25 June 1998 was Mick Foley, an employee of Cornish Enterprises Ltd. According to Mr Kiely "McClean and Keane" were the accountants for Cornish Enterprises Ltd, whilst Rita Herbert named on the Air Lingus flight ticket of 23 February 1998 was Cornish Enterprises' company secretary. Mr Kiely was unable to produce written documentation confirming the positions of the persons identified on the tickets in their respective companies except Rita Herbert who was named as company secretary on the headed notepaper of Cornish Enterprises Ltd.
15. Mr Kiely explained that the address for Cravendene Technology Ltd on the fax from Barclays Bank was that of a UK management company. He did not consider it unusual for Cravendene Technology to use the London address of a management company to settle debts with UK companies. Mr Kiely made enquiries about the Isle of Man address for Cornish Enterprises Ltd in the Barclays Bank payment advice. He was satisfied that the address was the one used by the company for making third party payments.
16. Mr Kiely saw nothing unusual in the UK registration numbers of the motor vehicles used to transport the goods ordered by Cravendene Technology Ltd. In his view it made eminent sense for Cravendene to use UK carriers rather than Irish carriers to move the goods. Mr Kiely did not know why Cravendene and Cornish Enterprises used the Greenford branch of Abbey Travel to purchase the flight and ferry tickets.
17. Mr Kiely was familiar with the requirements of Notice 703 but left the details of it to the accounting function.

Reasons for the Decision

18. The legislative framework dealing with zero-rating of intra-EC removals firmly puts the onus upon the taxable person to prove that the conditions for zero-rating have been met. If those conditions have not been met, then the taxable person is required to treat the supplies as standard rated for VAT purposes. Paragraph 1.6 of Notice 703 explains the rationale behind the imposition of conditions:

"During the financial year 1994/1995 goods to the value of £135 billion were zero-rated for VAT purposes as exports or intra EC removals. It is vital that only genuine exports are zero-rated, otherwise there would be potentially huge losses of VAT revenue and abusers of the system would gain an unfair advantage over their competitors. The conditions set out in the regulations and this Notice are necessary to keep these risks to a minimum whilst ensuring that VAT export procedures are kept as simple as possible".

19. Paragraph 8.7 of VAT Notice 703 sets out what constitutes valid documentary evidence of removal. The taxable person may use a combination of the following provided that when taken together they provide clear evidence that the particular goods in question have been removed from the UK, not just that the sale has taken place:

a) commercial transport documents from the carrier responsible for removing the goods from the UK

b) customer's order

c) inter-company correspondence

d) copy sales invoice

e) advice note

f) packing list

g) details of insurance or freight charges

h) evidence of payment

i) evidence of receipt of goods abroad

j) any other documents relevant to the removal of goods in question which would normally be obtained in the course of intra-EC business.

20. Where the goods are collected in the UK by the EC customer, paragraph 8.9 of Notice 703 imposes additional requirements in respect of the documentary evidence necessary to establish zero-rating. Thus the taxable person must obtain from his EC customer:

~ a written order which shows the name, address and VAT number of the acquirer and the address where the goods are to be delivered; and

~ a signature for the goods and the registration number of the vehicle that is to carry the goods out of the UK (if going by road).

Paragraph 8.9 also repeats the advice given in paragraph 8.4 that the taxable person should consider taking a deposit from his EC customer equivalent to the amount of VAT due on the value of the goods in question.

21. We are satisfied from the evidence that the disputed supplies involved the collection of goods in the UK by the EC customer of the Appellant. The requirements of paragraph 8.9 of Notice 703, therefore, apply to the Appellant's supplies to his customers in the Irish Republic. The wording of this paragraph is phrased in mandatory terms: "the taxable person must obtain from his customer". The documentary evidence produced by the Appellant to support its claim for zero-rating did not include a signature for the goods from its customers for any of the disputed transactions. The Appellant's failure to provide evidence of its customers' signatures for the goods is sufficient for us to conclude that the Appellant has not met the conditions to zero-rate the disputed supplies. Further, we note that the Appellant has only produced copies of a written order from its customers in five of the sixteen transactions in dispute, which is another requirement of paragraph 8.9. Also the Appellant did not supply the Tribunal with documentary evidence (except for one transaction involving Rita Herbert) linking the name of the person on the ticket who collected the goods with the company on whose behalf the goods were carried. We consider that the absence of documents substantiating the link undermined the Appellant's case that the tickets constituted evidence of removal of the goods from the UK.
22. The Appellant contended that Customs and Excise Officers previously accepted the tickets as proof of removal in cases where the customer collected the goods in the UK. The Appellant's representative conceded that there was nothing in writing from Customs and Excise to confirm the Appellant's assertion. Thus the Appellant was unable to rely upon extra-statutory concession 3.5 dealing with a previous misdirection from a Customs and Excise Officer. Further there was an obligation upon the Appellant's directors and employees to be aware of the provisions of Notice 703 which are explicit about the requirements for a signature and a written order where goods are collected direct by the customer.
23. Mr Kiely suggested that the Appellant was unable to supply the Tribunal with all the documentary evidence relating to the disputed supplies because Customs and Excise officers seized the company's documents as part of their wider investigation. We, however, are satisfied from Mr Kiely's evidence that it was not the Appellant's practice to seek signatures for the goods collected because of Mr Kiely's insistence that the tickets themselves were sufficient proof of removal. We are surprised with the Appellant's practice of not obtaining signatures from customers collecting direct in view of the high value of the goods. Thus the signatures never existed and could not have been in the possession of Customs and Excise.
24. We, therefore, dismiss the Appeal because the Appellant has failed to meet the requirements of paragraphs 8.7 and 8.9 of Notice 703. We are satisfied that the Appellant did not hold clear documentary evidence that the goods had been removed from the UK, in particular the Appellant did not obtain from its customers in the Republic of Ireland their signatures for the goods in question. We uphold the Notice of Assessment dated 27 October 2000 for VAT in the sum of £234,748. We make no order for costs.
MICHAEL TILDESLEY CHAIRMAN RELEASE DATE: 17 January 2005

LON/00/1262