H Ripley & Co Limited v The Commissioners for HMRC

Article 131 Council Directive 2006/112/EC of 28 November 2006 on the Common System of Value Added Tax (“PVD”) provides:

“The exemptions provided for in Chapters 2 to 9 shall apply without prejudice to other Community provisions and in accordance with conditions which the Member States shall lay down for the purposes of ensuring the correct and straightforward application of those exemptions and of preventing any possible evasion, avoidance or abuse.”

Article 138(1) of the PVD requires Member States to exempt from VAT goods that are transported to another member state. Regulation 138(1) replaced Article 28c(A)(a) of the Sixth Directive:

“Member States shall exempt the supply of goods dispatched or transported to a destination outside their respective territory but within the Community, by or on behalf of the vendor or the person acquiring the goods, for another taxable person, or for a non-taxable legal person acting as such in a Member State other than that in which dispatch or transport of the goods began.”

Section 30 Value Added Tax Act 1994 (“VATA”), so far as it is material provides:

“30— Zero-rating.

(1)

Where a taxable person supplies goods or services and the supply is zero-rated, then, whether or not VAT would be chargeable on the supply apart from this section— (a) no VAT shall be charged on the supply; but

(b)

it shall in all other respects be treated as a taxable supply; and accordingly the rate at which VAT is treated as charged on the supply shall be nil.

…

(8)

Regulations may provide for the zero-rating of supplies of goods, or of such goods as may be specified in the regulations, in cases where— (a) the Commissioners are satisfied that the goods have been or are to be exported to a place outside the member States or that the supply in question involves both—

(i)

the removal of the goods from the United Kingdom; and

(ii)

their acquisition in another member State by a person who is liable for VAT on the acquisition in accordance with provisions of the law of that member State corresponding, in relation to that member State, to the provisions of section 10; and (b) such other conditions, if any, as may be specified in the regulations or the Commissioners may impose are fulfilled.”

Regulation 134 of the VAT Regulations 1995, so far as is material, provides:

“Where the Commissioners are satisfied that –

(a)

a supply of goods by a taxable person involves their removal from the United Kingdom;

(b)

the supplies are to a person taxable in another member State;

(c)

the goods have been removed to another member State ...

the supply, subject to such conditions as they may impose shall be zero rated.”

VAT Notice 725 “The single market” (“VN 725”) (parts of which have force of law) and relevant guidance is contained in Paragraphs 4.3, 4.4, 5.1, 5.2, 5.5, 16.12 and 16.13.

Paragraph 4.3, which has the force of law, states:

“4.3

When can a supply of goods be zero-rated?

A supply from the UK to a customer in another EC Member State is liable to the zero-rate where:

You obtain and show on your VAT sales invoice your Customer’s EC VAT registration number, including the 2-letter country prefix code, and

The goods are sent or transported out of the UK to a destination in another EC state, and

You obtain and keep valid commercial evidence that the goods have been removed from the UK within the time limits set out at paragraph 4.4”

Paragraph 4.4 also has the force of law, and states:

“4.4

Time limits for removal of goods and obtaining evidence of removal

… For goods removed to another EC Member State the time limits are as follows:

(a)

Three months (including supplies of goods involved in groupage or consolidation prior to removal)”

Evidence of removal is addressed in Paragraph 5.1:

“5.1

Evidence of removal

A combination of these documents must be used to provide clear evidence that a supply has taken place, and the goods have been removed from the UK:

- the customer’s order (including customer’s name, VAT number and delivery address for the goods)

- inter-company correspondence

- copy sales invoice (including a description of the goods, an invoice number and customer’s EC VAT number etc)

- advice note

- packing list

- commercial transport document(s) from the carrier responsible for removing the goods from the UK, for example an International Consignment Note (CMR) fully completed by the consignor, the haulier and signed by receiving consignee

- details of insurance or freight charges

- bank statements as evidence of payment

- receipted copy of the consignment note as evidence of receipt of goods abroad

- any other documents relevant to the removal of the goods in question which you would normally obtain in the course of your intra-EC business

Photocopy certificates of shipment or other transport documents are not normally acceptable as evidence of removal unless authenticated with an original stamp and dated by an authorised official of the issuing office.”

Paragraph 5.2, which has the force of law, states:

“What must be shown on documents used as proof of Removal?

The documents you use as proof of removal must clearly identify the following:

- the supplier

- the consignor (where different from the supplier)

- the customer

- the goods

- an accurate value

- the mode of transport and route of movement of the goods, and

- the EC destination

Vague descriptions of goods, quantities or values are not acceptable. For instance, ‘various electrical goods’ must not be used when the correct description is ‘2000 mobile phones (Make ABC and Model Number XYZ2000)’. An accurate value, for example, £50,000 must be shown and not excluded or replaced by a lower or higher amount.

If the evidence is found to be unsatisfactory you as the supplier could become liable for the VAT due.”

Name of ferry or shipping company and date of sailing or airway number and airport.

Paragraphs 16.12-16.13 provide:

“16.12

How do I adjust my accounts if goods are not removed or I do not receive evidence of removal?

Whether you or your VAT registered EC customer arranges for the removal of goods to another EU member state, you can only zero-rate the supply in your records when the goods are supplied to your customer and you meet the conditions set out in paragraphs 4.3 and 4.4.

If the goods have not been removed or you do not have satisfactory evidence of removal within 3 months (6 months for goods involved in processing or incorporation before removal) and the goods would be subject to VAT in the UK, you must account for VAT. You must amend your VAT records and account for VAT on the invoiced amount or consideration you have received. For a VAT rate of 17.5% the VAT element would be calculated at 7/47 and for the 20% rate (from 4 January 2011) at 1/6.

To amend your VAT records, you must make an entry equal to the tax on the supplies concerned on the 'VAT Payable' side of your VAT account. Include this amount in box 1 of your VAT Return for the period in which the time limit expires. If you do not, you're likely to be assessed for tax due on the supplies and may incur default interest and a financial penalty.

