Conqueror Trading Limited & Ors v The Commissioners for HMRC

The goods were shipped to Hamburg by the Chinese suppliers, with the cost of transport included in the cost of the goods. Some of the intermediary invoices showed that the goods included costs of transport through to the UK via Hamburg, rather than only to Hamburg. Mr Wernick had no explanation for this, although he assumed that it would have been the result of the intermediary negotiating with the supplier.

Some of the bills of lading provided indicated that the goods were to be shipped from the manufacturer direct to an end customer (for example, one with the ’notify party’ being an individual in Hungary). Mr Wernick suggested that this was potentially a representative of the end customer, but said that the manufacturer should not be contacting the end customer. He had not checked the details on these, only being concerned to verify the amounts charged to the appellants. There was no explanation as to how a manufacturer would have details of the appellant’s customer, given that almost all purchases were said to have been made through intermediaries and also that purchases were said to be of consignments that were already on board ship.

Mr Wernick provided various explanations for transporting the goods to the UK solely for the purpose of declaring them at customs. He stated that as the appellants were UK companies, they wanted to undertake customs clearance in the UK, and so the goods were shipped to the UK. As he did not speak German, he did not want to have to deal with customs clearance in a language that he did not understand and he also considered that it would take longer for goods to be cleared, as the German authorities carried out far more examinations than the UK. This would also increase costs. He accepted that the appellants could have used clearance agents in Germany as they did in the UK, but he did not want to do business in Germany. In the hearing, he then stated that the appellants did not clear customs in Germany because MK did not like the Germans. We note that Mr Wernick’s evidence was also that MK did not deal with the clearance processes.

Mr Wernick contended that the routing from Hamburg to the UK and then back into mainland Europe was not particularly expensive: Polish hauliers were prepared to offer cheap rates for haulage back to Poland rather than operate an empty truck having delivered items to the UK. He also considered that the roads in Eastern Germany were not in good condition and suggested that it might be easier to take goods to Eastern Europe by way of the UK. One particular import was collected from Hamburg, transported to the UK for clearance and then shipped to Frankfurt Oder. Mr Wernick’s only explanation for this was to say that Frankfurt Oder was on the border with Poland.

HMRC had calculated that UK clearance added approximately €2.8k transportation costs to each consignment and suggested that this was a significant cost for a low margin business to incur. Mr Wernick did not dispute the analysis but contended that the faster clearance time meant that it was worth the additional cost; there was no evidence provided to support this.

In some cases, the available documentation suggested that goods were transported from the UK to someone who was not an appellant customer; Mr Wernick speculated that this would be at the customer’s request but did not know. He could not confirm where goods might have been shipped to without speculating.

In the hearing, Mr Wernick was also asked about a number of CMR (road consignment) documents with apparent errors (such as the same container apparently being shipped twice, and a shipment described as being shipped from Poland to the UK and then to Prague). Many of the CMR documents did not have any evidence of receipt (such as a stamp or signature). Mr Wernick said again that he had not been responsible for filling in the forms, nor responsible for those who had filled them in. The documentation for another shipment showed that Chieftain had been invoiced for, and so purchased, goods one day before the goods were cleared in the UK. Mr Wernick said that it would take 2-3 days to transport goods from Hamburg to the UK. He was unable to explain how the goods must therefore have been on their way to the UK from Hamburg before Chieftain purchased them. The two CMRs provided for transport of goods to Chieftains customers both stated that the goods had been taken over in Milton Keynes and the are no payments to the transport company shown in Chieftain’s bank accounts; no explanation was provided for these inconsistencies.

Mr Wernick explained that the appellants used clearance agents in the UK; he did not check the clearances as he was sure that the agents did it properly. He was interested in the invoices issued to the appellants, not the clearances made to HMRC, although he also stated that he did not go through the invoices from the clearance agents line by line as he was dealing with things part time, in the evenings and weekends. He would not have picked up anything unusual unless it was significant. He had not queried clearance agents’ invoice entries for ‘devan’ charges which amounted to more than 50% of the clearance invoice total in each case, although he did not know what the charge was for.

