![UT/2023/000069 - [2024] UKUT 00278 (TCC)](https://backend.juristeca.com/files/emisores/logo_ICfrj4g.png){kind=logo}
THE FTT 2023 DECISION
THE FTT 2023 DECISION
The FTT 2023 decision found in favour of Mr Zaman. The FTT made its decision on the basis that, in the light of certain undisturbed findings in the FTT 2021 decision and a re-assessment of certain factual evaluations (applying the correct principles of law, in particular as to the burden of proof), the relevant alcoholic goods had not been removed to the United Kingdom, either at the time of their acquisition by Zamco Ltd, or at the time that they were sold to Zamco Ltd’s customers.
Since the FTT, in the FTT 2023 decision, located its conclusions in the findings of fact made in the FTT 2021 decision, we must set out the undisturbed findings of fact in the FTT 2021 decision. These are as follows (all paragraph references are to the FTT 2021 decision):-
Zamco Ltd had a business of buying and on-selling alcoholic goods [18]; while this is common ground, the FTT recorded that Mr Zaman’s evidence and the documentation were, together, the only source to identify Zamco Ltd’s business of buying and on-selling alcoholic goods in the first place: [87].
Zamco Ltd’s margin on sales was approximately £300,000 (2-3%): [19(3)].
Mr Zaman is the sole director and sole shareholder of Zamco Ltd: [13].
Zamco Ltd had a part-time employee, Mr Shafik Ahmed (“Mr Ahmed”), who, Mr Zaman said, met Zamco Ltd’s customers and collected cash: [13], [48]; Mr Zaman’s evidence was that Mr Ahmed dealt with Zamco Ltd’s customers more regularly than Mr Zaman ([84(1)], which the FTT described as “odd”: [90(6)].
Mr Zaman’s oral evidence was that the goods were in warehouses in France and Germany at the point of sale: [81](1). The FTT expressly said, however, that it was (at [83]):
“…wary of putting significant weight on Mr Zaman’s evidence…unless (i) corroborated by evidence which we consider credible or (ii) clearly in line with “common sense” and what we consider inherently likely.”
This was because the FTT did not find Mr Zaman’s oral evidence “wholly “open” and forthcoming”: [83]. The FTT also recorded that Mr Zaman had been inconsistent in giving evidence ([84]); and that it did not have confidence that Mr Zaman “was always telling the whole truth to the best of his recollection”: [85]. We record that, importantly, the FTT, in the FTT 2021 decision, did not discount Mr Zaman’s evidence entirely; nor did the FTT say that Mr Zaman simply could not be believed on any material issue. Rather, the FTT expressly recorded scepticism of Mr Zaman’s evidence, unless it was, in one way or another, supported by another credible source.
The “documentation” (comprising purchase and sales invoices, warehouse documents, correspondence between Zamco Ltd and HMRC) [7]) showed that the acquisition by Zamco Ltd from suppliers and on-sale to customers of alcoholic goods were generally outside the United Kingdom: [81(2)]. In assessing the reliability of this documentation, the FTT observed – in favour of it being a credible source of evidence – that the documentation was extensive: [86]. The FTT expressly recorded, however, that the evidential value of the documentation was not “definitive” because it was, in certain respects, incomplete or inaccurate: [86(1)-(3)]:
As to the incompleteness of the documentation, the FTT recorded (at [86(1)]) that the “initial” purchase invoices from suppliers and sales invoices to customers did not include excise duty or “incidentals” such as handling costs. Other invoices did include these items: [32].
There were a number of inaccuracies: excise duty was included in the documentation for five transactions, even though the purchase of goods within an excise warehouse (which the relevant warehouse was) should not have attracted excise duties: [32]; in a number of transactions the warehouse involved in the sale differed from the warehouse used in the purchase [33]; in a number of transactions the destination of the sale appear to be the customer’s address (and so different from the warehouse used in the purchase) [34]; in a number of transactions the destination of the sale was an entity (and warehouse) other than the purchaser [35]; some of the documentation included an “ARC” number appropriate for warehouse to warehouse transactions, but in some transactions the alleged “ARC” number could not be matched to a corresponding administrative document: [36]; one of Zamco Ltd’s customers, Harmsworth Distribution Ltd (an United Kingdom company), had records of 42 sales to Zamco Ltd for 08/16 but Mr Zaman’s evidence was that these transactions did not take place: [30], [86(1)], [86(2)].
Furthermore, the FTT observed that there was “cause for scepticism” about the bona fides of many of the legal entities in the supply chain, given that a large number were VAT deregistered and may have been involved in “illicit activities”: [86(3)].