16.13

What do I do if the goods are later removed or I receive evidence of removal after I have accounted for VAT?

If the goods are subsequently removed from the UK and/or you later obtain evidence showing that the goods were removed, you may zero rate the supply and adjust your VAT account for the period in which you get the evidence. This is provided that the goods have not been used in the UK before removal, unless specifically authorised.”

The Court of Justice of the European Union (“CJEU”) has established that the term “dispatched” used in article 138 PVD must be interpreted to mean that the right to dispose of goods as owner has been transferred to the purchaser and the supplier establishes that as a result of the dispatch or transport, the goods in question have physically left the territory of the member state of supply, R (on the application of Teleos plc and others) v Revenue and Customs Commissioners (Case C-409/04) [2008] STC 706) (“Teleos”) at [42].

In Teleos, the CJEU also held that a supplier’s and purchaser’s intention to effect an intra-Community transaction is not sufficient for its classification as such. Requiring the tax authorities to carry out inquiries to determine the intention of the taxable person would be contrary to the objectives of the common system of VAT of ensuring legal certainty and facilitating the measures necessary for the application of VAT by having regard, save in exceptional circumstances, to the objective character of the transaction concerned, at [39]. At [45], the CJEU said that if a Member State accepts alternative evidence to verify supplies, the general principles of EU law (including effectiveness and proportionality) are engaged.

The physical movement of goods from one Member State to another is a condition precedent to the application of the exemption under article 138 PVD (Teleos at [37]) and consequently zero rating in the UK. As such that is a substantive requirement of zero-rating.

Where the substantive requirements for exemption under article 138 PVD are satisfied, exemption cannot be denied where there is failure to comply with some formal requirement. This is not the case where non-compliance with formal requirements would effectively prevent the production of conclusive evidence that the substantive requirements have been satisfied (paragraph [46] of the CJEU’s decision in Vogtländische Straßen-, Tief- und Rohrleitungsbau GmbH Rodewisch v Finanzamt Plauen (Case C-587/10) [2013] STC 198 (“VST”)).

Where evidence of removal has not been obtained within three months of the time of supply, the VAT must be accounted for at that time, and the VAT due attracts interest (Customs and Excise Commissioners v Musashi Autoparts Europe Ltd (formerly TAP Manufacturing Ltd) [2003] EWCA Civ 1738 [2004] STC 220).

The Upper Tribunal in HMRC v Arkeley Limited (in Liquidation) [2013] UKUT 0393 (TCC) considered the conditions for zero-rating and confirmed that “the only question [for the Tribunal] is whether the documents received by the supplier are sufficient evidence of the export”:

“34.

It is clear from Teleos that proof of export depends on there being sufficient evidence of export in the hands of the taxable person at the relevant time. Absent fraud or bad faith, such evidence will result in the application of zero-rating even if it is later established that the goods were not exported. No question of bad faith or fraud on the part of Arkeley, or knowledge or means of knowledge of fraud, was alleged in this case. Accordingly, the question for the FTT was not whether it was satisfied that the goods were exported, but whether it was satisfied that there was sufficient evidence of export in the hands of Arkeley within the prescribed time limit.”

It is therefore unnecessary for the Tribunal to establish whether an export has actually taken place.

An analogous two stage approach, where the Tribunal sought to establish whether a supply had taken place before determining whether HMRC’s discretion under Regulation 29(2) of the VAT Regulations 1995 had been exercised reasonably, was deprecated in Scandico v HMRC [2017] UKUT 467 TCC.

Mr Southern’s submissions on behalf of HR are summarised as follows.

The questions for determination are: (1) is the evidence relied upon by HR sufficient to demonstrate on the balance of probabilities that each of the 72 consignments were removed from the UK and (2) having regard to the answer to (1), has HR made an overpayment of output tax and, if so, by how much?

Evidence of removal of the goods from the UK is demonstrated by the production of a combination of documents and the inferences to be drawn from them. The documents are consistent with each other and so corroborate each other and accurately document the 72 transactions. The master spreadsheet sets out all the documentary information which has been obtained in respect of each transaction, SR and MB in their evidence explain how the information was collected and correlated.

The grounds of appeal are that there is abundant evidence to establish that all 72 consignments were removed from the UK. There is no evidence to the contrary. None of the documentary evidence can be or has been challenged by HMRC. The matters not capable of dispute include the identification of the customer for all 72 consignments as being Recylink, a VAT registered business in Belgium.

All of the sales are documented by a variety of documents. There is no question of non-receipt of the goods by GC as he would not be prepared to pay invoice number 44 if he had not received the previous 43 consignments and HR would not be prepared to sell the goods to HR if it was not paid.

No question of bad faith or fraud or knowledge of fraud on the part of HR arises. The problem (if any) appears to have been in the area of Belgian VAT.

HMRC attach particular importance to paragraphs 4.3, 4.4, 5.1, 5.2 and 5.5 of VN 725. The documents produced and the evidence in support satisfy the formal and substantive requirements of 4.3, 4.4 and 5.2. Paragraph 5.1 takes an inclusive view of what is acceptable evidence of removal and says that a combination of the documents specified (but not a complete suite) may be used to prove removal. The appropriate documents included “any other documents relevant to the removal of the goods in question which you would normally obtain in the course of your EU business”. Paragraph 5.5, which does not have the force of law, is headed “What if my customer collects the goods or arranges for their collection and removal from the UK”; HR have complied with all of the relevant provisions.

The right to recover overpaid output tax is a directly effective EU law right, a San Giorgio right which engages the general principles of EU, in particular effectiveness and proportionality. The CJEU in Teleos at [45] confirmed that if a Member State accepts alternative evidence to verify supplies, the general principles of EU law (including effectiveness and proportionality) are engaged. VAT Notice 703, Goods exported from the UK, has much in common with VN 725. Paragraph 6.1 of PN states:

“For VAT zero rating purposes you must produce either official evidence as described in paragraph 6.2 or commercial evidence as described in paragraph 6.3. Equal weight is put on official and commercial transport evidence but both must be supported by supplementary evidence to show that a transaction has taken place, and that the transaction relates to the goods physically exported. If the evidence of export provided is found to be unsatisfactory, VAT zero rating will not be allowed and the supplier of the goods will be liable to account for the VAT due (see paragraph 11.2).

