A High Court ruling ends six-year Brayfal dispute over contra-trading allegation. HM Revenues and Customs (HMRC) has paid back mobile phone trader Brayfal £1.5 million in VAT returns, after a six-year dispute.
Brayfal had been accused by the HMRC of what the judge in the case described as, “contra-trading” relating to goods that have been obtained fraudulently being passed from business to business before eventually being sold. Brayfal always claimed it had no knowledge the devices had been part of any form of a VAT carousel fraud, saying it had been a broker in what it called a “clean supply chain”, with each participant accounting correctly for VAT in relation to the sales and purchases. But HMRC said that the company “knew or should have known” that it was part of a contra-trading scheme.
Mr Justice Lewison stated in his court notes that stock had passed through IGB Group owned Future Communications who acted as a “contra-trader in an overall scheme to defraud the public revenue”. HMRC alleged that Brayfal was a part of this scheme.
HMRC based its claims on a European case involving Belgian companies, Kittel and Recolta, which were denied VAT payments based on the fact they should have known they were part of criminal activity. This accusation was held up on appeal by the VAT and Duties Tribunal on August 22, 2008, which found HMRC had failed to prove the company knew or had the means of knowing it had entered into a contra-trading scheme.
However, HMRC appealed against this decision and it was remitted. In March 2010 the Tribunal ruled in its favour, which ultimately led to Brayfal taking its case to the High Court. But Justice Lewison called on another case – that of trader Moblix versus HMRC, which saw the latter win based on evidence it produced proving Moblix should have been aware of its involvement in a contra-trading scheme. He ruled Brayfal was not aware of any fraudulent activity relating to any of its stock. He said: “If anything, the way in which the members formulated their conclusion imposed a higher burden on Brayfal than they should have. They found Brayfal had proved it did not have actual knowledge or the means of knowledge, whereas we now know from Moblix that the burden of proof lies on HMRC to prove Brayfal did have knowledge or the means of knowledge. The appeal must be dismissed.”