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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Aircall Export Ltd v Revenue and Customs [2005] UKVAT V19185 (25 July 2005) URL: http://www.bailii.org/uk/cases/UKVAT/2005/V19185.html Cite as: [2005] UKVAT V19185

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19185

CAROUSEL FRAUD – whether proved on the facts in relation to three deals – no – appeal allowed

LONDON TRIBUNAL CENTRE

AIRCALL EXPORT LIMITED Appellant

- and -

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: DR JOHN F AVERY JONES CBE (Chairman)

JOHN BROWN CBE FCA CTA

HELEN FOLORUNSO

Sitting in public in London on 20 to 24 June 2005

Michael Patchett-Joyce, counsel, instructed by Hassan Khan & Co, for the Appellant

Rebecca Haynes and Elisa Holmes, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1. This is a preliminary issue in an appeal by Aircall Export Limited against a decision letter dated 21 July 2004 that £67,550 input tax claimed for the period 01/04 in relation to two transactions (Deals 1 and 2) and £60,000 for the period 02/04 (Deal 3) was not allowable input tax on the ground that the supplies were not economic transactions as they formed part of a carousel fraud in which the Appellant was an innocent and unknowing participant. The Appellant was represented by Mr Michael Patchett-Joyce, and Customs were represented by Miss Rebecca Haynes and Miss Elisa Holmes.
2. The preliminary issue assumes the law to be as found in Bond House v Customs and Excise Commissioners (2003) VAT Decision No.18100 and Optigen v Customs and Excise Commissioners (2003) VAT Decision No 18113 and the issue before us is whether on the facts in relation to three deals:

(1) there was a missing trader (one who sells goods and incurs a liability to account for VAT on such sales and then disappears without discharging that liability); or a defaulting trader (one who sells goods and incurs a liability to account for VAT on such sales and then does not discharge that liability, otherwise than through insolvency); or a trader with a hijacked VAT number (one who uses the VAT registration number properly belonging to a third party), and

(2) the purchase and sale of goods by the Appellant formed part of a chain of transactions that were circular in nature; and

(3) that the circular chain of transactions were carried out in furtherance of an activity which was not an economic activity as that term is understood for VAT purposes.

We shall refer to transactions satisfying these conditions as a carousel fraud.

3. We heard evidence from Mr Pradeep Travadi, finance director of the Appellant and Miss Sue Lonegan, export director of the Appellant, and, on behalf of the Respondent, Mr P Birchfield, Regional MTIC Co-ordinator, who is the link between the officers dealing with this type of work in local offices and the policy unit, and Mr PJ Gaston, officer involved with MTIC Fraud who dealt with the particular deals involved in this appeal. A number of witness statements by officers producing documents were admitted. In addition we had two files of documents from the Appellant and one from the Commissioners in addition to the documents mentioned in paragraph 9 below.

The nature of carousel frauds

4. Mr Birchfield, Regional MTIC [Missing Trader Intra-Community (fraud)] Co-ordinator of the Respondent, gave evidence about the nature of carousel fraud. The typical example he gave was that of an EU supplier who sold goods for £100,000 to the missing trader who sold them for £95,000 plus VAT, thus making a commercial loss of £5,000 but evaded paying over the VAT of £16,625, thus making a net "profit" of £11,625. The goods were then sold by the first UK buffer company for £96,000 and by the second buffer company to the broker (the equivalent to the Appellant) for £97,000, who sells them back to the original EU supplier for £98,000. Thus the commercial loss made by the missing trader is matched by £5,000 profit for the two buffer companies and the broker, leaving Customs with a loss of the VAT that should have been paid to them by the missing trader. The decision in Bond House and Optigen, which are the subject of references to the European Court, was on the basis that the whole circle of transactions were non-economic and so no transaction within the circle could be economic.

Initial issues

5. Mr Patchett-Joyce, for the Appellant contends as initial issues:

(1) The burden is on Customs to show fraud on the balance of probabilities but cogent evidence is required. As Lord Hoffmann said in Secretary of State for the Home Department v Rehman [2002] 1 All ER 122, 141a:

"It would need more cogent evidence to satisfy one that the creature seen walking in Regent's Park was more likely than not to have been a lioness than to be satisfied to the same standard of probability that it was an Alsatian. On this basis, cogent evidence is generally required to satisfy a civil tribunal that a person has been fraudulent or behaved in some other reprehensible manner."

(2) The Appellant is in the same position as Anglo Overseas Limited ("AOL") in H.M. Commissioners of Customs & Excise v. Anglo Overseas Limited, [2004] EWHC 2198 (CH), Ch.D., 5 Oct. 2004, where Lewison J described the position of the bystander, at [81(ii)], as follows:

"This is not a case in which there is any allegation against AOL of complicity in any fraud. They are therefore bystanders. Unlike the fraudsters, a bystander cannot be expected to give his own account of what happened to the missing goods. AOL are therefore reliant on HMCE for information. There is not equality of arms between them."

(3) Circular fraud depends on market forces. If (as the Commissioners must acknowledge because it underpins their case) one party can use market forces to create the exceptional circularity of a carousel fraud, then it is equally easy (and probably more usual) for two or more parties to use those same market forces to facilitate an ordinary linear fraud.

(4) Customs argue that if fraud is present in any link in the supply circle, then the fraud "infects" all other links in the supply circle, irrespective of participation in, or knowledge of, the fraud. if, in a supply chain, A ... B ( C etc., the first party with fraudulent intent is C, then the transactions between A ( B and B ( C will be, and will remain, within the lawful economic sector, even if by accident (or design of C, and/or any subsequent party in the supply 'circle') the goods adventitiously pass through A or B again. To continue the explanation by reference to the existing example, even on HMRC's case, the fraud of C will only "infect" the links in the supply chain after those goods have been sold by C, and the infected chain will be limited to the circle starting and ending with C. It follows from the foregoing that it is essential for HMRC to identify who they say is the fraudster.

(5) Customs must prove fraud because they allege that otherwise commercial transactions are non-economic because of fraud and circularity. They must also identify the "ringmaster."

(6) In relation to Deals 1 and 3 Customs cannot show circularity of goods and invite the Tribunal to assume this from the circularity of money, by which they mean evidence of supplies of goods. But fraud cannot be inferred; it must be proved. Payments cannot necessarily be connected to earlier supplies.

