The revenue wished to refuse a claim to set off input tax for two transactions involving the alleged purchase of software. They said the transactions were a sham.
Held: The revenue’s appeal failed.
Briggs J said: ‘the critical question whether a transaction which, as documented, appears to attract certain VAT consequences is to be deprived of those consequences because it is a sham, is whether the rights and obligations expressed in the documents, to the extent relevant for VAT purposes, are different from those which the parties intended to confer and incur. ‘ In this case the tribunal had not decided that the taxpayer was party to a fraud, since it had not been asserted that he was: ‘it is a cardinal principle of litigation that if serious allegations, in particular allegations of dishonesty are to be made against a party who is called as a witness they must be both fairly and squarely pleaded, and fairly and squarely put to that witness in cross examination.’
Before a finding of dishonesty can be made it must not only be pleaded, but also put in cross-examination. Briggs J considered a submission that dishonesty having been pleaded it had not been necessary to put the allegation to the defendant, and said: ‘I emphatically disagree with that submission. First, the Tribunal’s summary of what was not put in cross examination is stated with clarity on no less than three occasions in the Decision and I was provided neither with a transcript, nor notes (whether by the Tribunal itself or by the parties) of the cross examination with which to be in any position to conclude that the Tribunal’s summary of the cross examination was other than fair and accurate. Secondly, it is a cardinal principle of litigation that if serious allegations, in particular allegations of dishonesty are to be made against a party who is called as a witness they must be both fairly and squarely pleaded, and fairly and squarely put to that witness in cross examination. In my judgment the Tribunal’s conclusion that it was constrained, notwithstanding suspicion, from making the necessary findings of knowledge against Mr Dempster (necessary that is to permit the consequences of the alleged sham to be visited upon him) was nothing more nor less than a correct and conventional application of that cardinal principle.’
Briggs J
[2008] EWHC 63 (Ch), [2008] STC 2079
Bailii
England and Wales
Citing:
Cited – Snook v London and West Riding Investments Ltd CA 1967
Sham requires common intent to create other result
The court considered a claim by a hire-purchase company for the return of a vehicle. The bailee said the agreement was a sham.
Held: The word ‘sham’ should only be used to describe an act or document where the parties have a common intention . .
Cited – Stone (HM Inspector of Taxes) v Hitch and others CA 26-Jan-2001
As an exception to the general rule, it is not invariably necessary to show, in relation to multi party transactions, that every party to it knew it was a sham.
Arden LJ said: ‘Third, the fact that the act or document is uncommercial, or even . .
Cited – Regina v Commissioners of Customs and Excise ex parte McNicholas Construction Co Ltd Admn 15-Oct-1996
Where there was no real transaction underlying a claim for VAT credit, no VAT credit can be claimed.
Dyson J said: ‘the words ‘to the best of their judgment’ permit the commissioners a margin of discretion in making an assessment; a taxpayer . .
Cited – Ensign Tankers (Leasing) Ltd v Stokes (Inspector of Taxes) HL 6-May-1992
The appellants entered into partnerships with a film production company. By doing so they intended to make available to themselves first year allowances on the capital expenditure incurred. Loan agreements protected them from any eventual loss.
Cited by:
Cited – Abbey Forwarding Ltd v Hone and Others ChD 30-Jul-2010
. .
Cited – London Borough of Haringey v Hines CA 20-Oct-2010
The authority sought rescission of a lease granted to the defendant under the right to buy scheme, saying that she had misrepresented her occupation when applying. The tenant replied that no adequate evidence had been brought that she was not a . .
Lists of cited by and citing cases may be incomplete.
VAT, Contract, Litigation Practice, Natural Justice
Updated: 23 December 2021; Ref: scu.263853