20467

REGISTRATION – Refusal – Mobile telephones – Sale by unregistered trader stated to be “subject to a valid VAT number” – Payment made by customer and delivery taking place without any VAT number – Amount paid well above VAT threshold – Whether a supply by trader of the mobile phones – yes – Whether trader should have been registered – Yes – Appeal allowed – VAT Act 1994 Schedule 1 para 1

LONDON TRIBUNAL CENTRE

	GOLDSTAR DISTRIBUTION LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	SIR STEPHEN OLIVER QC (Chairman)
						ROBERTA JOHNSON

Sitting in public in London on 12 November 2007

Andrew Young, counsel, instructed by Das Solicitors, for the Appellant

Ishan Kolhatkar, counsel, instructed by the general counsel and solicitor for HMRC, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	Goldstar Distribution Ltd (“Goldstar”) appeals against the refusal of its application for registration as a person making taxable supplies.  The application was refused by letter of 19 October 2006 from the Respondents’ National Registration Service.

2.	The application had been refused following an investigation carried out by D J Berry and C Badminton, both Customs officers and both of whom gave evidence.  The decision determined that Goldstar was not entitled to be registered for VAT as, at the time, there was no evidence that Goldstar had been making or had an intention (or a continuing intention) to make taxable supplies of goods or services in the course or furtherance of any business.

3.	Goldstar had applied for registration on 27 February 2006.  It had described its business as supplies of “computer components, mobile phones, general trading including pharmaceuticals”.  Customs have, as noted, refused to register Goldstar.

4.	The key statutory provisions are these.  Section 3(1) of VAT Act 1994 provides that “a person is a taxable person … while he is, or is required to be registered”.  Schedule 1 paragraph 1 provides that a non-registered person who makes taxable supplies becomes liable to be registered if the value of his taxable supplies for the year have exceeded £60,000.  Taxable supplies are supplies of goods or services (sections 1(1) and 4(2)).  “Supply” by section 5(2)(a) includes “all forms of supply but not anything than otherwise than for a consideration”.  By section 6(2) “a supply of goods is treated as taking place … if the goods are to be removed, at the time of removal”.  Section 6(4) provides that if before, e.g., removal the person making the supply issues a VAT invoice in respect of it or receives a payment in respect of it the supply shall be treated as taking place when the invoice is received or payment is made.

5.	This appeal falls within the Tribunal’s jurisdiction by reason of section 83(a) which covers the “registration” of a person.  The question for us is whether the transaction relied upon by Goldstar amounts to a supply.  It is not in dispute that, if it does, the value of the supply exceeded  £60,000.  

Goldstar relies upon the following

6.	On 30 June 2006 Goldstar issued a purchase order to a company called Universal Traders UK Ltd  (“Universal”) for 945 units of Intel P4 CPUs for a price of £65,772 plus £11,510 of VAT making a total of £77,282.  The same day Goldstar issued Universal with an invoice for that total amount.  The delivery address is – “TBC”. 

7.	Also on 30 June 2006 Goldstar received a purchase order from a company called MVS Digital Ltd (“MVS”) for 945 CPUs at a total price of £77,442.75 without any VAT.  The purchase order contained the following note:

“PO is subject to a valid VAT number.  Your invoice relating to this order will be re-issued with a valid VAT number within 28 days.”

A sales invoice dated 30 June 2006, issued by Goldstar to MVS, refers to the 945 CPUs and to the same total price with no VAT.  The delivery address is “to be advised”.  The sales invoice states that “Title of goods remains with Goldstar Distribution Ltd until paid for in full”. 

8.	On 4 August 2006 Goldstar’s bank statement with HSBC shows that it was paid £77,442.75 by MVS and on 7 August 2006 Goldstar is shown as paying £77,282 to Universal. 

9.	A letter dated 10 August 2006 from Goldstar to Alpha International Freight Forwarders Ltd of Feltham states:

“I have had three boxes of SL7Z9 Intel CPU’s released into my account.  I authorise you to release these SL7Z9 Intel CPU’s (945 units) to the following company:-

MVS Digital Limited.
Etc. etc

Events following 10 August 2006

10.	The above were the transactions relied upon by Goldstar.  We now summarise the outcome of the enquiries conducted by Mr Berry and Ms Badminton for Customs.   Ms Badminton produced a payment order from Alpha Enterprises SA, a company in Malaga, Spain, issued to MVS for 945 CPUs.  That was dated 30 June 2006.  Ms Badminton also produced an international consignment note of 10 August 2006 relating to 945 CPUs to be moved to an address in Uithoorn in the Netherlands.