6. Miss Rebecca Haynes and Miss Elisa Holmes, for Customs, reply:

(1) There was no obligation on Customs to establish the identity of a "ringmaster" of a carousel fraud, relying on Bond House in which the Tribunal said:

"[Counsel for the Customs] carefully avoided making any direct allegation that Fancygrove had indulged in fraudulent activity but he did not demur from the suggestion that, if the Commissioners' case was correct, Fancygrove must have been the ringmaster controlling the carousel…we bear in mind that Fancygrove is not a party to this appeal and has not been represented at the hearing, and that we have no evidence from any of its officers. We consider we must treat allegations, including implicit allegations, against that company with care."

(2) There was no obligation on Customs to establish fraud so long as circularity and lack of economic activity was established. In particular there was no obligation to establish fraud in relation to any particular party to the transactions to a criminal standard of proof. It is accordingly irrelevant that Mr Gaston did not conduct a criminal investigation into the probity of the traders alleged to be at the beginning and end of each circular chain of transactions. In fact Mr Patchett-Joyce established in cross-examination that there was in fact a fraud being perpetrated in each chain of transactions, from which it follows that lack of economic activity is not in dispute and the only issue is whether there was circularity.

Reasons for our decision on the initial issues

7. We start by making the observation that the Appellant is in the difficult position that it knows about only the purchase and sale transaction that it entered into and has no means of finding out about other steps in the alleged carousel fraud. Only Customs have the powers to investigate the other steps. Our task is to determine whether the three requirements for a carousel fraud set out in paragraph 2 above, which we accept are the correct requirements for constituting a carousel fraud, are satisfied. The existence of a missing trader is evidence of fraud. In addition, non-economic transactions are probably fraudulent; if they served some other purpose they are likely to be economic. The existence of a "ringmaster" is necessary to a carousel fraud, because circularity on its own is not enough; it must be non-economic circularity including a missing trader. Accordingly, we prefer not to debate either Mr Patchett-Joyce's contention that identification of the fraudster is necessary, or Miss Haynes's that circularity and non-economic activity are enough. The real question is whether the three requirements are satisfied which is something to be decided on the evidence as a whole.
8. We agree with Mr Patchett-Joyce that the existence of a carousel fraud has to be proved on the balance of probabilities but with cogent evidence because the Appellant has entered into an apparently normal commercial transaction and Customs are trying to prove that it is not a normal transaction. They are trying to show it was the equivalent of a lioness rather than an Alsatian in Lord Hoffmann's example. In determining whether Customs have satisfied this burden we bear in mind that Customs are the only party who could obtain information about the other steps in the alleged carousel fraud. If they fail to try to obtain information, as opposed to try and fail, we take this into account in determining whether Customs have proved their case bearing in mind that the Appellant is not even in the position to try to obtain the evidence.
9. We should also mention that on 13 June 2005, one week before the appeal started, Customs served a CD which when printed out contained 5,200 pages of documents (12 ring binders) relating to Hawk Precision Logistics Limited ("Hawk"), the freight forwarder involved in the three deals in this appeal, stating in their covering letter that "The Commissioners do not consider that the existence of this documentation undermines their case, but recognise that it might open up a line of cross-examination for your counsel." The letter also noted that there had been criminal proceedings concerning persons related to Hawk and "I understand that one of the points that arose during this hearing was the reliability of documentation obtained from Hawk Logistics." While we consider that it was right that Customs should disclose that there were doubts about the reliability of Hawk's documents we do not consider it reasonable to serve such a large quantity of documents at the last minute when they were available much earlier and when there were only three relevant exhibits in this appeal, which were all instructions to Hawk for the release to goods to the next purchaser. Doing so put the Appellant's side in the position that they had to read the documents in case they contained anything having a bearing on this appeal.
10. Mr Patchett-Joyce also criticised the lack of disclosure by Customs. This was justified in one respect that the witness statements had exhibits not included in the list of documents but since the witness statements were served on 3 February 2005 we do not consider that any prejudice was caused by this.

Facts

11. In relation to the three deals the documents show the following transactions as taking place (we have gratefully taken this summary from Miss Haynes' and Miss Holmes' written closing submissions). In each case the nature of the documentary evidence is given in italics and references to CB are to page references in Customs' Bundle to the document in question. Since it is possible that some of these transactions are fraudulent we do not at this stage make any finding that the transactions did take place as indicated.

Deal 1 – the Appellant's invoice No 801

(1) On or about 12 January 2004, Medtrade bvba, a Belgian company, instructed Hawk to allocate 1000 Nokia 7250i mobile phones to Ayslesmead Business Services Limited ("Aylesmead") (instruction letter) (CB129).

(2) On or about 12 January 2004, Ayslesmead sold 1000 Nokia 7250i mobiles phones to TM Mobiles Limited ("TM Mobiles") for £222,075 including £33,075 VAT (allocation instruction letter, purchase order no AY/00040, invoice no 120100010) (CB130-132).

(3) On or about 12 January 2004, TM Mobiles sold 1000 Nokia 7250i mobile phones to Phone Mad Networks Ltd ("Phone Mad") for £223,350 including £33,250 VAT (purchase order, no 163, invoice no TM000169) (CB 133-134)

(4) On or about 12 January 2004, TM Mobiles issued a payment instruction to Phone Mad asking them to make a third party payment to Mobile World Gmbh ("Mobile World") of £205,000 and the balance of £18,250 was to be paid to TM Mobiles (facsimile payment instruction)(CB136).

(5) On 13 January 2004, Phone Mad paid TM Mobiles £18,250 (R Raphael & Sons plc, Statement of account of TM Mobiles)(CB 137).

(6) On 13 January 2004 Phone Mad made a third party payment to Mobile World of £205,000 (Natwest Bank, statement of account of Phone Mad Networks, p29) (CB 138).

(7) On or about 12 January 2004 Phone Mad sold 1000 Nokia 7250i mobile phones to Sol Telecom Ltd ("Sol Telecom") for £224,425, including £33,425 VAT (invoice no 79850) (CB 139).

(8) On 12 January 2004 Sol Telecom paid Phone Mad £224,425 (Natwest statement of account of Phone Mad Networks, p28) (CB140).

(9) On or about 12 January 2004 Sol Telecom sold 1000 Nokia 7250i mobile phones to the Appellant for £226,775 including £33,775 VAT (purchase order no 664, pro forma invoice no 360, invoice no 340) (CB141-143).

