Payless Cash & Carry Ltd (In Liquidation) v Madhusudan Maganbhai Patel (2) Gardford Ltd (3) Multirush Ltd (4) Mbt Cash & Carry Ltd (5) Mdd Trading Ltd

Facts

The claimant company (C), which was in liquidation, claimed the sum of £3.9 million from the first defendant (P) as a director who wrongfully and fraudulently caused it to incur a liability to the Revenue and Customs Commissioners for wrongfully claimed input tax on various purchases of alcoholic drinks.

C had a legitimate cash and carry business for liquor and tobacco. The commissioners raised an assessment in the sum of over £3.9m in respect of the quarters between May 2007 and January 2009, and obtained a winding-up order against C on the basis of that assessment. The commissioners' case was that C had sought to deduct input tax on trading with 10 suppliers when the trade said to have generated that input tax was not genuine trade. Most of those suppliers were either in winding-up or dissolved. The commissioners relied on a number of significant differences between the genuine trading and the trading with the 10 suppliers, namely that: over 90 per cent of the challenged trade was in cash compared with 12 per cent with other suppliers; the cash payments could not be reconciled with invoices, and payments had been made on account; the periods of trading were short, with one supplier being replaced by another; the suppliers were represented by a limited number of representatives; the numbering of their invoices was consecutive implying that C was the only customer in the relevant period; the description of the goods supplied was so generic that a driver or warehouseman would not be able to check that the right quantity of the right goods had been delivered; the invoices were not multi-part and were "unhandled" and unmarked; those invoices were stored separately for the other supplier invoices. The commissioners also relied on the fact that C's computer records did not reflect the cash books recording payments and vice versa; and that there was no genuine explanation for the inconsistencies.

Held

(1) P was not a reliable or credible witness (see para.26 of judgment). (2) The commissioners' criticisms of the challenged invoices were established to a greater or lesser extent (para.58). (3) The cash books could not be treated as a reliable indicator of cash payments. They demonstrated that, so far as the missing traders were concerned, they were not reliable, and were to a very material extent, if not completely, a contrivance. The alterations which they contained were shown not to be the correction of mistakes, or some legitimate and genuine reallocation of a payment (para.81). (4) It had been established on the balance of probabilities that the claims for input tax which were the subject of recoupment under the assessments were not proper claims based on genuine transactions but contrivances which did not reflect reality. They were deliberate acts and were wrongful and P was liable for having brought them about. The accounting records had been fabricated and did not reflect reality. The shortcomings could not be attributed to accident, incompetence or an honest mistake. The cash books showed clear evidence of alteration without good reason. There were inconsistent entries for the same period which immediately called their reliability into question. They were not true records. The computer records, on which the VAT returns were based, could not be relied on because they contained unaccounted for deletions and other faults which could not be attributed to bad practice or accident. The trading patterns of several of the missing traders was irregular. P's ignorance of the suppliers and their representatives was suspicious. The nature and pattern of the invoices was suspicious. No good explanation had been given for the suspicious factors. C submitted VAT returns which contained claims for input tax which were not justified because, so far as they reflected missing trader trades, those trades did not take place as claimed and VAT input tax was not paid as claimed. P was responsible for that and as director he was liable to C for the amounts wrongly claimed (paras 112-120).

Judgment for claimant.

Comment

A director who had wrongfully and fraudulently caused his company to incur a liability to the Revenue and Customs Commissioners by wrongfully claiming input tax on various liquor purchases was liable to the company for the amounts wrongly claimed.

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