In R & C Comrs v NHS Lothian Health Board [2022] UKSC at [63]-[68], the Supreme Court stated that the effectiveness principle does not displace the obligation on the taxpayer to provide sufficient evidence to enable his claim for recovery of tax to be quantified; however, that statement was made in reference to a global claim where, unlike here, limited documentary evidence was available and the claim could not be calculated with arithmetic accuracy.

Once HR has put forward substantial and reliable evidence, the burden of proof shifts to HMRC to dispute it. HMRC have not produced (i) any evidence which seeks to disprove the Appellant’s evidence; (ii) any evidence to show that any of the consignments were not removed from the UK; (iii) any witness to speak to any evidence which HMRC have. Further, as noted, the validity of all documents which the Company relies upon is unchallenged.

On the balance of probabilities, having regard to the quantity and quality of the evidence relied upon, documentary and oral, both regarded separately and in combination, the Company can establish that all 72 consignments were removed from the UK shortly after leaving the Company’s yards. This is alike a matter of direct evidence and reasonable inference. All the transactions in question were correctly classified as zero-rated, because the goods were removed from the UK. Accordingly, no output tax was due in respect of them, and the attributable input tax was recoverable in full. In addition, HMRC are liable to repay the overpaid output tax VATA s 80(2A) and accordingly the Company is entitled to interest under VATA s 78(1)(a).

On 22 March 2023, HR provided written submissions to the Tribunal relying upon the Tribunal decision in Pavan Trading Limited v HMRC [2023] UKFTT 79 (TC) (“Pavan”). Mr Southern submitted that although Pavan was concerned with VAT Notice 703, the time limits were identical to those in PN 703. Reliance was placed upon Pavan to counter HMRC’s submission that evidence of export must be provided to HMRC within three months of the date of supply and all the documents relied on must in any event be obtained within three months of supply and documents not obtained before the end and held at the end of that period cannot be used as or in support of evidence or export/removal from the UK. Pavan at [29] stated:

“Given that the crucial word in section 3.5 of Notice 703, which has the force of law says "obtain", we found these curious submissions, as did Mr Bedenham. His view, as was ours, was that this simply meant that the taxpayer had to have obtained and have in his possession valid evidence of export within the 3 months from the time of supply.”

The Tribunal in Pavan pointed out that such a narrow reading would also be inconsistent of the UT in Arkeley, the UT stated that the evidential requirements had to be approached in a flexible and pragmatic manner and evidence from a combination of documents could be relied upon including official, commercial and supplementary material, at [38].

Ms Stephenson’s submissions on behalf of HMRC are summarised as follows.

The question for determination by the Tribunal is did the Appellant hold valid commercial evidence to demonstrate that the goods have been removed from the UK within three months of supply per the requirements set out in VN 725 paragraphs 4.3 and 4.4. In considering whether the evidence of removal meets this test the Tribunal will consider the requirements which must be met contained at paragraph 5.2 of VN 725 and the documents which may be used as proof of removal at paragraph 5.1 of VN 725. Paragraph 5.5 of VN 725 sets out the evidence required where a company is claiming zero-rating but is not arranging transport of the goods following sale. Paragraph 5.2 has the force of law, paragraphs 5.1 and 5.5 do not.

The proper test to be applied is not whether the goods were in fact removed from the UK but rather whether the Appellant was entitled to claim zero-rating on those goods, having met the requirements of VN 725. The onus is on the company claiming zero-rating to gather sufficient evidence of removal within three months. If they do not do so, they are simply not entitled to rate the supplies in that way. The Appellant cannot circumvent the proper requirements of VN 725 by substituting them for the Appellant’s novel test that the Tribunal can rely on “direct evidence and reasonable inference … documentary and oral” to determine whether the goods were removed from the UK.

HMRC’s approach is supported by the UT decision in Arkeley Limited (in Liquidation) [2013] UKUT 0393 where the UT considered the distinction between the Tribunal being asked to decide (i) whether goods had been exported, and (ii) whether there was sufficient evidence of export held by Arkeley within the relevant time limit. The UT stated:

“22.

What this means is that in a case where bad faith is not alleged, and where it is not argued that the taxable person was a participant in fraud, whether an actual participant or a participant by virtue of knowledge or means of knowledge of the fraud … the only question is whether the documents received by the supplier are sufficient evidence of the export. That is the case whether or not the tax authority has itself accepted the evidence. If that evidence is sufficient, and that is a matter for the Tribunal in the case of dispute, the application of zero-rating will not be precluded even if it is later discovered that the goods have not been exported …

34.

It is clear from Teleos that proof of export depends on there being sufficient evidence of export in the hands of the taxable person at the relevant time. Absent fraud or bad faith, such evidence will result in the application of zero-rating even if it is later established that the goods were not exported. No question of bad faith or fraud on the part of Arkeley, or knowledge or means of knowledge of fraud, was alleged in this case. Accordingly, the question for the FTT was not whether it was satisfied that the goods were exported, but whether it was satisfied that there was sufficient evidence of export in the hands of Arkeley within the prescribed time limit.

35.

That was the way in which the FTT approached the issue. It did not base its findings on any misconceived assumption that HMRC had agreed that the goods had been exported. It examined, as it was required to do, the evidence of export, and reached its findings on that basis ...”

The UT in Scandico v HMRC [2017] UKUT 467 TCC at [39] – [44] condemned the “two stage approach” followed by the Tribunal of deciding first whether there was in fact a taxable supply, and only if the FTT concluded that there was, then going on to consider whether HMRC had acted reasonably in rejecting alternative evidence where valid invoices were not held.

