N2J Ltd v Revenue & Customs

For intra-Community supplies claimed at zero rate, apparently valid transport documents are not conclusive. The supplier must establish the statutory and administrative conditions for zero-rating and must have taken every reasonable measure in its power to ensure that the transaction did not involve tax evasion. The documents must be assessed against the relevant commercial background.

An appeal from the VAT and Duties Tribunal lies only on a point of law. The High Court must respect factual findings which the Tribunal was entitled to make and must not conduct a general rehearing of the evidence.

N2J appealed from the decision of the VAT and Duties Tribunal dated 12 December 2008. The Tribunal had dismissed N2J’s appeal against HMRC’s amendment of its VAT return, which rejected zero-rating for supplies of mobile phones intended for delivery to another European Union member state.

The Tribunal concluded that N2J had not established that the goods had been removed from the United Kingdom or that the relevant CMR consignment notes were valid commercial evidence. It also concluded that N2J had not taken every reasonable measure to avoid involvement in fraudulent transactions. The appeal raised issues concerning the effect of Teleos, the evidential significance of CMRs, the Tribunal’s factual findings and the proper scope of an appeal to the High Court.

The appeal was dismissed.

1. Nature of the appeal. Under section 11(1) of the Tribunals and Inquiries Act 1992, an appeal from the VAT and Duties Tribunal lies only on a point of law. The High Court must identify the challenged finding, its significance, the evidence relevant to it and why the Tribunal was not entitled to make it. It must not review the evidence merely to decide whether it would have reached the same conclusion.
2. Applicable zero-rating conditions. N2J bore the burden of satisfying the conditions imposed under article 28c(A)(a) of the Sixth VAT Directive, section 30(8) of the Value Added Tax Act 1994 and regulation 134 of the Value Added Tax Regulations 1995. The issue was whether N2J had established removal of the goods from the United Kingdom and compliance with the documentary requirements. It was immaterial that HMRC had not alleged fraud by N2J or identified a particular irregularity or tax loss in its supply chain.
3. Effect of Teleos. The proviso in [2007] ECR I-7797 that the supplier must take every reasonable measure in its power would be redundant if an apparently valid CMR were conclusive. CMRs must be assessed in the relevant commercial context. HMRC may reopen the matter where later evidence reveals tax evasion and the supplier’s failure to take every reasonable measure.
4. Application. The Tribunal was entitled to conclude that N2J had not established that the phones left the United Kingdom and had not taken every reasonable measure. Its reliance on third parties, lack of inspection or direct contact with the destination warehouse, absence of insurance and acceptance of unusual payment and delivery arrangements justified its conclusion. The Tribunal’s reasoning was sufficiently clear when read as a whole, despite its failure to state the factual conclusion more explicitly.

1. High Court (Chancery Division): appeal from the VAT and Duties Tribunal dismissed.
2. VAT and Duties Tribunal: decision dated 12 December 2008 dismissing N2J’s appeal against HMRC’s amendment of its VAT return.