In September 2017 HMRC wrote to Conqueror to warn of the fraud risks involved with imports and undervaluation by criminal gangs attempting to evade duty and VAT through the undervaluation of imported goods. Mr Wernick understood that HMRC had concerns about undervaluation of imported goods. He believed that this letter was generic and did not consider that the concerns applied to the appellants because he didn’t know any criminal gangs in central or Eastern Europe; their suppliers were in the UAE and the Chinese manufacturers were not run by criminal gangs. He also believed that the customs values declared were correct.

Mr Wernick attended seven meetings with HMRC officers between September 2018 and November 2018, under a trader monitoring programme. In November 2018, he advised HMRC that new accountants had been appointed and that Conqueror was in the process of registering for Irish VAT. He agreed that, as Conqueror was ceasing its UK operations, its UK EORI and VAT registrations could be cancelled. Mr Wernick stated in his witness statement that Conqueror had become dormant because its UK registration number had been withdrawn. In the hearing, he accepted that he had agreed to the VAT number being withdrawn and that the cessation of UK trade was not due to the number being withdrawn.

HMRC stopped and inspected goods imported by the appellants because they met parameters which indicated that there was a risk that the declared value of the goods on import was less than their actual value and, accordingly, a risk that customs duties had not been correctly paid. Samples from the stopped consignments were analysed as part of HMRC’s defence to the EU proceedings; the goods were found to be of usual merchantable quality, albeit low quality.

HMRC inspected six shipping containers imported by Conqueror. Four were stopped at Felixstowe; three on 17 October 2017 and one on 26 October 2017. Two were stopped at Dover, on 1 March 2018 and 5 March 2018. Following the inspections, security of £120k was required from Conqueror to protect revenue that may have been due.

One of the containers stopped on 17 October 2017 contained new socks in a variety of styles. They were all wrapped and labelled. Another container stopped on that day contained socks, briefs, scarves and jeans. Conqueror were informed that HMRC considered that the declared values were significantly low compared to those declared for comparable goods and that they were considering requiring security. Mr Wernick wrote to HMRC, explaining the that goods were end of line, past season or unsold merchandise. The goods had been imported from Savoya in Dubai and sold onto a Czech company called Reves Solution s.r.o. He contended that the goods were not of merchantable quality. HMRC maintained their view that the goods were at risk of having been underdeclared and that security would be required.

The container stopped on 26 October 2017 contained new shoes, in individual boxes with the manufacturer’s tags on them. HMRC considered that there was a risk that these had been underdeclared. Mr Wernick had explained to HMRC that the goods were end of line and sold at a discount because they were of poor quality, at the end of their useful life, and the lines were discontinued and returned stock. HMRC maintained their view that the goods were at risk of having been underdeclared and that security would be required.

A further container stopped on 17 October 2017 also contained socks in a variety of styles and HMRC considered that there was a risk that these had also been undervalued. Mr Wernick explained that the consignment was not of merchantable quality as it was end of line stock to be sold at a discounted price. HMRC maintained their view that there was a risk of under declaration and required security.

Conqueror requested a review of this decision to require security. On 29 March 2018, the review upheld the decision. Conqueror did not appeal that decision and ceased importing into the UK. Its total UK imports, over 27 months, amounted to 3375 consignments with a total net mass of 39.5m kg.

The container stopped on 1 March 2018 was examined with Mr Wernick present. This container contained new bedding sets and sheets, individually packaged. HMRC advised Conqueror that they considered that the consignment was undervalued and security would be required if no further evidence or information was provided. There was no response and HMRC wrote requiring security on 2 May 2018.

The container stopped on 5 March 2018 was examined with Mr Wernick present. This container also contained a variety of new shoes in individual boxes. HMRC advised Conqueror that they considered that the consignment was undervalued and security would be required if no further evidence or information was provided. There was no response and HMRC wrote requiring security on 17 April 2018.

In May 2019, Bow began importing goods into the UK via Felixstowe. Mr Wernick stated that they had hoped that this company would not be targeted as Conqueror had been. The customers were the same as, or associates of, those for Conqueror, and purchases continued to be made from Fashion Empire. One container imported by Bow was stopped at Dover on 4 October 2019.