It was unclear what value Zamco Ltd added to the supply chain: [90(4)].
Zamco Ltd had not appealed the VAT assessments for the relevant period, which had been raised on the basis that the place of supply was the United Kingdom: [81(3)].
Customers paid Zamco Ltd entirely in cash ([20]), which the FTT described as “unusual and suspicious, given the large sums involved”: [90(1)].
Cash sums were deposited into Zamco Ltd’s bank account in sterling: [20]; [81(4)].
One of the warehouses and two of Zamco Ltd’s counterparties had “United Kingdom connections”: [81(5)].
A number of suppliers did indeed transact with Zamco Ltd [29]. While some of Zamco Ltd’s suppliers had become deregistered for VAT, others had remained active by the time that HMRC enquired about their transactions with Zamco Ltd: [29(1)-(7)]. In relation to one Dutch supplier, Tinte Drankenhandel BV, Dutch authorities explained that it traded in sterling “more often”: [29(6)].
All of Zamco Ltd’s customers were de-registered for VAT at some time after their purchases from Zamco Ltd: [24]. HMRC enquiries made to overseas tax authorities revealed that at least some of these customers were considered to be “missing traders” and “clandestine”: [25], [26]. Two customers had United Kingdom connections in that the individual entitled to sign on behalf of one of them had an United Kingdom address and the director of another was resident in the United Kingdom: [25(3)], [26(6)].
In relation to the warehouses in which the alcoholic goods were stored, while certain of these had become VAT de-registered by the time HMRC made inquiries ([27](1)), others were still operating ([27(2)] and provided documentation which did refer to Zamco Ltd: [27(2)(a)], [(b)]).
Zamco Ltd’s due diligence of customers consist of checking the existence of the legal entity (and sometimes the VAT number) ([30]) a practice described by the FTT as “cursory”: [90(7)].
One customer, Licores (a Spanish customer, which was also a supplier), explained that it traded with Zamco Ltd in sterling because Licores bought the alcohol in sterling: [29(3)].
Mr Ahmed had been stopped by the police in the West Midlands, with some £70,000 seized on grounds that the cash was obtained by or in return for money laundering; furthermore, certain text messages from Mr Ahmed’s phone were alleged by HMRC to show his involvement in the illicit alcohol market: [40]-[42], [81(6)], [90(5)].
The FTT found that it was “likely” that there was “illicit activity” in the supply chains which included Zamco Ltd but was unable to specify or make a finding what that “illicit activity” was, or where in the supply chain it took place. However, this finding was insufficient to make a finding that Zamco Ltd had a role of arranging or overseeing the smuggling of alcohol into the United Kingdom (rather, the FTT found that the purpose of Zamco Ltd’s involvement was to cover-up or obscure “illicit activity” elsewhere in the supply chain: [91]).
Critically, in the FTT 2021 decision, the FTT found, on the balance of probabilities, that the alcoholic goods were located outside the United Kingdom at the time of acquisition by Zamco Ltd and at the time of their on-sale by Zamco Ltd: [92] – [95].
In finding that, on the balance of probabilities, that the alcoholic goods were located in overseas warehouses at the time that they were acquired by Zamco Ltd, the FTT recorded that it relied on the documentation and the fact that Zamco Ltd had no premises in the United Kingdom to store alcoholic goods (we do not find this finding of fact recorded anywhere else in the FTT 2021 decision but it is not disputed by the parties in this appeal). The FTT acknowledged, as recorded above, that the documentation could not be viewed as conclusive (“definitive evidence” ([90(2)]), and that some of the documentation and evidence did not indicate any involvement by Zamco Ltd in its purported dealings with suppliers and customers, but explained this as a function of Zamco Ltd’s limited involvement in the transactions: [93].
The goods remained overseas at the time that these goods were on-sold to Zamco Ltd’s customers. The FTT recorded that, having found, on the balance of probabilities, that the alcoholic goods were located outside the United Kingdom at the time of their acquisition by Zamco Ltd, any finding that these goods were located in the United Kingdom at the time of their sale by Zamco Ltd to its customers required evidence that they were removed to the United Kingdom at some point after their acquisition by Zamco Ltd: [94]. The FTT went on to record that the fact of cash deposits in the United Kingdom of sterling and the “United Kingdom connections” were insufficient and not specific enough to the location of the goods to show, on the balance of probabilities, that the alcoholic goods had moved from France/Germany to the United Kingdom at or before their on-sale by Zamco Ltd to its customers: [95]. Nor, as the FTT expressly recorded, was its inferential finding that there was “illicit activity” somewhere in the supply chain specific enough to persuade the FTT that these alcoholic goods had been smuggled into the United Kingdom at or before their sale to Zamco Ltd’s customers (it being more likely that Zamco Ltd had covered up or obscured the relevant illicit activity rather than actively engage in smuggling): [95].