(10) On 12 January 2004, the Appellant paid Sol Telecom £226,775 (Sol Telecom transactions spreadsheet, Barclays BusinessMaster II instruction report, Barclays BusinessMaster II statement report)(CB 144-149).

(11) On or about 13 January 2004 the Appellant sold 1000 Nokia 7250i mobile phones to Mobile World GmbH ("Mobile World") for £204,000 without VAT (invoice no 801, Hawk Precision CMR) (CB150-151).

(12) On 13 January 2004 Mobile World paid the Appellant £203,994 [presumably the £6 difference is bank charges] (Barclays BusinessMaster II statement report)(CB152).

Deal 2 – the Appellant's invoice No 808

(13) On or about 13 January 2004, Tradewinds Warriors SL (a Spanish company) ("Tradewinds") instructed Kuhne & Nagel A/S (a Danish company) to release 1000 Nokia 7250i mobile phones from Sunico to Hawk (instruction letter) (CB158).

(14) On or about 13 January 2004, Tradewinds instructed Hawk to arrange to pick up 1000 Nokia 7250i mobile phones which have been allocated from Sunico and freight forwarder Kuhne & Nagel A/S (instruction letter) (CB159).

(15) On or about 14 January 2004, Tradewinds instructed Hawks to allocate 1000 Nokia 7250i mobile phones to Ayslesmead which it had been allocated from Sunico (instruction letter)(CB160).

(16) On or about 14 January 2004 Ayslesmead requested Hawk to allocate and release 1000 Nokia 7250i mobile phones to TM Mobiles (instruction facsimile) (CB161).

(17) On or about 14 January 2004, Ayslesmead sold 1000 Nokia 7250i mobile phones to TM Mobiles for £223,350 including £33,250 VAT (purchase order no AY00061, invoice no 1401008) (CB162-163).

(18) On or about 14 January 2004, TM Mobile sold 1000 Nokia 7250i mobile phones to Phone Mad for £224,425 including £33,425 VAT (purchase order no 182, invoice no TM000190) (CB 164-165).

(19) On 14 January 2004 TM Mobiles faxed a payment instruction to Phone Mad asking them to make a third party payment of £208,000 to Sunico, and the balance of £16,425 to TM Mobiles (facsimile instruction) (CB 166).

(20) On 14 January 2004 Phone Mad made a third party payment of £208,000 to Sunico (Natwest statement of account of Phone Mad Networks page 32) (CB 167)

(21) On 15 January 2004 Phone Mad paid £16,425 to TM Mobiles (R Raphael & Sons plc statement of account of TM Mobiles) (CB 168).

(22) On or around 14 January 2004, Phone Mad sold 1000 Nokia 7250i mobile phones to the Appellant for £226,775, including £33,775 VAT (purchase order no 676 and invoice no 79868) (CB169-170).

(23) On 14 January 2004 the Appellant paid Phone Mad £50,000 and on 15 January 2004 the Appellant paid Phone Mad £176,775, a total of £226,775 (Natwest bank statements for account of Phone Mad Natwest pages 35 and 36 and Barclays BusinessMaster 11 reports (2 pages)) (CB 171- 174).

(24) On or around 14 January 2004 the Appellant sold 1000 Nokia 7250i mobile phones to Sunico for £205,000 without VAT (purchase order no 12451, pro-forma invoice ref 753, invoice no 808, CMR document reference ME31961, Kuhne & Nagel Inspection & damage report) (CB 175-179).

(25) On 15 January 2004 Sunico paid the Appellant £205,000 (Appellant's bank statement report, letter to bank confirming funds transfer) (CB 180-181).

Deal 3 – the Appellant's invoice No 863

(26) On or about 23 February 2004 Onexone GmbH ("Onexone") sold 1,580 Nokia 6600 mobile phones to Anything Bought & Sold Limited ("Anything Bought") for £339,115.40 without VAT (purchase order no ABS00021, invoice no 1063) (CB 209-210).

(27) On 23 February 2003, Onexone issued payment instructions to Anything Bought asking them to pay£339,147, divided as follows:

Sunico £331,699.28

Onexone £928.25

Abby International £6,519.47

(payment instructions)(CB 211)

(28) On or about 23 February 2004, Anything Bought sold 1,580 Nokia 6600 mobile phones to F & K (UK) Limited ("F & K") for £399,425.98, including £59.488.98 VAT (purchase order 30156, invoice no ABS00021) (CB212-213)

(29) On 23 February 2004, Anything Bought issued payment instructions to F& K asking them to pay£399,425.98, divided as follows:

Sunico £331,699.28 (the same as the payment instruction from Onexone to Anything Bought)

Onexone £927.25 (a slight variation on the payment instruction from Onexone to Anything Bought, attributable to bank charges)

Anything Bought £60,278.98 (the difference in the amount for which the goods were sold by Onexone compared to Anything Bought)

Abby International £6,519.47 (the same as the payment instruction from Onexone to Anything Bought)

(payment instructions)(CB 214)

(30) Also on 23 February 2004, Anything Bought wrote to F& K in relation to the £60,278.98 payable to them under the payment instructions, requesting that £59,350.73 be paid directly to Sunico and "our commission" of £928.25 be paid directly to Anything Bought (letter from Mr R Ibrahim to Mr Kazzaz)(CB215).

(31) On or about 23 February 2004, F & K sold 1,580 Nokia 6600 mobile phones to Beronvine Limited ("Beronvine") for £400,354.23, including £59,627.23 VAT (purchase order no BER264, invoice no 100156)(CB216-217).

(32) On 23 February 2004 F & K issued a payment instruction to Beronvine asking them to pay£400,354.23, divided as follows:

Sunico £335,649.28 (the total amount of the third-party payments owing to Sunico from previous instructions plus the amount in relation to which the payment owing to ABBY International pursuant to these instructions was reduced from that specified in the previous instructions)

Abby International £2,569.47 (£3,950.47 less than in the original instructions)

Onexone £928.25 (the same as the original instruction from Onexone)

Anything Bought £60,278.98 (the same as the previous payment instructions)

F & K £928.25 (the amount owing by F & K to Anything Bought)

(payment instruction)(CB218)

(33) Also on 23 February 2004, F & K wrote to Beronvine in relation to the £60,278.98 payable to them requesting that £59,350.73 be paid to Sunico and £928.25 to Anything Bought (letter from Zakaria Kazzaz to Soly)(CB219).

(34) On 27 February 2004, Beronvine paid Sunico £41,050 (Barclays BusinessMaster II Instruction Report)(CB220).