HMRC are not required to conduct independent investigations to verify or challenge evidence which purports to meet the requirements of VN 725, see Angela McCamiley v HMRC [2016] UKFTT 0701 (TC) at [44]. HMRC do not need to produce evidence that the goods in question did not leave the UK in order to undermine HR’s case. HMRC’s position, which has remained unchanged throughout the dispute, is that HR did not hold valid commercial evidence that the goods had been removed from the UK within the requisite time limit. HMRC do not have to prove a negative to undermine HR’s case: the evidence presented by HR is simply insufficient. There is no burden on HMRC to demonstrate that the goods did not leave the UK: that is not the issue before the Tribunal. HMRC do not accept that the documentation presented by the Appellant demonstrates sufficient evidence of export in the hands of the Appellant within the prescribed time limit. In those circumstances the legal test is not met and no ‘reverse burden’ can arise in relation to the reliability of the evidence.

HR has presented the following documents as valid commercial evidence that the goods had been removed from the UK: invoices; weighbridge tickets, bank statements, CMRs, Annex VII forms, P&O boarding cards, e-mails from GC to Terence Everett and WhatsApp messages.

The boarding cards and e-mails were not obtained and retained within the three-month time limit in VN 725, which has the force of law. They cannot be used to support an argument that HR were entitled to zero-rate the goods in this appeal. Even if they were within the time limit, the boarding cards and e-mails do not provide the detail required VN 725. The CMRs and Annex VII forms might be capable of being useful, had HR obtained complete copies from the consignee which showed export and/or the route of export. In their current state they do not perform this function. The weighbridge tickets, invoices and bank statements, and to some extent the WhatsApp messages, demonstrate that the goods were sold to a company registered in Belgium, but not that they were exported.

Ms Stephenson referred to HR’s closing in which it was submitted that in relation to the three month time limit: “documents showing export had to be brought into existence in that period” and that all documents that HR relies on were “produced within this three-month period. In effect they’ve got to be contemporaneous”. It is HMRC’s case that the wording of paragraph 4.4 VN 725 is unambiguous: the three-month time limit applies to “the removal of goods and obtaining valid evidence of removal”. HR’s submission is simply not supported in case law.

Mr Southern submitted that once HR has provided substantial and reliable evidence the burden of proof shifts to HMRC. We do not accept that submission and agree with HMRC that there is no “reverse burden” of proof on HMRC to conduct independent investigations to verify or provide evidence which challenges or undermines evidence which HR asserts meets the requirements of VN 725. The burden of proof is on HR to show that they have satisfied the conditions set out in VN 725 to zero-rate their supplies and provided documentation to show that the goods were removed from the UK. We agree with the Tribunal in Angela McCamley v HMRC [2016] UKFTT 0701 (TC) where it stated at [44]:

“ … The requirements for zero-rating supplies of exported goods are set out in legislation; it is not the role of HMRC to make up for the shortcomings of taxable persons in complying with those requirements, as is clear from the Twoh International BV v Staatssecretaris van Financien case, which is binding upon this Tribunal.”

We further agree with HMRC that even when the Tribunal does not regard evidence as challenged that does not mean that HMRC are unable to undermine HR’s case, see Peter Griffiths v TUI (UK) Ltd [2021] EWCA Civ 1442 at [69] (Asplin LJ) and [81] (Nugee LJ):

“81 As a matter of basic principle it is the function of trial judges to evaluate all the evidence before them in reaching their conclusions on the factual issues. That includes deciding what weight should be given to the evidence. I see nothing in the authorities that suggests that that obligation to assess the evidence falls away if it is “uncontroverted”; uncontroverted evidence still has to be assessed to see what assistance can be derived from it, viewed in the context of the circumstances of the case as a whole. Uncontroverted evidence may be compelling, but it may not be: it may be inherently weak or unhelpful or of little weight for other reasons.”

There was no disagreement between the parties that the UK tax authority is entitled to set out conditions which attach to the entitlement to zero-rate supplies. We did not understand Mr Southern to be arguing that the requirements of VN 725 were disproportionate but rather HMRC’s conduct during the course of the dispute was disproportionate. That point is considered below.

Mr Southern submitted that HMRC had sought to rely upon the position that VN 725 paragraph 4.4 required that the taxpayer had all the evidence in its hands within three months of the sale and that evidence could not be added to or supplemented by additional evidence. As HMRC had not relied upon that argument in its Statement of Case it is simply too late for HMRC to rely upon that argument. Paragraph 6 of HMRC’s Statement of Case set out the case that has to be met: “It is common ground that the issue before the Tribunal is whether the conditions for zero rating have been satisfied and in particular whether sufficient evidence has been provided by the Appellant that the goods in question were removed from the United Kingdom.” We reject Mr Southern’s submission, it is clear from HMRC’s Statement of Case at paragraphs 25, 30, 43(2) and 50 that HMRC relied upon the three months’ time limit. If any doubt remained, HMRC’s skeleton served on in advance of the hearing originally listed to be heard on 4 July 2022 made HMRC’s position clear at [61] under the heading of “Conclusion”:

“The Respondents rely on Notice 725 para 4.4, which has the force of law: the time limit for obtaining valid evidence of removal in this situation is three months and the Appellant did not meet it.”

We did not understand HMRC’s position to be that supplementary evidence could not be provided post the three months period but rather it was HMRC’s position that it was not disproportionate for HMRC to decline the additional evidence in light of the circumstances of this appeal where the evidence was provided some 18 to 30 months after the three month period. Mr Southern, in oral closing stated that, in relation to the three month time limit, “documents showing export had to be brought into existence in that period” and that all the documents that HR relied upon were “produced within this three month period … the documents on which you rely to show removal have to come into existence within three months, in effect they’ve got to be contemporaneous”. Reliance was placed on Arkeley at [47] for the proposition that information could be added to subsequently:

We do not accept Mr Southern’s submissions.