This container held a consignment of men’s jackets. HMRC considered that there was a risk that these had been undervalued. HMRC advised Bow that they considered that the consignment was undervalued and security would be required if no further evidence or information was provided. There was no response and HMRC wrote requiring security on 22 November 2019. Bow then ceased import operations. Its total UK imports, over six months, amounted to 123 consignments with a total net mass of 1.6m kg.

In October 2019, Limehouse began importing goods into the UK via Felixstowe. Two containers imported by Limehouse were stopped at Dover on 13 December 2019 and 17 January 2020.

The containers were inspected; one contained briefs and the other contained shoes. HMRC advised Limehouse that they considered that the consignments were undervalued and security would be required if no further evidence or information was provided. There was no response and HMRC wrote requiring security on 4 February 2020 and 2 March 2020. Limehouse then ceased import operations. Its total UK imports, over 3 months, amounted to 84 consignments with a total net mass of 1.2m kg.

In December 2019, Chieftain began importing goods into the UK via Dover. Four consignments imported by Chieftain were inspected between 18 December 2019 and 15 January 2020.

The containers were inspected and found to contain variously shoes, jackets, blouses. HMRC advised Chieftain that they considered that the consignments were undervalued and security would be required if no further evidence or information was provided. There was no response and HMRC wrote requiring security in respect of these containers between 4 February 2020 and 16 March 2020. Chieftain then ceased import operations. It had imported 361kg of goods.

Mr Wernick’s evidence was that Conqueror had ceased to import goods because he considered that it had been targeted by HMRC and so, as he and MK considered that the business was still viable, they decided to switch to doing business with Bow, with similar customers. He considered that HMRC were charging security on unrealistic ‘made up’ numbers. For the same reasons, he had switched to using Limehouse and then Chieftain, hoping that HMRC would ‘come to their senses’ and accept that the appellants were buying high volume/low profits goods for small profit.

In a meeting with HMRC on 26 October 2021, he advised HMRC that Bow, Limehouse and Chieftain were used to deal with orders already placed with Conqueror. Once Bow began to have shipments stopped, they switched from using Bow to using Limehouse. Limehouse was used for a relatively short period of time. Once HMRC requested security from Limehouse, they switched to using Chieftain which Mr Wernick stated was the “last throw of the dice” because he had no more companies set up.

HMRC investigated imports by all four appellants, selecting 34 particular imports intended to be representative. In each case, they asked for copy documentary evidence. The appellants provided bank statements, some CMRs, some bills of lading and some invoices reading to completely different imports to those selected by HMRC. The documentation was generally incomplete, as Mr Wernick stated that he had difficulty obtaining documents from transport companies and others.

HMRC investigated imports made by Conqueror because there was a concern that the customs value had been underdeclared and also a risk that onward supply relief had been claimed without all of the necessary conditions being satisfied.

On 21 May 2019, HMRC wrote to Mr Wernick to request the commercial paperwork for a number of imports made between 15 June 2016 and 10 January 2018. Mr Wernick provided copy Lloyds Bank and Barclays Bank statements for the period 11 November 2014 to 23 September 2016 and 30 January 2017 to 16 August 2017. Following a meeting with HMRC, he also provided Unicredit bank statements in four currencies (sterling, US dollars, Czech Koruna and Euros) for June 2017 to July 2019.

HMRC’s analysis of these bank statements showed that the value of imports declared was £5.1m but total payments to suppliers were £2.3m in the same period. HMRC concluded that Conqueror had not, therefore, paid for the goods in question. Mr Wernick provided further details, indicating that a further £0.5m had been paid under assignment agreements and that a shortfall to Fashion Empire of £179k remained outstanding, to be settled from the refund of customs guarantees by HMRC. He also explained that payments were made to a supplier on behalf of Conqueror in a period when Conqueror had no bank account. Despite the shortfall on payments to Fashion Empire, the bank statements showed a significant overpayment to another supplier, Shanghai Yugan International. This supplier had been paid $230k but declared imports from that supplier were only £11,750. No explanation had been provided for the overpayment.

In addition, imports from Savoya had been identified with a declared customs value of £2.6m. No payments to Savoya were made from any Conqueror bank account in this period. No evidence was provided by Mr Wernick of any payments made by or on behalf of Conqueror to Savoya.

