Each company sought repayment of input VAT. HMRC refused, saying that the transactions were the end-product of a fraud on it, and that even if the taxpayer did not know that a fraud was involved, it should have been aware that one was and acted accordingly.
Held: The court was asked whether the refusal to repay was one HMRC was entitled to within the scope of the Sixth Directive. It was. Where a trader knew or ought to have known that the transactions he was undertaking were in fact being used by others as a vehicle of fraud, he put at risk his right to reclaim VAT input tax to complete the fraud. It would not be enough to know that the transactions were more likely than not to be connected to a fraud, but rather that there was no other reasonable explanation. The test laid down by the ECJ in Kittel should not be over-elaborated. This basis would not be a disproportionate interference in the taxpayer’s rights.
Moses LJ held: ‘If a taxpayer has the means at his disposal of knowing that by his purchase he is participating in a transaction connected with fraudulent evasion of VAT he loses his right to deduct, not as a penalty for negligence, but because the objective criteria for the scope of that right are not met. It profits nothing to contend that, in domestic law, complicity in fraud denotes a more culpable state of mind than carelessness, in the light of the principle in Kittel. A trader who fails to deploy means of knowledge available to him does not satisfy the objective criteria which must be met before his right to deduct arises.’
Carnwath, Moses LJJ, Sir John Chadwick
 EWCA Civ 517,  WLR (D) 124,  BVC 638,  STC 1436,  Lloyd’s Rep FC 445,  STI 1589
Bailii, WLRD, Times
European Convention on Human Rights
England and Wales
At VDT – Mobilx Ltd (In Administration) v Revenue and Customs VDT 20-May-2008
VDT VALUE ADDED TAX – input tax – right to deduct – dealer in mobile phones and computer chips – Commissioners contending that all chains of transactions in period of three months could be traced back to . .
Appeal from – Mobilx Ltd v HM Revenue and Customs ChD 3-Feb-2009
At VDT – Blue Sphere Global Ltd v Revenue and Customs VDT 17-Dec-2008
VDT VAT – Input tax – MTIC fraud – whether tax loss – yes – attributable to fraudulent evasion of VAT – yes – contra-trading – whether Appellant’s purchases connected – yes – whether Appellant should have known . .
Appeal from – Blue Sphere Global Ltd v HM Revenue and Customs ChD 22-May-2009
See Also – Calltel Telecom Ltd and Another v Revenue and Customs ChD 6-Jun-2008
Appeal From – Calltel Telecom Ltd and Another v HM Revenue and Customs ChD 21-May-2009
Appeal against decisions by HMRC to refuse repayment of input tax in respect of claims made for that purpose – allegation of knowledge of fraudulent element elsewhere in supply chain. . .
Cited – Axel Kittel v Belgian State; Belgian State v Recolta Recycling SPRL ECJ 6-Jul-2006
ECJ Sixth VAT Directive – Deduction of input tax – ‘Carousel’ fraud – Contract of sale incurably void under domestic law.
The right of a taxpayer to deduct Input Tax may be refused if: ‘it is ascertained, . .
See also – Calltell Telecom Ltd and Another v Revenue and Customs VDT 20-Jul-2007
VDT VALUE ADDED TAX – input tax – traders’ repayment claims unpaid on grounds that Commissioners believed goods acquired had been used for missing trader intra-Community fraud – whether tax loss established – . .
Cited – Total Network Sl v Revenue and Customs HL 12-Mar-2008
The House was asked whether an action for unlawful means conspiracy was available against a participant in a missing trader intra-community, or carousel, fraud. The company appealed a finding of liability saying that the VAT Act and Regulations . .
Approved – Red 12 Trading Ltd v Revenue and Customs ChD 20-Oct-2009
Appeal against refusal to allow reclaim of input tax in case of alleged ‘Missing Trader Intracommunity Fraud’.
Held: Christopher Clarke J said: ‘Examining individual transactions on their merits does not, however, require them to be regarded . .
Cited – Revenue and Customs v SED Essex Ltd ChD 14-Jun-2013
Liquidator confirmed despite VAT challege
The Revenue sought the winding up of the company for non-payment of substantial arrears of VAT. The revenue had declined to allow VAT input claims. The company said that the petition was wrong since the debt was genuinely disputed.
Held: The . .
Binding – Coast Telecom Ltd v Revenue and Customs FTTTx 11-Apr-2012
Procedure – application for stay pending determination of references to CJEU – whether First-tier Tribunal bound by Mobilx – yes – whether determination of references would materially assist determination of appeal – no – whether expedient to order . .
Cited – Davis and Dann Ltd and Another v HM Revenue and Customs CA 15-Mar-2016
The Revenue appealed from rejection of its refusal to refund input tax in the basis that the company though itself innocent of VAT fraud should have understood that the transaction was part of a MTIC fraud. The court was now asked whether the Upper . .
Cited – AC (Wholesale) Ltd v Revenue and Customs (Value Added Tax) UTTC 12-May-2017
VALUE ADDED TAX – purchases of televisions – transactions connected to fraudulent loss of tax – whether taxable person should have known that its transactions were connected to fraud – whether HMRC required to prove that only reasonable explanation . .
Cited – Else Refining and Recycling Ltd v Revenue and Customs FTTTx 23-Jul-2012
VALUE ADDED TAX – MTIC – HMRC’s refusal to repay VAT on supplies connected with fraudulent VAT evasion – connection conceded by the appellant – only issues were whether the appellant knew or should have known of the connection – Axel Kittel v . .
Lists of cited by and citing cases may be incomplete.
VAT, Human Rights
Updated: 10 November 2021; Ref: scu.414901