(35) On or about 23 February 2004, Beronvine sold 1580 Nokia 6600 mobile phones to TDC Electronics Ltd ("TDC") for £401,004.00, including £59,724.00 VAT (purchase order, invoice no 264, release instruction from Beronvine to Hawk Precision)(CB221-223).

(36) On 24 February 2004, TDC made two payments to Beronvine, one of £350,000 and another of £51,004, a total £401,004 (Barclays BusinessMaster II Instruction Reports (2 pages) and Inward Payment Report)(CB224-226).

(37) On or about 23 February 2004, TDC sold 1580 Nokia 6600 mobile phones to Cybacomms UK Ltd ("Cybacomms") for £401,932.25, including £59,862.25 VAT (purchase order no 139, invoice no 2002141)(CB227-228).

(38) On 24 February 2004, Cybacomms made two payments to TDC, one of £351,932.25 and another of £50,000, a total of £401,932.25 (Barclays payment advice (2 pages), Barclays BusinessMaster II Instruction Reports (2 pages))(CB229-232).

(39) On or about 23 February 2004, Cybacomms sold 1580 Nokia 6688 mobile phones to the Appellant for £402,860.50 including £60,000.50 VAT (purchase order no 743, invoice no 657)(CB233-234).

(40) On 24 February 2004, the Appellant made two payments to Cybacomms, one of £352,860.50 and the other of £50,000, a total of £402,860.50 (Barclays payment advice (2 pages), Barclays BusinessMaster II Instruction Report (2 pages))(CB235-238).

(41) On or about 23 February 2004, the Appellant sold 1,580 Nokia 6600 mobile phones to Sunico for £363,400, with no VAT (purchase order no 12513, pro forma invoice order no 813, invoice no 863)(CB239-241).

(42) On 24 February 2004, Sunico paid the Appellant £363,400 (letter of instruction to Jyske bank, Jyske bank debit advice, Hawk Precision CMR, Kuhne and Nagel inspection report)(CB242-245).

12. We find the following facts:

(1) The Appellant has carried on business since 2000 in the bulk purchase and resale of mobile phones (and, previously, accessories).

(2) The Appellant checks the business information of its suppliers and customers, including checking their VAT registration numbers with Customs, with a view to avoiding carousel frauds.

(3) In relation to Deal 1 the Appellant had a well-established trading relationship with Sol Telecom since 2002. Miss Lonegan has visited their premises in Middlesex and their stand at the CeBit exhibition. It has also traded with Mobile World for 3 to 4 years. Miss Lonegan has met the director, Yurgen Schmitt, on many occasions, and has also visited their stand at the exhibition.

(4) In relation to Deal 2 the Appellant has traded with Phone Mad since 2002. Miss Lonegan knew professionally one of its employees, Mr Wayne Morris. The Appellant has an established trading relationship with Sunico for at least 4 years. Miss Lonegan has met the owner, Mr Sunil Harwani on several occasions during that period and has visited Sunico's stand at the CeBit exhibition.

(5) In relation to Deal 3 the Appellant has a well-established trading relationship with Cybercomms which was set up by a former colleague of Miss Lonegan, Mr Dave Whisson from Banner Telecom. (See paragraph 12(4) for the Appellant's trading relationship with Sunico.)

(6) The method of entering into the transactions to which the Appellant was a party in the three Deals was similar, and there was nothing unusual about them. A purchase order would be received from the customer (Sunico or Mobile World), although sometimes Miss Lonegan would act on a telephoned purchase order before receiving a written one for a customer well known to her. Miss Lonegan would contact 10 to 15 potential suppliers known to her and also the Nokia distributor to check prices. She would note the prices quoted in her daybook. Researches about price took place in the mornings. She would then place a purchase order with the chosen supplier, often at a different price from the one quoted in the morning as prices could change a lot during the day. For example, for Deal 1 she noted prices in her daybook for 12 January 2004 of £179 [Phone Mad], £180, ?£181, £182, £189, £191 and £191.50 and she bought from Sol Telecom (who had quoted £181) at £193. For Deal 1 she received a proforma invoice from Sol Telecom before forwarding the Appellant's purchase order. When the transaction was complete she would fax Hawk, the forwarding agent, in all three Deals, an authorisation to release the goods which in all three cases were shipped to Denmark and the Appellant held proof of shipment. The Appellant paid to Hawk the freight charges on the transport of the goods abroad of (excluding VAT) £975.25 (Deal 1), £930 (Deal 2), and £1,645.80 (Deal 3). She would then invoice the customer and pay the supplier's invoice.

(7) Although we did not have evidence from any of the other parties to the transactions comprising the three Deals we infer from the existence of the purchase order documents that the pattern of trading was similar, with the purchase order coming first and then a supplier being found to meet the sale.

(8) Ayslemead never made any VAT returns and was deregistered on 26 January 2004. It is a missing trader. Ayslemead's fax transmittal sheets show that Phone Mad Retail Limited was a trading name or a wholly-owned subsidiary. Mr Patchett-Joyce's researches did not reveal any such company. Since Phone Mad is known to the Appellant it may be that Ayslemead was trying to suggest that it had a connection with Phone Mad. Mr Patchett-Joyce found the address of Mr Wilmoutt, the director of Ayslemead who Customs could not find, by using publicly available material. Documents obtained from TM Mobiles show that between 6 and 14 January 2004 TM Mobiles bought mobile phones from Ayslemead and no other trader in 40 transactions, then bought from another trader in 5 transactions and then 30 transactions with a third trader.

(9) Anything Bought never made any VAT returns and was deregistered on 15 March 2004. It is a missing trader. It started trading in mid-February 2004 in large quantities of phones.

(10) TM Mobiles is also a missing trader. Schedules obtained from TM Mobiles show that it bought £1.7m of mobile phones from Ayslemead on 12 January 2004, £1.49m on 13 January 2004, and £1.33m on 14 January.

(11) There is no evidence to suggest that Phone Mad, Sol Telecom, TDC and Cybercomms are anything other than respectable traders. We do not regard Ayslemead's reference to having a connection with a company with a similar name to Phone Mad as suggesting anything against Phone Mad, particularly in view of the Appellant's knowledge of that company.

(12) Although Mr Birchfield originally suggested that Mobile World and Sunico were the "ringmasters" there is no evidence against either of them and they are known to the Appellant as established traders.