Some of Conqueror’s invoices to customers included out of date bank details for payment; Mr Wernick assumed that this was because MK had used an old template and that the customers would have contacted MK for updated payments instructions but he had not asked MK whether this was the case.

In the hearing, Mr Wernick stated that customers had been asked by MK to make payments directly to Fashion Empire and Savoya as the appellants were unable to pay directly, as their bank account had been closed and in some cases customers were being slow to pay. When asked why customers would pay the appellants’ supplier but not the appellants directly, Mr Wernick suggested that they would not want to owe money to the Chinese. He assumed that the payments had been made as Fashion Empire had not contacted the appellants further. He was not sure whether there had been a formal debt assignment.

Under cross-examination, Mr Wernick accepted that this would mean that the appellants’ markup was being paid to their suppliers and suggested that they were prepared to put up with this as it was preferable to having angry Chinese suppliers.

Overall, Conqueror’s bank accounts indicated that the company had income of £4.9m and expenditure (to transport companies, clearance agents and others) of £2.76m. Conqueror therefore apparently only earned income of £2.11m with which to pay for sales of £5.12m (according to the declared customs values), meaning that it must have made a significant loss on the transactions.

An analysis of Bow’s bank account, which it had throughout the period of importing, showed that Bow had made two payments to Fashion Empire of $24k and €8k. The total declared customs values of Bow’s purchases from Fashion Empire was £3.2m. As with Conqueror, the income from customers was significantly less than the value of goods declared.

Mr Wernick explained that they had made significant payments to the clearance agents and transport companies and had used what was left to make part payment to Fashion Empire. Bow had had relatively low payments from customers and so had been unable to make payment. Mr Wernick said that he had discussed the failure to pay with MK and they had felt that payment would ultimately be received, that the customers were wholesalers and were also waiting to be paid. MK had told Mr Wernick that he was chasing payment. After Bow stopped trading, customers were directed to pay Fashion Empire. Mr Wernick said that he had seen a draft email to be sent by MK to that effect, although it had not been included in the bundle as he considered that he had not been asked to provide it.

The financial information for this company did not include any payments to suppliers, although it had imported goods with a declared value of £2.5m. As with Conqueror and Bow, the income from customers was significantly less than the value of goods declared.

Mr Wernick said that Limehouse had had a very short period of trading and that it had had intercompany debts with money from Bow and Chieftain as they had been trying to juggle thing to keep the businesses going. They had assigned the debt to Fashion Empire so that customers would pay directly. Mr Wernick considered that there should be emails recording this as he had reviewed a standard form to be sent to clients, but he did not have any copies of emails sent to clients. The supplier invoices to Limehouse were, however, from Chinese entities directly and not the agent.

Analysis of Chieftain’s bank statements showed only one payment made to a supplier (Nanjing) of €8.7k. The aggregate due to suppliers from the documents provided was over £835k. The statements also showed only payments from one customer; compared to the provided invoices, that customer still owed over €47k. The bank statements for the other appellants during Chieftain’s trading period showed funds moving between the appellants but only one further payment from a customer. The aggregate outstanding from customers, based on invoices provided, was over €970k. Mr Wernick stated that he and MK had decided that they would pay suppliers what was available after paying clearance agents and transport costs. They had assigned the supplier debts to customers. Again, MK had drafted an email which Mr Wernick had reviewed; this had not been produced. Mr Wernick believed that MK had sent this to customers and also believed that MK had contacted Nanjing to agree this. He did not know whether Nanjing had been paid.

The documents overall showed that the supply chain resulted in a loss for Chieftain for one import entry as the onward sales invoice was for less than the total costs incurred (purchase price, customs duty, transport from Hamburg to Dover and transport from Dover to Poland). If the same transport costs applied to all supplies (not all transport costs had been evidenced) then Chieftain would have made a loss on each of the imports. This did not take into account the fact that the bank statements indicated that Chieftain had not been paid by most of their customers. Mr Wernick suggested that the transport costs might not have been as high for all of the transports, although the information in the bundle indicated that Chieftain generally paid €1700 for transport from Hamburg to the UK and €1200 for transport from the UK to Poland.

