CCA Distribution Ltd v The Commissioners for HMRC

On an appeal on a point of law, an appellate tribunal may interpret an unclear decision below, but a fact-finder assessing circumstantial evidence must evaluate the evidence cumulatively. In a borderline case, a general statement that all circumstances were considered will not cure reasoning which, read fairly, is piecemeal. A tribunal must also identify and address the essential elements of a substantial evidential case when rejecting it. A reasons challenge may be permitted even if not clearly stated at the permission stage, but it cannot reopen a substantive challenge for which permission was refused. The appeal was dismissed and remittal to a differently constituted tribunal stood.

CCA appealed against the Upper Tribunal’s decision allowing HMRC’s appeal from the First-tier Tribunal. The First-tier Tribunal had allowed CCA’s appeal against HMRC’s refusal to deduct more than £9.8 million in input tax on mobile-phone purchases connected with MTIC fraud. The Tribunal was divided, and the judge’s casting vote favoured CCA.

The Upper Tribunal allowed HMRC’s appeal on the relevance of the criminal investigation and the treatment of circumstantial evidence, setting aside the First-tier Tribunal’s decision and remitting the case. CCA challenged those conclusions. HMRC relied on a further challenge concerning the banking evidence. The central issues were whether the First-tier Tribunal had made errors of law in assessing actual knowledge, the should-have-known case, and the evidence and reasons supporting its conclusions.

Disposition. CCA’s appeal was dismissed. The Upper Tribunal’s order setting aside the First-tier Tribunal’s decision and remitting the case to a differently constituted tribunal therefore stood.

1. Criminal investigation. The Upper Tribunal was entitled to interpret the First-tier Tribunal’s unclear reasoning. The fact that criminal investigators had not contacted Mr Trees or CCA had no probative value on whether Mr Trees knew that the transactions were connected with VAT fraud. Even an inference about what the investigators believed would not establish what Mr Trees knew. The First-tier Tribunal had treated the matter as relevant and given it some weight in a borderline case. That was an error of law sufficient to prevent its decision on actual knowledge from standing.
2. Circumstantial evidence. A tribunal must consider the evidence as a whole before reaching its conclusion: Davis & Dan Ltd v HMRC [2016] EWCA Civ 142. The First-tier Tribunal had dealt with the banking evidence, due diligence, insurance and phone models piecemeal, rejecting each item separately. Its concluding reference to all the circumstances did not demonstrate an overall assessment. The Upper Tribunal was therefore justified in finding an error of law, particularly because the case had been described as borderline.
3. Insufficient reasons. An appellate tribunal may permit a reasons challenge even where it was not clearly identified when permission to appeal was sought. However, HMRC could not use such a challenge to reopen the First-tier Tribunal’s conclusions on the 20 commerciality points after permission to appeal on that substantive ground had been refused. The Court therefore disagreed with the Upper Tribunal on this aspect. It did not need to decide the underlying reasonable-businessman issue, to which S&I Electrical plc v HMRC [2015] UKUT 0162 (TCC) had been referred.
4. Banking evidence. A tribunal need not reproduce every submission, but when rejecting a substantial evidential case it must identify and address its essential elements and explain why they are rejected. The First-tier Tribunal had not sufficiently analysed HMRC’s case on circularity, rapid transfers and payment patterns. That failure constituted an additional error of law.

• Court of Appeal (Civil Division) — Appeal dismissed; the Upper Tribunal’s remittal order stood.
• Upper Tribunal (Tax and Chancery Chamber) — Allowed HMRC’s appeal from the First-tier Tribunal, set aside its decision and remitted the case to a differently constituted tribunal: [2015] UKUT 0513 (TT).
• First-tier Tribunal (Tax Chamber) — Allowed CCA’s appeal against HMRC’s refusal of input-tax deduction.