The Commissioners for HMRC v Mohammed Zaman

An appellate tribunal may set aside a fact-finding decision on Edwards v Bairstow grounds only where, absent legal misdirection, no reasonable tribunal could have reached it. The hurdle is very high. The weight to be given to evidence, including imperfect commercial documentation and evidence affected by credibility concerns, is ordinarily for the fact-finding tribunal.

A general finding of illicit activity in a supply chain does not compel a finding that particular goods were smuggled into the United Kingdom. The tribunal may require evidence identifying the relevant movement and may conclude that the taxpayer has discharged the civil burden of proving the assessment incorrect.

HMRC appealed against the First-tier Tribunal’s remitted decision, [2023] UKFTT 00404 (TC), which allowed Mohammed Zaman’s appeal against a personal liability notice concerning VAT and penalties imposed on Zamco Ltd.

The earlier First-tier Tribunal decision had found that the alcoholic goods were outside the United Kingdom when acquired by Zamco Ltd and when sold to its customers. A previous Upper Tribunal appeal had identified an error concerning the burden of proof, set the decision aside, and remitted the case without disturbing the primary facts.

On remittal, the First-tier Tribunal again found that Mr Zaman had established, on the balance of probabilities, that the goods had not been removed to the United Kingdom by, or under the direction of, Zamco Ltd. HMRC contended that this conclusion was perverse on Edwards v Bairstow [1956] AC 14 grounds.

1. Appeal dismissed. HMRC had not shown that the First-tier Tribunal’s remitted decision was one which no reasonable tribunal could have reached.

2. An Edwards v Bairstow [1956] AC 14 challenge imposes a very high threshold where the fact-finding tribunal has applied the correct legal test. The assessment of the weight of factual evidence is principally for that tribunal. An appellate tribunal must not second-guess its findings without compelling reason.

3. The First-tier Tribunal was entitled to give some weight to the documentation. It had examined its incompleteness and inaccuracies, considered the limited reliability of Mr Zaman’s evidence, and did not treat either source as conclusive. Its scepticism about his evidence did not amount to a finding that no reliance could be placed on it. The absence of a pleaded sham case also did not require the documents to be accepted according to their terms, but did not compel their wholesale rejection.

4. The finding that there was illicit activity somewhere in the supply chain did not identify its nature or location. It therefore did not require a finding that Zamco Ltd had arranged or directed the smuggling of the goods. The First-tier Tribunal could take account of the overseas warehouse documents, Zamco Ltd’s lack of United Kingdom storage premises, and the absence of evidence identifying a point at which the goods entered the United Kingdom.

5. The First-tier Tribunal could rationally conclude that the goods remained outside the United Kingdom when acquired and sold by Zamco Ltd. It was open to it to find that Mr Zaman had discharged the burden of showing that the VAT assessment was incorrect. The personal liability notice consequently could not stand on the asserted basis.

• Upper Tribunal (Tax and Chancery Chamber): HMRC’s appeal against the remitted First-tier Tribunal decision was dismissed: [2024] UKUT 278 (TCC).
• First-tier Tribunal (Tax Chamber): On remittal, it again determined the material issue in Mr Zaman’s favour: [2023] UKFTT 00404 (TC).
• Upper Tribunal (Tax and Chancery Chamber): HMRC’s earlier appeal was allowed because the First-tier Tribunal had erred about the burden of proof. The matter was remitted without disturbing the findings of primary fact: [2022] UKUT 00252 (TCC).
• First-tier Tribunal (Tax Chamber): It initially determined the inaccuracy issue in Mr Zaman’s favour: [2021] UKFTT 0228 (TC).