HMRC contended (in summary) that there were a number of reasons why it was reasonable for them to doubt the transaction values declared:

The appellants’ case was that the goods were supplied at very low cost because they were end of line or some similar reason; Mr Wernick stated that they knew the quality from discussing with agents, although his evidence was that all discussion with supplier during trading was undertaken by MK. Although Mr Wernick knew an individual (AK) at one of the agents, he confirmed that his discussions with this individual were all before trading started.

The appellants also contended in their skeleton argument that they had paid the invoice amounts, and that no supplier would ship goods to the appellants from China without the intention of being paid market value for the goods.

s154 CEMA 1970 provides that if HMRC state that they are not satisfied as to any matter which they are required to be satisfied under customs and excise statutes, that is sufficient evidence of the matter in question until the contrary is proved. As noted above, under Article 140, if HMRC have reasonable doubts over the values declared, they can request information and, if not satisfied, decide the value of the goods could not be determined by reference to the declared value. In this case, HMRC stated that they had reasonable doubts and that these doubts were not dispelled following the request for additional information. The burden therefore falls on the appellants to show that HMRC either did not have reasonable doubts or that such doubts should have been dispelled by the information provided.

For the appellants, Mr Wernick contended that HMRC had based their doubts on an unfounded possible connection between the appellants and their suppliers, and that they had stated that the prices were in the low range of customs values. If the prices were within the range then it was not appropriate to consider that they were not valid. HMRC had failed to take into account the nature of the goods and their doubts were unfounded because the prices were normal for the sector, which was one of selling downgraded goods and surplus stocks.

We note first that HMRC did not suggest that their doubts were based on any connection between the appellants and their suppliers (indeed, the review conclusion letter for Conqueror specifically states that no link between them has been established). Although Article 70(3)(d) of the Union Customs Code makes reference to a connection between the buyer and seller being a reason not to accept the transaction value as the customs value, HMRC did not make reference to that subsection in setting out their reasons for having doubts regarding the transaction value.

The appellants’ case is essentially based on the assertion that all of the goods supplied were very low value because they were end of line, or damaged, or abandoned purchases, or surplus stock and that the declared values are therefore correct. As noted above, there was no documentary evidence of this and Mr Wernick’s oral evidence appeared to be based on information which had been provided by MK. Mr Wernick’s evidence was that the reason for the low cost would have been stated on the offer emails from the suppliers: the only such email provided does not provide any such information, as there is no description of the condition of the goods nor any reason given for the price.

There is a letter from the intermediary agent, Savoya, written in December 2017 and stating that Savoya deal in such goods and that it was not connected with Conqueror. However, we note that this was written at the appellants’ request, it is not addressed to anyone and is in very general terms. As such, we do not consider that this letter is sufficient to satisfy the burden of proof on the appellants with regard to the condition or nature of the goods imported.

The appellants could not provide any evidence to explain why suppliers may be prepared to sell goods at a fraction of the cost of the raw materials. Mr Wernick could only offer speculation as to their motives, rather than evidence.

With regard to HMRC’s other concerns, the appellants were unable to provide satisfactory answers. The limited documentary evidence provided was inconsistent and raised unanswered questions: for example, in the supply chain for which we have the offer email (described above), there was no explanation as to why Conqueror was described as the consignee on a bill of lading issued four weeks before the goods were apparently offered to Conqueror. The appellants’ contention that suppliers would not ship goods to the appellants without the intention of being paid is not consistent with documentary evidence indicating that some consignments were apparently purchased when they were already on board ship, as that would suggest that the manufacturers shipped (at their own cost) goods for which they did not have a purchaser. That contention also does not explain why, given the dates on the bill of lading referred to above and the related email apparently offering the goods for purchase, the manufacturer was apparently prepared to ship goods to Conqueror at a time when Conqueror had not yet apparently been offered the shipment and presumably therefore could not have yet agreed to pay for it.

Although the skeleton argument for the appellants states that the companies had paid the amounts on their supplier invoices, it was clear from the bank statements that the appellants did not pay all (in some cases, any) of the declared customs values to their suppliers. Although Mr Wernick provided explanations as to how the balance may have been paid, by customers making payment for Conqueror invoices to the suppliers instead of Conqueror, there was no documentary evidence to support those explanations. It was also not credible that Conqueror would have foregone their markup, out of which transport costs, customs clearance costs and other such costs would have to be paid, by having their customers pay their full invoice costs direct to the suppliers on behalf of Conqueror.