Paragraph 4.3 (which has the force of law) of VN 725 states:

“… You obtain and keep valid commercial evidence that the goods have been removed from the UK within the time limits set out at paragraph 4.4”

Paragraph 4.4 (which has the force of law) of VN 725 states:

“4.4

Time limits for removal of goods and obtaining evidence of removal

In all cases the time limits for removing the goods and obtaining valid evidence of removal will begin from the time of supply. For goods removed to another EC Member State the time limits are as follows:

3 months”

We agree with HMRC that it is clear from paragraph 4.3 in VN 725 that the evidence of removal has to be obtained within three months and not that the valid evidence is brought into existence within the three month time limit and obtained at some future date.

The UT in Arkeley considered VAT Notice 703, Goods exported from the UK, which has much in common with VN 725. At [34] the UT referred to the possession, not the creation, of the documents:

We do not accept that Arkeley at [47] is authority for the general proposition that there is flexibility as to the timescale for the taxpayer to obtain additional further documentation that was brought into existence within the three-month time limit. The UT in Arkeley was considering the status of further and corrected versions of a certificate of shipment that Arkeley had in its possession within the three month time limit but which contained errors but had been provided to HMRC. The UT concluded that the FTT, having addressed the discrepancies between the various documents and concluded that they did not prevent the original documents being accepted as satisfactory proof of export, was entitled to reach that conclusion.

In Pavan (relied upon by Mr Southern in supplemental written submissions) at [29] the Tribunal stated that it was abundantly clear from the UT decision in Arkeley that the Tribunal must consider all the documentation which was in the taxpayer's possession within the three month time limit:

Mr Southern submitted that HMRC’s approach to the appeal had been wholly disproportionate and heavy-handed: it had twice applied to strike out the appeal (the second strike out application dated 28 September 2021 contained identical grounds to those dismissed by Judge Short on 31 January 2020 and was withdrawn shortly after the application was made), it was only at the hearing of the first strike out application on 16 January 2020 that HMRC agreed that the decision letter was the letter dated 17 July 2018, there had been unreasonable delay and HMRC had not properly considered the information provided. We have no general “supervisory” jurisdiction to consider claims based on public law concepts such as fairness or inappropriate conduct by HMRC, such matters are properly a matter for judicial review proceedings and/or a complaint to the Adjudicator’s Office. The Tribunal has the power to order costs under Rule 10 of the Tribunal Rules when a party or its representative had been unreasonable in “bringing, defending or conducting proceedings”, such applications are required to be made no later than 28 days after the release of the Tribunal decision. We note that HR’s application for costs on an indemnity basis in respect of the additional costs incurred by the second strike out application has yet to be determined and that application will be considered together with any subsequent application for costs (if any) made by either party after the release of the Tribunal decision.

VN 725, at 86 above, sets out the conditions which attach to the entitlement to zero-rate supplies. In our judgment, it is clear from paragraph 4.3 and 4.4 VN 725 (which are stated to have the force of law) that, as stated by HMRC, that the onus is on HR (as the company claiming zero-rating) to gather sufficient evidence of removal within three months of the date of the supply. If HR do not do so, they are not entitled to zero-rate the supplies. That position was made clear in Customs and Excise Commissioners v Musashi Autoparts Europe Ltd (formerly TAP Manufacturing Ltd) [2003] EWCA Civ 1738 [2004] STC 220) at [23] that where evidence of removal has not been obtained within three months of the time of supply the VAT must be accounted for at that time. Para 9.4 provided that “If you are subsequently able to meet all the conditions, e.g. you later obtain evidence of removal of the goods from the UK, you can then zero-rate the supply and adjust your VAT account for the period in which the conditions were met.” Para 16.12 and 16.13

The UT in Arkeley at [39] stated: “All the documentation obtained within the relevant time limit, including supporting documentation, should be considered in determining whether, taken as a whole, those matters have been so identified”. HR has relied upon the following documents as evidence of removal of the goods within the three month time limits: sales invoices, bank statements, weighbridge tickets, CMRs, Annex VII forms, P&O boarding cards, e-mails and WhatsApp messages. We have considered those documents by reference to consignment number nine (“#9”) that was exhibited to SB’s first witness statement as a sample consignment. We have set out our findings of fact in respect of each category of document. The findings of fact are equally applicable to the documents in the same category in respect of all the other consignments.

The contents of the sales invoice for #9 are set out at paragraph 52 above. The Sales Invoice for #9 is numbered INV003053, dated 15 March 2016 and is addressed to “Recyclink International, Eduard Hammanstraat 31, B-8400, Oostende, Belgium” and contains Recyclink’s VAT number “BE0526723559”. We accept that the Sales Invoice contains the information set out in para. 5.1 of VN 725. However, in our judgment, the Sales Invoice does no more than show that a sale of “Milberry” scrap copper was made to Recyclink. It does not on its own provide clear evidence that the goods were removed from the UK, it merely confirms that a HR agreed the sale of scrap metal to a purchaser who is a Belgium VAT registered company. Despite the invoice confirming the sale of scrap metal to a Belgium registered company it does not automatically follow and nor can it be inferred that the address of the purchaser is the same address as the destination that the goods were sent to.

SR, in his evidence, confirmed that a “running account” was maintained by Recyclink with HR which was “topped-up” with a sum corresponding to the value of the load and therefore the payments made by Recyclink to HR’s Barclays’ account would not exactly match the sale figure contained on the invoice. In respect of transaction #9 two transfers were received from “Gregory C” for £86,000.00 and £162,500.00 on 15 March 2016. Both transfers contained the transaction reference “1/DE H Gregory C *561699*PAYMENT FO*TFR”. The same transaction reference was used for all transfers from Recylink to HR. We accept SR’s evidence that Recyclink maintained a “running account” with HR such that the balance was always sufficient to ensure that HR were in funds to the value of the scrap metal load before it was released from HR’s yard. We accept SR and MB’s unchallenged evidence that HR’s Barclays’ bank statements show that that all the bank transfers made by Recyclink to HR were sent using a Belgium SWIFT code and a translation from Flemish to English was provided in the transaction narrative in the Barclays’ bank statements. Whilst we accept that HR’s Barclays’ bank statements show that all the payments made by Recyclink to HR were made from Recyclink’s Belgium bank account, we do not accept that HR’s Barclays’ bank statements evidence the export of the load of scrap metal in #9 nor evidence the export of the loads of scrap metal scrap in any of the other transactions: HR’s Barclays’ bank statements only evidence that payments for loads of scrap metal were received from Recyclink’s Belgium bank account.

