Gohil & Co (Northampton) Ltd v Customs & Excise [2003] UKVAT V18361 (24 October 2003)

	VALUE ADDED TAX — input tax — VAT invoices apparently genuine issued by unregistered traders or traders using false VAT numbers — supplies represented by invoices genuinely made and paid for — whether suppliers registrable — whether recipient of supply entitled to input tax credit — Commissioners’ discretion — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

GOHIL & COMPANY (NORTHAMPTON) LIMITED	
Appellant
	
- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE
Respondents

				Tribunal:	Colin Bishopp (Chairman)

Sitting in public in Birmingham on 10 September 2003 
Ishwer Gohil, director, appeared for the appellant 
Sara Williams of counsel, instructed by their solicitor’s office, for the respondents

© CROWN COPYRIGHT 2003

DECISION
1	The appellant, Gohil & Company (Northampton) Limited, is engaged in the clothing trade. Its sole director, Ishwer Gohil, who represented it at the hearing, explained that the appellant had undertaken its own manufacturing until 1997 or 1998, but he had then decided to abandon manufacturing and instead to have the goods the appellant sold manufactured by other companies. The appellant also imported goods and, now, almost all its supplies are imported, and sold within the United Kingdom. The dispute between the parties, however, relates to some manufacturing contracts placed by the appellant with other UK traders in 1998 and 1999.
2	On 12 April 2001 a Customs officer, Beverley Hall, carried out a control visit at the appellant’s premises. She identified a number of invoices in the appellant’s records, which supported claims for input tax credit which had been made in the appellant’s returns, but which, as she knew, had been issued, or purportedly issued, by companies in whose names false invoices had previously been issued to other traders. One of those companies had ceased trading six years previously; one was using a fake VAT registration number and address; some invoices had been issued in the name of a company which was in the computer business and which, as Mr Gohil conceded, had not made any supply to the appellant—its identity had been “borrowed”—and another invoice was false, although it did not emerge at the hearing quite what the falsity was. Mrs Hall later drew the invoices to Mr Gohil’s attention, and explained to him that she was proposing to disallow the input tax claim so far as it depended on those invoices, and gave him her reasons for doing so.
3	Mr Gohil told me, and it is borne out by the correspondence, that he was quite surprised by this information, and took some persuading that traders with whom he had dealt (and who, he said, had done the work for which he had paid to a proper standard) were not what they seemed, and had given him false invoices, but he was eventually satisfied that the invoices identified by the respondents were indeed false. It is also agreed between the parties that the VAT included in the false invoices amounts to £2,821, for which sum the respondents have made an assessment dated 22 November 2001; it is against that assessment that the appeal has been brought.
4	Mr Gohil’s argument was a simple one: he had placed orders in good faith with suppliers who, as he thought, were legitimate VAT-registered traders; the orders had been carried out to the requisite standard; the appellant had paid the agreed price, including VAT; and it had received an apparently genuine VAT invoice. It had quite properly claimed credit for the VAT in its returns, and it was unreasonable of the respondents to refuse that credit. I should add that the respondents did not concede that all of the supplies referred to on the invoices had been made and paid for. After having heard Mr Gohil, I am satisfied that they were, and that he was quite innocent in the matter.
5	For the Commissioners, Sara Williams of counsel argued that the appellant’s innocence was immaterial; what mattered was that the invoices were not genuine, and the appellant could not satisfy the requirements of regulation 29(2) of the Value Added Tax Regulations 1995 (SI 1995/2518), the relevant parts of which read—
“At the time of claiming deduction of input tax … a person shall, if the claim is in respect of—
(a)	a supply from another taxable person, hold the document which is required to be provided under regulation 13 …
provided that where the Commissioners so direct, either generally or in relation to particular cases … a claimant shall hold … such other evidence of the charge to VAT as the Commissioners may direct”.
6	Regulation 13 requires a registered person to provide a VAT invoice, in the form prescribed by regulation 14, to another taxable person to whom he makes a taxable supply. It was not contended by the Commissioners that the documents held by the appellant did not comply with the formal requirements, in the sense that they lacked any of the prescribed particulars; their point was that they did not comply with regulation 13 because they had not been issued by taxable persons—that is, persons registered or required to be registered under the Value Added Tax Act 1994 (see section 3(1) of the Act). Miss Williams relied on the tribunal’s decision in Joytot Limited (1998, Decision 15502), where a trader had also relied, for its input tax claim, on invoices which purported to have been issued by a company which had been dissolved, before the dates which the invoices bore (although, surprisingly, it remained registered for VAT purposes), and by another trader who had ceased trading before the invoices were purportedly issued. There was other evidence before the tribunal in that case which led it to conclude that the trader had failed to discharge the burden of showing that any supplies had been made at all.
7	That is not the position here, since I have found that the supplies were in fact made. However, it is not enough to show that the supplies were made; Mr Gohil must go further and show that they were made by taxable persons, since the combined effect of sections 4(1) and 24(1)(a) of the 1994 Act is that the input tax for which a trader is entitled to credit is the tax charged to him by a registered trader making a taxable supply. Thus if those who issued the invoices on the strength of which the appellant claimed input tax credit were not registered traders (or, in the case of the trader whose identity was “borrowed”, did not make a supply) there was no VAT, properly so regarded, which could form the basis of a claim for credit.
8	There is authority against that proposition in the tribunal’s decision in Ellen Garage (Oldham) Limited (1994, Decision 12407), where the recipient of a taxable supply received what purported to be a VAT invoice from the supplier, but which turned out to be false. The tribunal concluded that the recipient was nevertheless entitled to credit for the VAT. The critical point in that case, however, was that the supplies referred to in the invoice, alone, were of a value above the then registration threshold with the consequence that the supplier must be a registrable person, whether or not he was in fact registered. That is not the case here; the supplies in question are of relatively modest value, and even in the aggregate are well below the registration threshold. Whether any of the suppliers made other supplies which, when added with these, were of a value in excess of the threshold must be a matter of speculation. The critical feature of Ellen Garage is absent or, at least, the appellant is unable to discharge the burden of showing it is present, and that case is to be distinguished.
9	The remaining issue is Mr Gohil’s argument that the Commissioners’ refusal to allow the appellant credit, despite the falsity of the invoices, is unreasonable. Although he did not put his argument in this way, he is effectively relying on the proviso to regulation 29, which I have set out above. The tribunal’s jurisdiction, in relation to an appeal against the Commissioners’ refusal to apply the proviso, is supervisory only: see Kohanzad v Customs & Excise Commissioners [1994] STC 967. In other words, I can intervene only if I am satisfied that the Commissioners’ decision was unreasonable, in that they disregarded a relevant matter, gave weight to something irrelevant, misdirected themselves in law or came to a conclusion to which no reasonable body of Commissioners could have come.
10	In this case, the Commissioners’ decision seems to me to be eminently reasonable, even setting to one side, as I do, their suspicion that the supplies had not in fact been made. I take the view that the proviso is designed primarily, though perhaps not exclusively, to cater for the situation in which a trader, through some mistake for example, does not have evidence which complies in every particular with the requirements of regulation 14, but where it is clear that the supply was made by a registered person and it would be unfair to refuse the credit on grounds of form alone. That is not the position here—the invoices do not fail for mere want of form, but because it cannot be shown that they were issued by taxable persons. Although I have a good deal of sympathy for Mr Gohil, whom I consider to be a victim of others’ misconduct, in my view the Commissioners were virtually bound to refuse credit in this case.
11	The appeal must be dismissed. I make no direction in respect of costs.

COLIN BISHOPP
CHAIRMAN
Release Date: 21 October 2003
MAN/02/0528