For these reasons, we find that the appellants have not discharged the burden of proof on them to show that HMRC were wrong to have, and to continue to have after enquiring, doubts about the declared transaction values.

Given we have found that HMRC had reasonable doubts as to the declared value which were not dispelled following enquiry, it follows that we find that they were entitled to decide that the declared value could not be used and to use a secondary method of customs valuation.

HMRC’s evidence regarding the available methods of valuation was (in summary):

Method 6 was therefore used, determining the customs value of the imported goods by reference to available data. The valuation was establishing using an application tool which analysed recent and comparable imports by similar importers for the relevant commodity code, transported in the same way from China. The lowest value established by the methodology available was used, to reflect the fact that the appellants were wholesale traders and the goods inspected were not high quality or branded. This also took information account the explanations given that the goods were end of line, discontinued or returned stock. HMRC provided more details of the methodology but, as those details were not challenged by the appellants and the burden of proof is on the appellants, we have not reproduced it here.

HMRC’s evidence as to calculation was not challenged in detail by the appellants. Officer Blackburn was asked whether he considered that Method 6 provided a fair value, and whether he considered that an external valuer should have been used. Officer Avery was also asked by an external valuer was not used, and whether he considered that it was fair that he made a decision on valuation without external valuation.

The appellants made limited submissions as to the methodology used in Method 6: in their skeleton, they contended that an average value for a commodity code was irrelevant given there was a specific market for very cheap clothing. They also contended that HMRC had not used the lowest identified transaction value to determine the customs value although there was no explanation as to the basis for this contention.

They contended that Method 1 was appropriate, considering the nature of the goods and the reasons given for the purchase prices on the invoices. Their skeleton argument suggested that HMRC had not considered the secondary valuation methods in order, but did not refer to this in the hearing or explain why they considered that this was the case. The skeleton argument contended that HMRC should have used the comparative methods (Method 2 and Method 3) instead but did not explain how identical or similar goods should be identified. They contended that HMRC had not tried to identify a comparable economic sector and that they had been able to establish comparables by looking at the Alibaba website which showed similar low prices.

Mr Wernick stated in closing that he stood by his statement that these were goods which the manufacturers had wanted to get rid of in order to clear warehouse space. The appellants argue that HMRC had cleared and not objected to most of the consignments. They contended that it was inappropriate to extrapolate import valuation on the basis of a mathematical model prepared by a government agency, as this was not reflective of either market conditions or the business model of the company.

The appellants also argued that it could not be overlooked that the goods were purchased from unconnected parties, even if that was not a factor in the legislation. Mr Wernick stated that he considered that it was similar to transfer pricing. As the appellants had been able to buy the goods at the prices charged, that should be taken as the market value of the goods.

The appellants’ criticisms of HMRC’s value methodology were limited and the two officers who gave evidence were not challenged in any detail regarding valuation; the questions were limited to asking whether they thought they should have sought external valuations, although no submissions were made to suggest that external valuations should have been sought. Officer Blackburn was asked whether he thought Method 6 was fair, although no submissions were made that this methodology was inherently unfair.

We do not accept the appellants’ contentions that Method 1 was appropriate.

Considering all of the submissions and the documents before us, we find that there is no evidence to support the contentions that the declared value was the actual transaction value. Overall, there was no evidence to support the contentions as to the reasons for the apparent low prices on the invoices; Mr Wernick’s statements were not supported by any documentary evidence. The only offer email made no reference to the reason for the very low price for the goods (and was sent four weeks after the goods were apparently shipped to Conqueror). Mr Wernick had no direct knowledge of the goods imported and had no involvement with the purchases of those goods; he did not even have access to the email account to which the agents sent offers. His statements as to the reasons for the low prices varied and they were either a repetition of what he had been told by MK, or speculation as to what might have happened.

There were also significant inconsistencies in the documentation which was provided and a lack of credible explanation for the failure of the appellants to pay significant sums to suppliers. There was no credible explanation for the goods being declared in the UK when imported into Germany and ultimately transported to Eastern Europe.