(13) Customs made no enquiries about Medtrade from the Belgian tax authority. Mr Patchett-Joyce gave us a search that showed that it was a wholesaler of perfume and cosmetics that closed on 31 December 2002, before the deals took place. The search also showed that its officer was Zamir Akram, which suggests a possible connection with Zeeshan Akram, the company secretary of Ayslemead.

(14) Customs made no enquiries about Tradewinds from the Spanish tax authority.

(15) Customs made enquiries about Mobile World from the German tax authorities but did not obtain a reply. We did not see the question put to them but we infer from the enquiries made of the Danish tax authorities about Sunico that these enquiries related to transactions after the end of Deal 1. They made no enquiries from the German tax authorities about Onexone.

Deal 3

13. We analyse each deal in turn. We start with Deal 3 as the information for this deal is more complete. For convenience we summarise in tabular form the documentary evidence listed above. Each row relates to the sale by the person in the first column to the person in the row below. All transactions took place on 23 February 2004 and relate to 1580 Nokia 6600 mobile phones.

Seller	Unit price £	Total + VAT £	Margin + VAT £	Margin per unit ex-VAT £	Payment and notes
Sunico (Denmark)	250.00	395,000.00			Price based on the total payments contained in the F&K instruction
Onexone (Germany)	214.65	339,147.00	928.25	0.50	Onexone instruction to Anything Bought to pay £331,699.28 to Sunico; £928.25 to Onexone; £6,519.47 to Abby International, total £339,147
Anything Bought (missing trader)	215.15	399,425.98	928.25	(34.85) VAT 37.65 Net 2.80	The margin includes Onexone. Anything Bought instruction to pay £331,699.28 to Sunico; £928.25 to Onexone; £60,278.98 to Anything Bought (changed by second instruction to £59,350.73 to Sunico and £928.25 to Anything Bought); £6,519.47 to Abby International, total £399,425.98.
F&K	215.65	400,354.23	928.25	0.50	F&K instruction to pay £335,649.28 to Sunico; £2569.47 to Abby; £928.25 to Onexone; £602,78.98 to Anything Bought (changed by second instruction to £59,350.73 to Sunico and £928.25 to Anything Bought); £928.25 to F&K, total £400,354.23. There is evidence of a payment by Beronvine to Sunico of £41,050 on 27 February 2004.
Beronvine	216.00	401,004.00	649.77	0.35	Received cash
TDC	216.50	401,932.25	928.25	0.50	Received cash
Cybacomms	217.00	402,860.50	928.25	0.50	Received cash
Appellant	230.00	363,400.00		13.00	Received cash
Sunico (Denmark)					(Not part of Customs' statement of case but according to the Danish tax authority these were sold at £234.50 per unit to Matachel Develops (Spain) on 9 March 2004 for which payment was made by two UK companies and Sunico paid Matrachel a commission £3,240)

14. Miss Haynes and Miss Holmes, for Customs, contend in relation to this deal that circularity can be inferred that Sunico was the source of the goods from the third party payment instructions. The only third party payment for which there is any banking evidence is the payment on 27 February 2004 by Beronvine to Sunico of £41,050 which quotes the same invoice number (100156) as the invoice from F&K to Beronvine. Customs could only obtain other bank records in the course of a criminal investigation pursuant to paragraph 11 of Schedule 11 to the VAT Act 1994.
15. Mr Patchett-Joyce, for the Appellant, contends:

(1) A more likely analysis is that the missing trader (Anything Bought) acquires stock and arranges that someone in another member state (Onexone) makes a purchase enquiry from a respectable trader (Sunico) which goes into the market to buy the goods. The missing trader places the goods on the market and market forces ensure that they end up with Sunico. Anything Bought pays a commission to Onexone and arranges payment on Onexone's behalf of the supply by Sunico to Onexone by means of payment instructions. This is a linear fraud starting with Anything Bought and ending with Onexone.

(2) There is no evidence of any irregularity by Sunico. Anything Bought started trading mid-February 2004. The evidence suggests that the fraudsters were Anything Bought and F&K (possibly with Beronvine).

(3) Mr Gaston gave new evidence during the hearing that one of the directors of F&K, Mr Tarek Shammas, had a "position in the mobile phone world which is considered of importance by the Commissioners". He also disclosed Mr Shammas was a naturalised German of Syrian extraction who, at the relevant time, had returned to Dusseldorf, Germany. Onexone was a German company, apparently carrying on as a "start-up" operation from a trading address in Krefeld, with its managing director being identified as "B. Sayegh". Krefeld is only 24 km from Dusseldorf, and the name of Onexone's managing director is not prima facie inconsistent with him also being of Syrian extraction. In other words, the coincidence of timing, location and, possibly, ethnicity must mean that a link between Onexone and F&K may very well have existed. For locational reasons, a link between F&K and Beronvine might also have existed at the time (the businesses were located, literally, on opposite sides of railway tracks).

