R v Muhammad Farqan Farooka & Anor

For the offence of fraudulent evasion of VAT under Value Added Tax Act 1994, obtaining a VAT credit is itself treated as evasion. The prosecution need not prove that the taxpayer had no net entitlement to repayment for the relevant period. It is sufficient to establish that the defendant was knowingly concerned in, or took steps with a view to, dishonestly obtaining a credit based on a falsely claimed amount of input tax. A possible entitlement arising from other dishonest transactions does not answer a charge based on false invoices. In sentencing a sophisticated fraud, features used to establish high culpability should not be counted again as separate aggravating features. Personal mitigation must be reflected in the final sentence, and the guilty-plea reduction is then applied.

Jian Heng Liang pleaded guilty in the Crown Court at Bristol to conspiracy to commit fraud and forgery. He was sentenced to four years and four months’ imprisonment and appealed against sentence.

Muhammad Farqan Farooka was convicted after trial of being concerned in the fraudulent evasion of VAT. His application for leave to appeal against conviction concerned whether the prosecution had to exclude the possibility that the company was entitled to an overall VAT repayment, and whether R v Noble assisted him. The appeals raised separate sentencing and statutory-construction issues.

1. Liang’s sentence. The appeal was allowed and a sentence of 40 months’ imprisonment was substituted. The sentencing judge had identified high culpability by reference to the appellant’s leading role, the sophistication and duration of the fraud, its planning and the covering of tracks. The later reference to its multifaceted features, including cash deposits, casino transactions, false invoices and a forged resignation letter, repeated matters already used in fixing the starting point. That involved a measure of double counting.
2. The appropriate starting point was six years. The appellant’s substantial personal mitigation warranted a reduction of one year. A one-third reduction for the guilty plea then produced a sentence of 40 months. There was no separate sentence for the forgery count.
3. Farooka’s conviction. Leave to appeal was refused. The issue turned on the construction of section 72 of the Value Added Tax Act 1994. Section 72(1) applies where a person is knowingly concerned in, or takes steps with a view to, fraudulent evasion of VAT. Section 72(2)(a) provides that evasion includes obtaining payment of a VAT credit. Section 72(2)(d)(i) treats the amount of VAT, in relation to a VAT credit, as the aggregate amount falsely claimed by way of input-tax credit.
4. The offence was therefore complete in principle where false invoices were submitted dishonestly to obtain a VAT credit to which the company was not entitled because the receipts were false. The prosecution did not have to establish the company’s overall VAT position for the period, or exclude the possibility that other fraudulent inflation of sales had created a repayment entitlement. There was ample evidence for the jury to conclude that the applicant was knowingly and dishonestly seeking such a credit.
5. The court considered that R v Noble was a very different case and found it unnecessary to address it. The application for leave to appeal was accordingly refused.

• Court of Appeal (Criminal Division): Liang’s sentence appeal was allowed and 40 months’ imprisonment substituted. Farooka’s renewed application for leave to appeal against conviction was refused.
• Crown Court at Bristol: Liang pleaded guilty and was sentenced to four years and four months’ imprisonment; Farooka was convicted after trial and sentenced to 18 months’ imprisonment, suspended for 21 months, with 240 hours of unpaid work.