If the FTT, in the FTT 2021 decision, had stopped there, there would have been no error of law. The FTT had found that the documentation was reliable enough, particularly given at least some of the responses to HMRC’s enquiries to overseas tax authorities, to provide a sufficiently credible line of evidence to reach a sustainable finding of fact (that the alcoholic goods were not removed to the United Kingdom by, or under the direction of Zamco Ltd). The FTT had explanations as to why cash sums had been paid in sterling to Zamco Ltd by at least two customers. It was, of course, open for the FTT to have reached the opposite conclusion. This is not a case, however, like Awards DrinksLtd (In Liquidation) v The Commissioners v HM Revenue and Customs [2020] UKUT 0201 (TCC)where there was simply no evidence to corroborate the relevant documentation (indeed, all of the evidence pointed the other way).
But the FTT clearly erred in law in observing, at [96], that HMRC had not discharged their burden of proof. While the FTT was correct, at [75] of the FTT 2021 decision, to observe that the burden of proof was on HMRC in establishing the validity of a PLN, the FTT was plainly incorrect to hold that the burden of proof in establishing whether the alcoholic goods were, or were not, removed to the United Kingdom was on HMRC (see [96] of the FTT 2021 decision). This observation suggests that the evidence did, indeed, point to alcoholic goods being removed to the United Kingdom, but the weight of evidence was not sufficient to allow the FTT to make this finding. This is the wrong approach. As we have observed, the burden of proving that the alcoholic goods were not removed to the United Kingdom remains with the trader.
In the FTT 2023 decision, all of the FTT’s findings of fact in the FTT 2021 decision were left undisturbed (see [12] – [16] of the FTT 2023 decision), except the critical findings of fact as to the location of the alcoholic goods at the time of acquisition by Zamco Ltd from suppliers and their on-sale by Zamco Ltd to customers at [92] and [95] of the FTT 2021 decision. The FTT, in the FTT 2023 decision, described its “essential task” as to decide whether, on all the evidence before the FTT, applying the civil standard of proof (balance of probabilities) and drawing appropriate inferences, rationally and in accordance with its conscientious duty, it could make a finding on the essential issue of fact as regards the correctness of the assessment bracket, being whether the goods were removed to the United Kingdom by Zamco Ltd or under its directions): [21]. We observe – and this was not disputed by HMRC - that this was indeed a correct assessment of the FTT’s task in the FTT 2023 decision.
In relation to the location of the alcoholic goods at the time of acquisition by Zamco Ltd, the FTT, in the FTT 2023 decision, reaffirmed its conclusion in the FTT 2021 decision that the location at the time of acquisition by Zamco Ltd was outside the United Kingdom [38] – [39]. The FTT had so found, in the FTT 2021 decision, on the basis of not only the documentation but also the fact that Zamco Ltd had no premises in the United Kingdom to store alcoholic goods: [38] and [39(1)] of the FTT 2023 decision. The documentation in relation to warehouses expressly referred to Zamco Ltd and the very notion of smuggling presupposes an overseas location of the alcoholic goods at some point: [39](3) of the FTT 2023 decision. The FTT further found that the finding of an overseas location meant that, on the balance of probabilities, the goods were not removed to the United Kingdom prior to or as part of Zamco Ltd’s sales: [41] of the FTT 2023 decision.
In relation to the location of the alcoholic goods at the time of sales by Zamco Ltd, the FTT re-expressed [95] of the FTT 2021 decision as a weighing up of the evidence which led to a conclusion that the relevant locations were outside the United Kingdom: [42] – [43] of the FTT 2023 decision. The FTT found that while the payment of sterling to the United Kingdom and a few counterparties had United Kingdom connections were suggestive of, but not direct evidence of, the goods being removed the United Kingdom, the documentation indicated that the goods were in French or German warehouses. The FTT had taken into account the “illicit activity” in the supply chains, which the FTT had found, on the balance of probabilities, to constitute “covering up’ but not smuggling; the FTT said this conclusion was, as a “matter of commercial common sense”, consistent with the margin of 2-3%, which the FTT considered too small for the risks involved in smuggling: [43(1)-(4)].