Reasons for our decision on Deal 3

16. Summarising the information in the table, there is no evidence of the sale by Sunico to Onexone, which Customs ask us to infer from the payment instructions. The next three sales in the chain are paid for by means of payment instructions which demonstrate that Onexone receives the margin that it made on the sale (wrongly calculated to include UK VAT on which it was not liable) and the balance is instructed to be paid to Sunico except for a payment to Abby International, about which there is no information. The same payment instruction is carried forward to settle the next sale by Anything Bought, the missing trader, which from the second payment instruction it receives only £928.25, exactly the same margin as Onexone and F&K. Almost the same payment instruction is then carried forward to the sale by F&K but this time the figure paid to Sunico increases by £3,950 and that to Abby reduces by the same amount. The only payment for which there is evidence is a bank document showing a payment of £41,050 from Beronvine to Sunico on 27 February 2004 quoting the same invoice number (100156) as the F&K invoice to Beronvine, which is £18,300 less than the £59,350.73 in the second payment instruction. The goods have at this stage been through three sellers, Onexone, Anything Bought and F&K, each of which has made £928.25 (or 50p per unit—all margins per unit are stated excluding VAT) without any real money being involved. Beronvine sells for cash at an even smaller margin of 35p per unit, to TDC, which, although it is the first party to pay cash, makes a margin of only 50p per unit, enabling Beronvine to fulfil the payment instructions. The goods are now in the real market and Cybercomms makes another margin of 50p per unit and finally the Appellant makes £13 per unit on the sale to Sunico.
17. The feature that stands out compared to the typical carousel fraud described by Mr Birchfield is that the missing trader does not sell at a commercial loss which is more than compensated for by not paying the VAT on the sale. Instead Anything Bought (the missing trader) appears to make a margin of 50p per unit, the same as everyone else in the chain up to and including Cybercomms (except that Beronvine makes only 35p). This does not mean that it is not a carousel fraud because it could be that the missing trader is acting in conjunction with Onexone and the benefit of Anything Bought not paying the VAT is shared with Onexone which makes the loss. Since F&K disclosed to Beronvine in the payment instruction each person in the chain before it and the margin they each make, which parties acting commercially would never do, one can deduce that they are acting together with Onexone and Anything Bought. We would infer that all of Onexone, Anything Bought, F&K and Beronvine are in some way connected in the fraud, and one or more of them is the "ringmaster." Mr Patchett-Joyce's suggestions of a connection between Onexone and F&K, while based to a large extent of speculation, supports this conclusion. There is no evidence of any involvement by Sunico and we find that they are not connected with any fraud. There is no suggestion that TDC, Cybercomms or the Appellant are so connected.
18. Neither party made any submissions on the price that in accordance with Customs' case we should infer as the price at which Onexone buys from Sunico but we consider that important assistance can be obtained by considering this. Based on F&K's payment instructions in favour of Sunico the price is £250 per unit [(£335,649.28+£59,350.73)/1580=250] (or £247.50 of one uses the figures in Anything Bought's payment instructions, but we shall work on the basis of the former figure). Anything Bought sells at £215.15. Onexone and Anything Bought taken together therefore make a commercial loss of £55,063 [(£250-215.15)*1580], and Anything Bought fails to pay the VAT on its sale of £59,488.98 [£215.15*1580*0.175], thus making a "profit" of £4,425.97 (£2.80 per unit). The profit (ignoring VAT) made by the other parties in the chain is F&K £790 (50p per unit), Beronvine £553 (35p per unit), TDC and Cybercomms £790 each (50p per unit), the Appellant £20,540 (£13 per unit) and Sunico on the repurchase £31,600 (£20 per unit), total £55,063 (necessarily equal to the commercial loss made by Onexone and Anything Bought). It stretches our credulity that Onexone and Anything Bought would perpetrate a carousel fraud in which they gave away £55,063 out of the VAT that Anything Bought evaded in order to make £4,425.97 (or even £5,768.97 if one includes F&K and Beronvine as part of the fraud). We do not therefore consider that the £250 per unit figure is at all probable. Another slight indication of this is that Sunico sold the same phones for £234.50 per unit although not until 13 days later (based on the Danish authority's information that the phones were released to Matachel on 9 March 2004, although they were not invoiced until 16 March 2004) during which the prices could easily have moved.
19. Another possibility is that Sunico's selling price was £214.06 per unit being Onexone's sale price marked up for its margin of £928.25 (50p per unit plus UK VAT although there is no UK VAT on this sale). (This is also the figure obtained from the £331,699.28 that Onexone instructed Anything Bought to pay to Sunico plus the £6,519.47 instructed to be paid to Abby.) This possibility gives effect to Onexone's payment instruction to Anything Bought to pay itself £928.25. It also gives a progression of sale prices of Sunico £214.15, Onexone £214.65, Anything Bought £215.15, F&K £215.65, Beronvine £216, TDC £216.50, Cybercomms £217, and the Appellant £230, which looks like a series of normal commercial transactions. The problem is that this price means that Sunico makes a loss of £15.94 per unit on its repurchase, which seems improbable, particularly as Sunico instigated the transaction by its purchase order to the Appellant. Such a loss might occur if Sunico were short of phones to fulfil another order, but that does not seem to be the case as they were not sold on until 13 days later; if such a sale had gone off one would expect that Sunico would re-sell immediately. This loss by Sunico gives rise to serious doubts whether this can be the correct price. But if it is the correct price, the other payments instructed to be made to Sunico later in the table must relate to different transactions. What is clear is that if this is the correct price there is no commercial loss made by the missing trader or companies connected with it (or anyone other than Sunico). We discount the possibility that Sunico shared in the benefit of Anything Bought evading VAT on the basis that Sunico has been known to the Appellant for at least four years, it is known in the trade as exhibiting at the CeBit exhibition and it is still in business today. In any event while there is a fraud by Anything Bought not paying the VAT on its sale, it is not a carousel fraud because there is no commercial loss made by the missing trader, and another party in the chain, Sunico, does make a commercial loss.
20. A third possibility is that Sunico sold for £209.94 per unit based on the £331,699.28 that Onexone instructed Anything Bought to pay to Sunico. This gives an even larger loss to Sunico on the repurchase but otherwise the same considerations apply as in the previous paragraph.
21. Accordingly we do not think that any of these prices is probable, which leaves the possibility raised by the Appellant that Sunico was not in fact the seller to Onexone at the beginning of the chain. This means that Onexone's instruction to pay Sunico must relate to a different transaction, which might explain the other instruction to pay Abby. We consider that this is the most likely explanation but there is no need for us to find that this is what occurred.
22. Customs obtained some information from the Danish authorities about what happened at the end of the above transactions, which, although not part of Customs' case, is noted in the last line of the table. However, Customs did not ask for any information about the transaction at the start of the table or for details of the receipt by Sunico of the payments by the third party payers. There is no reason to believe that this information would not have been forthcoming as the letters of 23 September 2004 and 9 November 2004 from the Danish authorities each gave four pages of information to Customs, including about half a page on the transactions following the end of Deal 3 (and almost a full page about Deal 2), together with some files which we did not see and were said to be irrelevant to the deals in this appeal. Although we accept that Customs could not go direct to Sunico's bank in the UK (although, as Mr Patchett-Joyce pointed out, it is odd that they allege Sunico to be the "ringmaster" but are not willing to allege fraud in order to obtain the banking information), they could have asked the Danish authorities to obtain the information from Sunico. We regard the missing information on the Sunico to Onexone transaction as something that Customs should have attempted to find out if they wanted to show that the transactions in Deal 3 was a carousel fraud. Customs did try to obtain information from the German authorities about Mobile World (in Deal 1) but failed to obtain anything. They did not ask for any information about Onexone. Not having this information is a serious disadvantage to our understanding of the transaction.
23. We are therefore not persuaded that on the balance of probabilities (whether to an ordinary standard or one requiring cogent evidence) Deal 3 is a carousel fraud.