The appellants’ contentions that similar prices could be obtained from Alibaba and other sites were not supported by the evidence. For example, one of the supplier invoices was for ladies trousers at $0.27 per pair including shipping from China to Germany. The Alibaba items for this category provided by the appellants were all considerably in excess of this (the cheapest price was £1.27) and the prices did not include shipping. Given the very general information on the invoices, and the lack of any other evidence as to the goods supplied, it was not possible to determine whether these were similar products. The two examples in the appellants’ skeleton, of ladies’ leather jackets and men’s “denim pants”, were not supported by any evidence.

The appellants’ other criticisms of HMRC’s calculation of values were not borne out; HMRC’s evidence, which we accept, was that the lowest transaction value established was used. If the appellants’ submission was intended to refer to their own declared value as being those lower transaction values, we find that they have not established that those values were accurate.

The appellants had also initially contended that HMRC had based the calculation on an inappropriate small sample of imports. HMRC confirmed that they had considered all of the imports on a line by line basis, not on the basis of the sample. This contention was not repeated in the hearing, and we find that HMRC did consider all of the imports.

Mr Wernick’s submissions as to the lack of connection between the appellants and the other parties in the transactions are also not of assistance. As noted above, Article 70(3)(d) only states that such a connection may be a reason for not accepting a transaction value; there is nothing that states that a lack of connection means that a transaction value should be regarded as accurate in the face of other evidence.

Accordingly, we conclude that the appellants have not met the burden of proof on them to displace HMRC’s calculation of the customs values.

HMRC contended that the appellants had failed to provide evidence that they had purchased the imported goods and sold them to customers, required for OSR to be claimed. The bank statements provided by the appellants did not show payment (in full, or at all in some cases) of the invoices which they provided in respect of the imports. Funds apparently received from customers were substantially lower than the value of goods declared. For these reasons, HMRC considered that the appellants had failed to show that they had purchased the goods, and had failed to show that they had sold them on. The appellants accepted (in their skeleton argument) that Fashion Empire had not been paid in full: they stated that this was due to HMRC’s security guarantee requirements and other fees.

Given the inconsistencies in documentation, HMRC was not satisfied that there was a credible audit trail in respect of the appellants’ activities. For the same reasons, HMRC also did not consider that the amounts declared for customs purposes represented the actual amounts paid for the goods. There was therefore no evidence that the appellants had taken title to the goods, nor that they passed title to their customers.

HMRC also stated that they were not satisfied that the appellants could show that the goods had been delivered to a taxable EU customer within 30 days of arrival; the limited delivery documentation supplied was mostly incomplete and contained discrepancies such as a deliberate address different to those on sales invoices and customs entries. Most of the CMRs were unsigned or unstamped, so that there was no evidence of receipt. The appellants had been asked to provide documentation for 34 specific imports but had failed to provide any of that documentation; they had provided partial documents for 19 different imports instead. In addition, the movement of goods to the UK and then back into Europe apparently increased the appellants’ costs in a manner which made no sense in what was claimed to be a low margin activity. Further, information obtained from the member states indicated that many of the customers were either missing traders or had been deregistered for VAT and had not accounted for the relevant VAT.

The appellants contended that OSR required only that the appellants owned, imported and exported the goods. In this context, they appeared to contend that the appellants were not actually required to have paid for the goods. The appellants also contended that they had valid commercial evidence of removal of the goods from the UK, and that inconsistencies and failure to complete documents completely did not mean that the conditions for the onward supply of relief were not fulfilled. They contended that they had provided enough information to indicate a pattern of the goods leaving the UK. They contended also that they had an invoice for every sale of goods, and it was clear that they had sold the goods. They considered that HMRC were being overly legalistic in their requirements.

Onward supply relief is a derogation from the general rules regarding VAT on the supply of goods, and provides a cashflow advantage to suppliers who would otherwise have to account for VAT on import and then recover that VAT by allowing the supplier to zero-rate imports of goods which are subsequently supplied to a taxable person in another member state. Given the risk to the exchequer, claimants are required to comply with a number of statutory requirements (Regulations 123 and 128 VAT Regulation 1995). In particular, HMRC must be satisfied that:

In addition, VAT Notices 725 and 707 require that valid commercial evidence of removal within the three month time limit is obtained and kept.