11.	When Ms Badminton visited MVS (on 29 August 2006) she met Mr Anil Patel, its director.  According to her notes (which were signed by Mr Patel), she ascertained that the deal relating to 945 CPUs had gone ahead “about 3-4 weeks ago” with no VAT element.  MVS had not at that stage been “credited”; but if, by the end of August 2006 Goldstar had not obtained a VAT number, the invoice would be “credited”.  We understand “credited” to mean that MVS would get a credit note from Goldstar.  Mr Patel had explained that MVS’s customer, Alpha Enterprises of Malaga, had not paid MVS due to the freezing of its account held at the First Curacao International Bank.  In the course of a telephone call between Ms Badminton and Mr Patel on 2 October 2006, Mr Patel had said that the deal was to be credited “on the proviso that he could get the goods back from Spain”.  At a later visit on 18 October 2006 to MVS, Ms Badminton was told that the deal was to be credited but that MVS would have to purchase “like for like goods” to return to Goldstar as Alpha Enterprises of Malaga had not paid MVS.

Why did Customs refused to register Goldstar?

12.	Mr Berry explained that, on 19 October 2006, he had recommended by letter that the request for a VAT registration number be refused because the deal (i.e. that covered by the documentation of 30 June 2006 between Goldstar and MVS) “was to be credited and appears to have been manufactured solely to obtain a VAT registration number”.  His witness statement goes on to state that that deal had been “traced to a deregistered trader”.  He accepted that an assessment had been made on that trader.

The Arguments

13.	The argument for Customs, presented by Ishan Kolhatkar, is that there had been no supply of the 745 CPUs by Goldstar to MVS.  The terms of the note on the invoice had prevented this.  The supply was held in suspense until either a VAT number was given by Customs to Goldstar or MVS waived the requirement for a VAT number.  No VAT number had been given to Goldstar.  MVS, through Mr Patel, had never waived the requirement for there to be a VAT number.

14.	Goldstar, through Andrew Young, say that there had indeed been a supply.  Both Goldstar and MVS had agreed to the sale of the 945 CPUs on 30 June 2006 for payment of £77,442.75.  The goods had been removed on 10 August 2006, following MVS’s payment to Goldstar on 4 August, and the goods had then been transferred to MVS’s overseas customer.  That event marked the time of supply (see section 6(2)).  Given that it was still in contemplation that MVS would get the 745 CPUs back from Spain (or buy in like for like goods) and restore those to Goldstar as a “crediting” exercise, that would operate as a separate supply by MVS to Goldstar.  

Conclusions

16.	We are well aware that Goldstar’s agreement to sell the 945 CPUs to MVS and MVS’s payment for them and Goldstar’s direction to the Freight Forwarders of 10 August 2006 all took place in an environment of fraud and rumours of fraud.  

17.	But we have to accept that the purchase order and the invoice of 30 June 2006 operated as a conditional undertaking by Goldstar to provide MVS with 945 CPUs for a price of £77,442.  We have to accept that on 4 August 2006 MVS paid that amount to Goldstar and the goods were removed at Goldstar’s direction to Alpha International Freight Forwarders.  Those features have not been challenged by Customs.  MVS treated the condition as if it had been fulfilled. Absent the note or caveat on the invoice, therefore, we would have no hesitation in concluding that the supply had taken place and, having regard to its value, Goldstar should have been registered.

18.	We cannot see that the note or caveat affects that conclusion.  Had MVS stuck to its rights it would have been entitled, from and after the expiration of the 28 days referred to in the note, to have refused to take transfer of the 945 CPUs and to have declined to pay the £77,442.  MVS never did so.  It paid the full amount to Goldstar and it onsold the 945 CPUs to Alpha Enterprises of Malaga, Spain.  The deal between Goldstar and MVS could not be “credited” because it had gone through.  If MVS had in fact taken steps to get 945 “like for like” CPUs back to Goldstar, MVS would have been making a fresh supply of goods in the opposite direction. 

19.	For those reasons we allow the appeal.  We award Goldstar their costs of an amount to be agreed.  If not agreed, the question of costs should be referred back to the Tribunal (chairman alone) for further directions.

20.	We mention that Goldstar asked for indemnity costs.  We are against them on this.  The existence or otherwise of the supply, as a matter of law, was complicated by the note on the invoice.  Customs in our view had reasonable grounds for basing their decision not to allow registration on the view, among other things, that the effect of the note was to suspend the supply.

SIR STEPHEN OLIVER QC
CHAIRMAN

RELEASED: 23 November 2007

LON 2006/1222