Deals 1 and 2

24. We turn next to Deals 1 and 2, which we can consider together. The following summarises the documentary evidence.

Deal 1. 12 January 2004 1,000 Nokia 7250i mobile phones	Deal 1. 12 January 2004 1,000 Nokia 7250i mobile phones	Deal 1. 12 January 2004 1,000 Nokia 7250i mobile phones	Deal 1. 12 January 2004 1,000 Nokia 7250i mobile phones	Deal 1. 12 January 2004 1,000 Nokia 7250i mobile phones	Deal 1. 12 January 2004 1,000 Nokia 7250i mobile phones
Seller	Unit price £	Total + VAT £	Margin + VAT £	Margin per unit ex-VAT £	Payment and notes
Mobile World (Germany)	205	205,000			(Assumed price from the payment instruction)
Medtrade (Belgium)
Ayslemead (missing trader)	189	222,075		(16) VAT 33.08	Aylsemead's instruction to Hawk refers to the goods as being from Medtrade. The loss includes any loss made by Medtrade.
TM Mobiles	190	223,250	1,175.00	1.00	TM Mobiles instruction to Phone Mad to pay £18,250 to TM Mobiles £205,000 to Mobile World, total £223,250
Phone Mad	191	224,425	1,175.00	1.00	Received cash
Sol Telecom	193	226,775	2,350.00	2.00	Received cash
Appellant	204	204,000		11.00	Received cash
Mobile World (Germany)
Deal 2. 14 January 2004 1,000 Nokia 7250i mobile phones	Deal 2. 14 January 2004 1,000 Nokia 7250i mobile phones	Deal 2. 14 January 2004 1,000 Nokia 7250i mobile phones	Deal 2. 14 January 2004 1,000 Nokia 7250i mobile phones	Deal 2. 14 January 2004 1,000 Nokia 7250i mobile phones	Deal 2. 14 January 2004 1,000 Nokia 7250i mobile phones
Sunico (Denmark)	208	208,000			(Assumed price from the payment instruction)
Tradewinds (Spain)					Instruction by Tradewinds to Hawk to release goods allocated from Sunico to Ayslemead
Ayslemead (missing trader)	190	223,250		(18) VAT 33.25
TM Mobiles	191	224,425	1,175.00	1.00	TM Mobiles instruction to Phone Mad to pay £208,000 to Sunico and £16,425 to TM Mobiles, total £224,425
Phone Mad	193	226,775	2,350.00	2.00	Received cash
Appellant	205	205,000		12.00	Received cash
Sunico (Denmark)					(Not part of Customs' statement of case but 990 units were sold at a loss to Tradewinds)

25. Miss Haynes and Miss Holmes, for Customs, contend:

(1) In relation to Deal 1 although there is no direct evidence of the goods coming to the UK from Mobile World, it can readily be inferred that Mobile World was the source of the goods from the third party payment made by Phone Mad at the request of TM Mobiles. The payment was explicitly made in relation to invoice TM000169 (the number of TM Mobiles' invoice on its sale to Phone Mad, which is also quoted on the payment instruction by TM Mobiles to Phone Mad).

(2) In relation to Deal 2 the documents show that the goods originated from Sunico and ended with Sunico. Circularity can also be inferred from the third party payment made by Phone Mad to Sunico at the request of TM Mobiles. The payment was made in relation to invoice TM000190 (the number of TM Mobiles' invoice on its sale to Phone Mad, which is also quoted on the payment instruction by TM Mobiles to Phone Mad).

(3) Although not part of Customs' Statement of Case, Sunico received third party payments for the same goods at a later date from a UK company, Beronvine, which illustrates a pattern of receipt of third party payments for the same goods. There are bank documents showing the following payments from Beronvine to Sunico: 26 January 2004 £175,000; 29 January 2004 £169,000; 30 January 2004 £169,000; 23 February 2004 £1,690 and £3,000. The Danish authorities state that these are third party payments for a sale of 4,010 phones to a Dutch company, African Network BV including 10 from this Deal, the other 990 phones being sold to Tradewinds with third party payments from Phone Mad.

26. Mr Patchett-Joyce, for the Appellant, contends:

(1) A more likely analysis is that the missing trader (Ayslemead) acquires stock and arranges that someone in another member state (Medtrade/Tradewinds) makes a purchase enquiry from a respectable trader (Mobile World, Sunico) which goes into the market to buy the goods. The missing trader places the goods on the market and market forces ensure that they end up with the respectable trader. Ayslemead pays a commission to Medtrade/Tradewinds and arranges payment on each of their behalf of the supply to them by Mobile World/Sunico by means of payment instructions. This is a linear fraud starting with Anything Bought and ending with Medtrade/Tradewinds.

(2) The payment instructions start with TM Mobiles which may therefore be the "ringmaster." The evidence suggests that the fraudsters were Ayslemead with TM Mobiles.

(3) The documents obtained from Hawk show that Ayslemead had a large quantity of phones at the relevant time. It was therefore impossible for Customs to show that the same phones were involved in the sales to and by Ayslemead shown in the table, particularly in the absence of making any enquiries about Medtrade or Tradewinds.