Mr Southern relied upon the fact that HR had received payment from Recyclink for all the loads and rhetorically asked “Why make payments if the goods were not received?”. We did not understand HMRC’s case to be that the loads of scrap metal were not ordered and paid for by Recyclink but rather that receipt of payment for the loads was not on its own evidence of export. We agree. We accept that payment was made by Recyclink to HR for each load but do not accept that it therefore follows that the loads were received by Recyclink in Belgium. We accept GC must have been satisfied that the loads had been received by his customers otherwise the payments would not have been made. We accept that payment is proof of receipt of the goods; however, that does not confirm who received the goods nor where the goods were delivered.

The contents of the weighbridge ticket for #9 are set out at paragraph 53 above. SR’s evidence, which we accept, is that the weighbridge tickets were automatically produced by the FRED system which, having weighed the unladen and laden lorry, recorded the nett weight of the scrap metal load. The information obtained from the weighbridge machine was used to automatically populate the invoice subject to the agreed sale price per tonne being inputted. The vehicle registration shown on the weighbridge ticket, YX11 ANV, is a UK vehicle registration number. A UK vehicle registration number is shown on every weighbridge ticket where the vehicle no. box has been completed. In total, four different UK registration numbers are shown on the weighbridge tickets. In #9, no details of the carrier are provided nor is a name provided beneath the signature given on behalf of the carrier said to be representing Recyclink. A significant number of the weighbridge tickets are unsigned and do not contain a carrier name.

SR in his evidence confirmed that the weighbridge tickets and invoices were produced regardless of whether the scrap metal load was being exported or sold to a buyer within the UK. We do not accept that the weighbridge ticket in #9 nor the weighbridge tickets in any of the other transactions is evidence of export. The weighbridge ticket merely confirms what is apparent from the face of it: a consignment of scrap metal was sold to a Belgium based company that is registered for VAT in Belgium and the consignments of scrap metal were collected by a UK registered vehicle (where a registration number is provided). We note that the UK vehicle registration numbers entered on the weighbridge tickets do not appear in any subsequent documents provided by HR as evidence of export.

The CMR for #9 is set out at paragraph 53 above. The CMR is stamped with HR’s Ashford yard details and is again stamped at the bottom of the document where it is dated and signed on behalf of HR by an employee, “S A Stacey”. Box 23 provides for the “Signature and stamp of the carrier” and contains an unidentified signature but no carrier stamp. Relevantly, in our judgment, the following boxes have not been completed and are blank: Box 3 – “Place of delivery of the goods (place, country); Box 4 – “Place of delivery of taking over the goods (place, country, date); Box 16 – “Carrier (name, address, country); Box 17 – “Successive carriers (name, address, country) and Box 24 – “Goods received” with space for insertion of the place and date and “Signature and stamp of the consignee”. As submitted by Ms Stephenson, paragraph 5.1 of VN 725 provides that a CMR may be relied upon as evidence of removal of good from the UK, paragraph 5.1 relevantly states: “commercial transport document(s) from the carrier responsible for removing the goods from the UK, for example an International Consignment Note (CMR) fully completed by the consignor, the haulier and signed by the receiving consignee.” [emphasis added].

All the CMRs that were in evidence were completed at HR’s premises and contained HR’s details as consignor and the destination and consignee name entered in Box 2 was either Recyclink or “Mattheeuews N.V.”. SR’s evidence was that where “Mattheeuews N.V.” was stated to be the consignee this was not the destination of the goods but the name of a freight provider. Where Box 16 had been completed and the carrier name and address inserted it was, bar one instance in #3, always a UK carrier, M D Transport based in Rainham, Essex. In #3, Mattheeuews N.V was stated as the carrier.

None of the CMRs were, as required by paragraph 5.1 of VN 725, fully completed by the haulier and signed by the receiving consignee. In the absence of details of the carrier (Box 23) and consignee (Box 24), the CMRs merely record that a load of scrap copper metal was sold to a company registered for VAT in Belgium and the loads were to be collected ( with one exception) by a UK based carrier, MD Transport. We do not accept that the CMRs, as completed, evidence the export of the loads of scrap copper.

The Annex VII document for #9 is set out at paragraph 57 above. MB’s evidence was that Boxes 1 and 2 were always typed by HR and contained the same information: Box 1 gave HR’s name, address and telephone, fax and e-mail contact details, Box 2 contained Recyclink’s name and address as “Importer”. No contact details for Recyclink are provided. MB accepted in cross-examination that he had not noticed that in respect of #9, the date of transfer was recorded as 13 August 2015 whereas the actual date of shipment in Box was stated as 15 March 2016 nor had he noticed seven other instances of the same error. Box 11 in respect of #9 recorded the UK as both the exporting and importing country.

His first witness statement stated at [8]: “It is an international trait of the scrap metal trade to try and hide the final destination of the goods from the seller in this case. It is done to prevent the seller (in this case H Ripley and Co. Ltd) from finding out who the final purchaser of the material is”. He explained in oral evidence that, following conversations with colleagues and directors of HR, he understood that the UK was deliberately stated as both the exporting and importing country in order to conceal the final destination to prevent Recyclink from being cut-out by HR from future transactions. SR offered a different explanation: the UK was shown as the destination as the Word template used by HR to produce the Annex VII document pre-populated the export destination as the UK and this had not been changed and saved by the employees completing the document. We agree with HMRC’s submission that, regardless of which explanation is accepted for the UK being incorrectly stated as the export destination, the errors undermine HR’s position that that Annex VII documents can be relied upon and evidence the export of the scrap metal consignments. We consider it of note that none of the Annex VII documents have Box 13 completed: “Signature upon receipt of the waste by the consignee”. We do not accept that the Annex VII documents, as completed, evidence the export of the loads of scrap copper.