The appellants contended that HMRC had not shown that they did not make zero-rated supplies and had not shown that the goods had not left the UK. We note that the burden of proof on these matters is on the appellant, not HMRC, and have not considered these submissions further.

We find that the appellants were unable to provide any evidence that they had obtained title to the goods and therefore were unable to show that they had made a relevant supply of the goods. There were no contracts with suppliers provided; the one email from a supplier makes no reference to any terms and conditions. In a meeting with HMRC, Mr Wernick had stated that title passed from the manufacturer to Savoya when the goods were loaded onto trucks at Hamburg; he did not know when ownership passed from Savoya to Conqueror. He said that he would “look into this” but did not provide any further information to HMRC. There was no evidence as to which law governed any of the transactions, given the involvement of a Chinese manufacturer and an agent in either Dubai or Hong Kong. The significant lack of payments to suppliers would generally indicate, as it did in the draft terms and conditions for Bow and Limehouse, that title had not passed to the appellants; the appellants did not identify any imports which they could show that they had paid for. Overall, we find that there was no evidence to show that title to the imported goods had passed to the appellants at any time.

The appellants were also unable to show that they could have transferred title to the goods to customers. The existence of a sales invoice is not evidence of a supply. The draft terms and conditions for Bow and Limehouse stated that title would not pass to the goods until the customers paid for them; as the payments from customers were significantly less than the amounts declared, these terms and conditions would indicate that the appellants did not supply the goods as they did not pass title to them. There was no other evidence that title might have passed to purchasers from the appellants. Mr Wernick’s contention in the hearing that customers took title to the goods when the goods were delivered to a place of their choosing was not supported by any evidence, is inconsistent with the draft terms and conditions which he drafted, and we note as set out above that he had no involvement with the purchasers or indeed the supply chain other than dealing with administrative matters.

The appellants’ contention that they had valid commercial evidence of removal of the goods from the UK was not supported by the evidence. Compared to the number of imports, there were very few documents provided. Despite assertions to the contrary in Mr Wernick’s witness statement and in the notices of appeal, the appellants had not provided most of the documentation asked for by HMRC. When questioned about this in the hearing, he said that he had written the witness statement in a hurry and thought that he had provided these documents. At best, this shows considerable carelessness; we consider that even a cursory review of correspondence would have made it clear that he had not provided the documentation.

The appellants’ contention that there was enough evidence to show a pattern of the imported goods leaving the UK is not sufficient to discharge the burden of proof on them. HMRC did not particularly dispute that the goods had left the UK but rather that the appellants had not met the requirements upon them which would enable them to claim OSR.

Mr Wernick had no explanation for the inconsistencies in the limited documentation which was provided by the appellants; he generally only checked to make sure that the prices were correct on documents. When reminded that it was the appellants’ responsibility to have accurate documents, he explained that the documents were completed by others and that he often did not receive them until months after the event. He trusted the transport companies would fulfil their obligations.

We find that the appellants have failed to discharge the burden of proof on them to show that they were entitled to claim the relief. They were unable to show that they had taken title to the goods imported and so could not show that they had made a supply of them; they were also unable to show that they could have transferred title to customers. They were required to obtain and keep required commercial evidence. They did not do so: they did not query errors on documents and they did not pursue missing documents. The requirement (Notice 725) is to get and keep this evidence, it is not to attempt to obtain it when HMRC request it.

The appellants stated in their grounds of appeal that HMRC had only raised objections at the time of import to the values declared on a very small number of imports. The goods were otherwise cleared on entry.

This was not pursued in the hearing in any detail. To the extent that this was a submission that goods had to be stopped and inspected in order for HMRC to be able to have reasonable doubts as to the declared value of the goods in a later enquiry, or to able to dispute whether OSR can be claimed, we do not consider that it is made out. There was no support for the contention, and there is no requirement in the relevant statutes that goods be seized before an assessment can be made and it cannot have been the intention of Parliament that there be such a requirement; it would be entirely impractical.

For the reasons set out above, the appeals are dismissed.

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.