Reasons for our decision on Deals 1 and 2

27. As before we start by analysing the documentary evidence summarised in the table. At first sight these two deals seem more typical of carousel frauds. In particular, the price per unit appears to be roughly the same at the beginning and end of the chain, and the commercial loss is made by the missing trader, Ayslemead, which fails to pay VAT on the sale. The loss is 48% of the VAT evaded in Deal 1, and 54% in Deal 2, which seems on the high side. The parties who are likely to be involved in the fraud are Ayslemead and TM Mobiles, one or both of whom are the "ringmaster," and possibly Medtrade and Tradewinds but nothing is known about them as Customs did not make any enquiries. While it would be odd for TM Mobiles to disclose to Phone Mad the margin that it made on the transaction if Phone Mad was unconnected with it, the payment instruction has nothing to do with TM Mobiles' margin on the particular transaction, as shown below. It does not suggest that Phone Mad was implicated in any fraud, which is unlikely bearing in mind the Appellant's knowledge of them. There is no evidence of any involvement in the fraud by Sunico or Mobile World, and we find that they are not connected with any fraud.
28. The payment instruction by TM Mobiles to pay £18,250 (Deal 1) and £16,425 (Deal 2) to itself and the balance to Mobile World and Sunico respectively is an odd feature of both deals. The first point to note is that TM Mobiles had made a margin (including VAT) on each of the particular sales of only £1,175 but the payment instructions which it requires to be made in its favour are for £18,250 and £16,425. On a similar pattern to Deal 3 one would expect the payment to the seller to be equal to the seller's margin but here it is 15 and 14 times the amount of the margin. The payment to TM Mobiles cannot therefore relate solely to the particular sale. If the payment to TM Mobiles does not relate to the particular sale, we are unable to use the payment instruction to infer that the payments to Mobile World and Sunico relate solely to the earlier sales in the chain, and accordingly the payment instruction cannot be used to determine the sale price at the start of the chain. While it is possible that TM Mobiles paid Medtrade, Tradewinds and Ayslemead out of this excess over TM Mobiles' margin without wanting to disclose the amounts to Phone Mad, which makes commercial sense, the amounts seem too large for this as other parties made only £1 or £2 per unit. If one uses an alternative approach of deducting the margin for TM Mobiles on the particular sale and assuming that the rest of the proceeds is due to Mobile World and Sunico respectively, the assumed sale price by them would be £222 and £224 respectively, which is completely out of line with the other prices.
29. The second point about TM Mobiles' payment instruction is the absence of any payment instruction in favour of Medtrade or Ayslemead (Deal 1), or of Tradewinds or Ayslemead (Deal 2). TM Mobiles are in the same position in the chain as F&K in Deal 3 whose payment instruction makes payment to every previous person in the chain. Although at the end of Deal 3 the Danish authorities had evidence of a payment by Sunico to Matachel (its purchaser), and it is possible that Medtrade and Tradewinds had similar arrangements with Sunico, this does not explain the absence of any payment to Ayslemead. Given the scale of sales by Aylsemead to TM Mobiles it is improbable that Ayslemead, whose capital was £5,000, had the funds to pay for these without giving payment instructions to TM Mobiles, which is missing from the instruction that TM Mobiles gave to Anything Bought.
30. We therefore conclude that the amount of the payment instructions in favour of Mobile World and Sunico are not related solely to these particular transactions. On the assumption that TM Mobiles is implicated in the fraud it is likely to need to make payments to real supplies of mobile phones, such as Mobile World and Sunico, in order to carry out carousel frauds, and so part of these payments are more likely to relate to other transactions. As we have mentioned, Customs obtained almost a full page of information from the Danish tax authority on what happened after the end of Deal 2 but, as with Deal 3, no questions were asked about the missing information at the beginning of the deal. Nor were enquiries made of the Spanish tax authority about Tradewinds' involvement. Although Customs tried to obtain information from the German tax authority we infer that they did not ask for any information in relation to the beginning the transaction. Accordingly we are unable to find at what price Mobile World or Sunico sold at the start, which is necessary to showing whether the transactions were non-economic.
31. In relation to Deal 1, there is nothing to link Mobile World with Medtrade or Ayslemead (although the Ayslemead instructions to Hawk links its purchase to Medtrade) in relation to the particular deal other than the payment instruction by TM Mobiles, the third purchaser in the chain. Because the payment instructions do not relate to TM Mobiles' sale we consider that there is insufficient evidence that Mobile World sold to Medtrade. Although we know that Customs could not obtain any information from Germany they did not attempt to obtain any information from Belgium about Medtrade. The same problem does not exist in relation to Deal 2 as we consider that Tradewinds' instruction to Hawk does sufficiently connect Sunico into the transaction as the seller to Tradewinds. There may be doubts about the reliability of documents obtained from Hawk but this is a document purporting to originate from Tradewinds. Since information obtained from the Danish authorities shows that Sunico sold at a loss to Tradewinds the instruction by TM Mobiles to pay £208,000 to Sunico does not seem to relate to this transaction.
32. We regard the information summarised in paragraph 25(3) above that Beronvine (which does not figure in Deal 2) made payments to Sunico on dates from 26 January onwards as irrelevant. While it does, as Miss Haynes and Miss Holmes contend, show a pattern of receiving third party payments for the same goods this does not help us to decide whether Deal 2 is a carousel fraud.
33. Because of these problems we are not persuaded that on the balance of probabilities (whether to the ordinary standard or one requiring cogent evidence) Deals 1 and 2 are carousel frauds.

Concluding remark

34. While we did not agree with Mr Patchett-Joyce's contention that we should allow the appeal without hearing it for lack of disclosure by Customs, we consider that he had a point that is particularly relevant to appeals of this type. Because the documents relating to the other transactions in the alleged carousel are available to Customs but not the Appellant it is not enough for Customs to disclose documents that suggest that there is a carousel. What is required is that they disclose documents in their possession and information about what they had tried to obtain that enable the Appellant to contend that there is no carousel. Presumably this requires the appellant to apply for a specific direction because rule 20 of the VAT Tribunals Rules 1986 merely requires a party to list the documents which it proposes to produce at the hearing.
35. We should also mention that we are concerned about the way in which Customs disallowed the Appellant's input tax. This was disallowed by a member of Mr Birchfield's team on the recommendation of Mr Gaston. The latter's report identified a missing trader and circularity. For example, in relation to Deal 1 Mr Gaston's report stated:

"The source of these goods traced back to Ayslemead Business Services Ltd VAT No 8142082 57 a missing trader. The last return for this trader is for the period end 31 August 2003 with assessments thereafter. TM Mobiles Ltd the next link in the chain makes 3^rd party payment to Mobile World Gumbo (sic). Essentially Mobileworld (sic) are buying back their own goods. Recommendation apply non economic argument to all complicit traders."

No doubt Mr Gaston was told to find cases of missing traders and third party payments but we would expect this to be the start of their investigation in a case where information about some of the steps in the alleged circle were missing when the burden of proof was on them, rather than going straight to recommending applying the "non economic argument to all complicit traders."

36. Accordingly we allow the appeal. We award the Appellant the costs of and incidental to, and consequent upon, the appeal and application made at the start of the hearing to be assessed in default of agreement by a Taxing Master of the Supreme Court on the standard basis, save that we award the Appellant the costs incurred in considering the Hawk disclosure on an indemnity basis. The Appellant is at liberty to make an application for a payment of interest on the unpaid input tax by notice to the Tribunal Centre within 21 days of the date of release of this decision specifying the rate at which it is claimed to which the Respondent may reply within 21 days thereafter.

JOHN F AVERY JONES

CHAIRMAN

RELEASE DATE: 25 July 2005

LON/04/1351