The details contained in every P&O boarding cards are set out at paragraph 59 above. RL’s unchallenged evidence was that the P&O boarding passes were provided to HMRC shortly after they were provided by GC to HR some 18 to 30 months after the disputed consignments took place. In our judgment it is clear from VN 725 and, as confirmed in Pavan and Arkeley, that the taxpayer had to have in its possession valid evidence of export within three months from the time of supply. We accept that on 12 May 2017, Officer Yeomans gave HR the opportunity to provide further supporting evidence of export; however, the boarding cards were not provided to HMRC until 30 May 2018. We do not accept HR’s submission that it was disproportionate for Officer Yeomans to respond stating that the time limit for obtaining valid evidence of removal was three months and to disagree that the substantive requirements of VN 725 had not been met. HMRC relied upon the decision of the Tribunal in CPR Commercials Limited v HMRC [2021] UKFTT 408 (TC) at [111] to [119] in support of the submission that it was not disproportionate to state that the boarding cards had been provided too late. We agree with the Tribunal in CPR Commercials and adopt their reasoning:

“Breach of principle of proportionality

111.

CPR contended that they had broadly complied with the requirements of the VAT Notice and that it was disproportionate for HMRC to insist upon being provided with specific documents where there was evidence that the vehicles had been exported.

112.

CPR also argued that it was disproportionate for HMRC to require that the evidence be obtained within three months of the date of supply, where the goods could be shown to have been removed from the UK. The decision in Collée (Case C-146/05) indicated (§§29-31) that the principle of fiscal neutrality required that the exemption (zero-rating in the case of the UK) should be allowed where the substantive requirements had been met, even if some of the formal requirements had not been met. In this context, it was argued that the three month limit for obtaining information was a formal requirement, not a substantive requirement.

113.

The decision in Mecsek-Gabona Kft was also noted (§§34-35) to have concluded that it is "the vendor's obligation to establish that the goods have been dispatched or transported to a destination outside the Member State of supply. … it has been difficult since the abolition of border controls between the Member States for the tax authorities to check whether or not the goods have physically left the territory of that Member State. As a result, it is principally on the basis of the evidence provided by taxable persons and of their statements that the national tax authorities are to carry out the necessary checks". Further (§43), "once the vendor has fulfilled his obligations relating to evidence of an intra- Community supply, where the contractual obligation to dispatch or to transport the goods out of the Member State of supply has not been satisfied by the purchaser, it is the latter which must be held liable for the VAT in that Member State" and (§42) "account must be taken of the fact that the evidence that the vendor might submit to the tax authorities depends essentially on information that it receives for those purposes from the purchaser".

114.

However, we consider that it is also important to note that in Mecsek-Gabona Kft the vendor had CMRs returned by the purchaser from its address which stated that the goods had been transported to Italy. The vendor had also shown that the goods were collected by foreign- registered vehicles and the registration numbers of these vehicles had been provided to the supplier in advance. That is considerably more evidence of export than has been provided in this case.

115.

As set out above, we find that CPR has shown only that they delivered vehicles to a UK port and left them there. They have no evidence as to what happened to the vehicles thereafter, although in some cases CPR appear to have been aware that vehicles were shipped to Northern Ireland. As also set out above, the fact that CPR advised the DVLA that the vehicles had been exported is not evidence that the goods were in fact exported. The sale of vehicles to an entity or person with a non-UK VAT number is, similarly, not evidence of export.

116.

In this context, we do not agree that there has been any breach of the principle of proportionality: CPR has provided nothing other than their assumption that, as the vehicles were delivered to a port and had been purchased by someone with a non-UK VAT number, those vehicles had been exported from the UK. In contrast to the position in Mescek-Gabona Kft CPR have received no information from their purchasers that states where (and when) the vehicles were taken after being left at the port.

117.

It is clearly not a breach of the principle of proportionality for a taxpayer to provide clear evidence of export in order to be able to zero-rate a sale as an export. Indeed, the CJEU in Mescek-Gabona Kft concluded (§55) that:

" Article 138(1) of Directive 2006/112 is to be interpreted as not precluding … refusal to grant a vendor the right to the VAT exemption for an intra- Community supply, provided that it has been established, in the light of objective evidence, that the vendor has failed to fulfil its obligations as regards evidence".

118.

As set out above, we consider that CPR has failed to provide objective evidence that the substantive requirement, that the vehicles have been exported, has been met. They are therefore not entitled to zero-rate the relevant supplies. As also set out in Collée (§31), fiscal neutrality does not permit exemption where "… non-compliance with such formal requirements would effectively prevent the production of conclusive evidence that the substantive requirements have been satisfied".

119.

We find that there has been no breach of the principle of proportionality in this case in requiring evidence of export.”

Even if we are wrong on that point, we do not accept that the boarding cards evidence the exports of the scrap metal. SB confirmed in his evidence that none of the reference numbers on the boarding card match those used in any of the other documents, none of the lead names on the boarding cards match any of the other names in any other document, what SB had understood to be vehicle registration numbers did not contain the required digits and format for a UK vehicle registration number and, in any event, none of the vehicle registration numbers recorded on the weighbridge tickets were contained on the boarding cards. SR confirmed in cross-examination that there were too many digits for the number to be a Belgium vehicle registration number and it was also not the correct format for a trailer registration number. SB further accepted, as confirmed by Ms Mayo of P&O, that the date (just the day and month were stated) and time stated on the boarding cards recorded the date and time that the booking was made and does not refer to a particular ferry departure time. SB’s evidence was that the boarding cards were provided to HR by GC, there was no evidence as to how GC came to be in possession of the boarding cards.

In any event, as HMRC submitted, we accept that the boarding cards do not have any identifying features such that that they may be matched with any of the disputed consignments. SB accepted that when he had “matched” the boarding cards to particular consignments he had relied upon various assumptions and largely relied upon the weight of the load as contained in the weighbridge tickets as a determinative factor. We do not accept that the weight of the load is a determinative factor as the evidence was that a load weight of 25.00 tonnes is the global standard for a fully laden lorry or container which, when added to the standard tare of 18.00 tonnes will invariably provide a total weight that is the region of or identical to the 43.00 odd tonnes weight stated on the boarding card. We do not accept that the boarding cards evidence that the consignments were exported.

As set out at paragraph 63 above, MB had, where possible, matched up the e-mails to the consignments by making assumptions based upon any reference to dates and prices mentioned in the e-mails. MB accepted in his evidence that it appeared that all the e-mails had the same heading and the same paragraph from the buyer to the carrier asking if it could collect a load from HR for delivery to Mattheeuws in Veurne, the majority of the e-mails were undated and, whilst reference was made to a specific type of copper, there was no reference to price. SR’s evidence was that he requested the e-mails a week or two after the first transaction with Recyclink as he had realised that he had not been copied in and HR, for security and administration purposes, needed to know who would be arriving at the yard and at what time to collect the load. We do not accept that the e-mails were in HR’s possession within the three-month time period required by VN 725 nor that they were provided by GC to SR as confirmation, we find that it is clear from the evidence that the e-mails were only provided to SR by GC in March 2017, some 18 to 30 months after the disputed transactions, when it was realised that HR needed to provide evidence of export to HMRC.

We do not accept that the e-mails evidence that the loads were exported. At the highest, the e-mails evidence a request from Recyclink to a carrier to collect goods from HR’s yard and deliver them to Mattheeuws in Veurne.

The unchallenged evidence of Officer Lahi was that she was provided with copies of the WhatsApp messages by HR on 28 August 2018, some 18 to 30 months after the dates of the disputed consignments. The WhatsApp correspondence No. 1 was between Recyclink/GC and HR (JR and SR) for the period 22 February 2016 to 19 September 2016 and the WhatsApp correspondence No. 2 was between Recyclink/GC and HR (JR). The WhatsApp correspondence No. 2 messages did not contain any dates, time of messages or any names. It is unclear why the WhatsApp messages were not provided to HMRC until 28 August 2018 rather than when additional information was requested in March 2017. Despite that delay, we have considered the WhatsApp messages as the messages would have been in HR’s possession during the three-month time limit as JR and SR were part of the two WhatsApp “chats” and the messages available to them.

The WhatsApp messages confirm, as submitted by HMRC, that HR was trading with GC on a frequent basis and that collections of loads of scrap metal from the yards at Hailsham or Ashford were being arranged. The messages (with GC’s mobile telephone number redacted) confirm that GC was as acting as a middleman and buying on behalf of unidentified third parties:

“[13.39, 10/03/2016] + 32 XXX XX 92 70: Will contact the buyer and revert

[13.33, 04/04/2016 +32 XXX XX 92 70: I contacted the buyer. He will send more funds tomorrow. He told me their buyers of cathodes are very slow in payment for the moment. But today I can not do any more payments.

[09.31, 05/09/2016] Jay: whats [sic] being collected today

[09.32, 05/09/2016] + 32 XXX XX 92 70: Trying to get hold of my customer. He is somewhere travelling in China but can’t get hold of him for the moment. Hope to know very soon.

No payment received yet by customer from his Chinese customer.”

We accept, as confirmed by RL in her unchallenged evidence, that the WhatsApp messages referred to the following: the types of metals purchased by Recyclink, the price fixed by reference to the LME spot prices, locations of HR’s yards for collection of the loads, requests by Recyclink to purchase specified metals, requests for payment of outstanding payments and references to the haulier named in the messages, Mattheeuws. We further accept, as confirmed by RL’s unchallenged evidence, that the WhatsApp messages do not state which haulier, driver or mode of transport collected the loads of scrap metal nor are any handover documents referred to in any messages. We consider it of note that the WhatsApp messages are wholly silent on whether the loads were exported from the UK. The WhatsApp messages confirm that GC was acting as a middleman in the trades and, despite Mr Southern’s urging, we do not accept that it is implicit that as Recyclink was located in Belgium and had Belgium VAT registration number, the loads were exported. The WhatsApp messages do not identify GC’s clients nor the destination for the loads. We find that the WhatsApp messages do not evidence that the loads were exported.

The WhatsApp message do; however, confirm that HR was aware that it did not hold sufficient information to justify the zero-rating of the loads. On 19 September 2016 at 15.41, JR sent a message to GC stating: “We have been told by the UK VAT office that we need to now invoice you for VAT for the loads without documents.” The subsequent messages are all from WhatsApp correspondence No.2 and are all undated and without times and names. The messages state:

“Are you availability [sic] yet.

Still busy. Will call you directly when out.

Will you call today, it’s better we talk.

I am with a customer. Will call you back.

Can you call please.

Please call me.

Gergory please call urgently we need to produce evidence together or issue proceedings against you. We want to avoid but lack of information is putting us in a position.

Can I call you.

Still going through my files. Will get back to you tomorrow. At a reception for the moment. Will call you in the morning. Hope we can sort this out properly.

We have a similar situation with a company in Spain which has gone legal we really want to avoid with you.

Me too. Wait till I call you in the morning. We need to act similarly.

Please call me, I’m available now

are you available now

Will you be sending stuff to us this week”

For all of the reasons set out above, we find that none of the documents (individually or taken as a whole) relied upon by HR evidence the export of the loads of scrap metal per the requirements of VN 725. Accordingly, we dismiss the appeal and uphold the assessments.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.