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England and Wales Court of Appeal (Criminal Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Criminal Division) Decisions >> Chahal & Anor v R  EWCA Crim 816 (21 May 2015)
Cite as:  EWCA Crim 816
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ON APPEAL FROM BIRMINGHAM CROWN COURT
(HH Judge Mayo)
Strand, London, WC2A 2LL
B e f o r e :
MR JUSTICE GILBART
HONORARY RECORDER OF STAFFORD
(HH JUDGE TONKING)
| JASPAL SINGH CHAHAL
|- and -
A Mitchell QC and P Sharkey (instructed by the Crown Prosecution Service)
for the Respondent
Hearing dates : 17th April 2015
Crown Copyright ©
MR JUSTICE GILBART :
Subject matter of the appeals
i) in the case of Jaspal Singh Chahal, it was held that he had had a criminal lifestyle, and had benefited from his general criminal conduct to the extent of £ 15,556,921.19. The available amount was determined to be £ 438,280.69, which he was ordered to pay within 3 months, with a term of 3 years' imprisonment to be served in default;
ii) in the case of Harbans Singh, it was held that he had had a criminal lifestyle, and had benefited from his general criminal conduct to the extent of £ 4,870,633.70. The available amount was determined to be £55,125.63, which he was ordered to pay within 6 months, with a term of 18 months' imprisonment to be served in default.
VAT and Missing Trader frauds generally
This Missing Trader fraud
a) the existence of a fictitious, or at any rate unidentified, importer;
b) a series of intermediate traders ("buffers") who would buy and sell the goods as they passed along the chain;
c) a final UK purchaser who would not charge VAT on a sale of the goods into another EU state, but would claim from HMRC the amount he had paid in VAT to his predecessor.
|Company||Director / Manager|
|Chahal & Sons Ltd The||Chahal (and Babdeep Chahal)|
|Anything and Everything Ltd 'Chahal||Ditto|
|Talking Digital Ltd companies'||Ditto|
|Letting Solutions Ltd||Randhawa and Jaspal Singh Chahal (Appellant)|
|H Communications||Harbans Singh (Appellant)|
|SS & JS||Satnam Singh Sohal|
|Period ref||Output Tax||Outputs||Input Tax||Inputs||Net Tax||Payment to HMRC/ Repayment by HMRC|
|09/05||495,599||7,981,691||1,358,443||7,800,878||-862,884||No repayment made|
|10/05||899,060||6,177,402||901,919||6,145,287||-2,858||No repayment made|
|11/05||849,968||4,352,838||844,915||4,830,408||5,049||No payment made|
|Net Payments claimed in 2005||-3,237,956|
|Repayments by HMRC||2,375,072|
|Period end||Output Tax||Outputs||Input Tax||Inputs||Net Tax||Payment to HMRC/ Repayment by HMRC|
|03/05||5,994||14,611||2,450||14,073||3,543||Payment to HMRC/|
|09/05||2,731,469||14,235,252||2,475,588||14,146,833||-104,120||No repayment made|
|12/05||533,461||3,090,970||530,795||3,074,751||2,665||Payment to HMRC|
|Net Payments claimed||133,843|
|Payments made by HMRC||29,723|
i) when B did not account to HMRC for the VAT charged on the sale to C, referred to by Judge Mayo as the "front end fraud";
ii) when the exporter claimed credit for the cost of buying from its supplier, referred to by the Judge as the "back end fraud".
(Those phrases were derived by the Judge from Sangha  EWCA Crim 2562  2 Cr App R (S) 17, to which we shall refer below.)
i) the fraudulent conspiracy in which the Appellants (and their co-conspirators) took part was not confined to the activities of one buffer company. Each claim for input VAT was made as one of a series of transactions along the chain relating to the particular goods (actual or fictitious) ;
ii) each series of transactions (including the related claims for input for VAT) relating to the particular goods was one of a number.
Proceeds of Crime Act 2002
Value Added Tax Act 1994
Article 1 of Protocol 1 of the European Convention on Human Rights
"6 Making of order
(1) The Crown Court must proceed under this section if the following two conditions are satisfied.
(2) The first condition is that a defendant falls within any of the following paragraphs
(a) he is convicted of an offence or offences in proceedings before the Crown Court;
(3) The second condition is that
(a) the prosecutor or the Director asks the court to proceed under this section, or
(b) the court believes it is appropriate for it to do so.
(4) The court must proceed as follows
(a) it must decide whether the defendant has a criminal lifestyle;
(b) if it decides that he has a criminal lifestyle it must decide whether he has benefited from his general criminal conduct;
(c) if it decides that he does not have a criminal lifestyle it must decide whether he has benefited from his particular criminal conduct.
(5) If the court decides under subsection (4)(b) or (c) that the defendant has benefited from the conduct referred to it must
(a) decide the recoverable amount, and
(b) make an order (a confiscation order) requiring him to pay that amount.
(7) The court must decide any question arising under subsection (4) or (5) on a balance of probabilities.
(9) References in this Part to the offence (or offences) concerned are to the offence (or offences) mentioned in subsection (2).
10 Assumptions to be made in case of criminal lifestyle
(1) If the court decides under section 6 that the defendant has a criminal lifestyle it must make the following four assumptions for the purpose of
(a) deciding whether he has benefited from his general criminal conduct, and
(b) deciding his benefit from the conduct.
(2) The first assumption is that any property transferred to the defendant at any time after the relevant day was obtained by him
(a) as a result of his general criminal conduct, and
(b) at the earliest time he appears to have held it.
(3) The second assumption is that any property held by the defendant at any time after the date of conviction was obtained by him
(a) as a result of his general criminal conduct, and
(b) at the earliest time he appears to have held it.
(4) The third assumption is that any expenditure incurred by the defendant at any time after the relevant day was met from property obtained by him as a result of his general criminal conduct.
(5) The fourth assumption is that, for the purpose of valuing any property obtained (or assumed to have been obtained) by the defendant, he obtained it free of any other interests in it.
(6) But the court must not make a required assumption in relation to particular property or expenditure if
(a) the assumption is shown to be incorrect, or
(b) there would be a serious risk of injustice if the assumption were made.
(7) If the court does not make one or more of the required assumptions it must state its reasons.
76 Conduct and benefit
(1) Criminal conduct is conduct which
(a) constitutes an offence in England and Wales, or
(b) would constitute such an offence if it occurred in England and Wales.
(2) General criminal conduct of the defendant is all his criminal conduct, and it is immaterial
(a) whether conduct occurred before or after the passing of this Act;
(b) whether property constituting a benefit from conduct was obtained before or after the passing of this Act.
(3) Particular criminal conduct of the defendant is all his criminal conduct which falls within the following paragraphs
(a) conduct which constitutes the offence or offences concerned;
(b) conduct which constitutes offences of which he was convicted in the same proceedings as those in which he was convicted of the offence or offences concerned;
(c) conduct which constitutes offences which the court will be taking into consideration in deciding his sentence for the offence or offences concerned.
(4) A person benefits from conduct if he obtains property as a result of or in connection with the conduct.
(5) If a person obtains a pecuniary advantage as a result of or in connection with conduct, he is to be taken to obtain as a result of or in connection with the conduct a sum of money equal to the value of the pecuniary advantage.
(6) References to property or a pecuniary advantage obtained in connection with conduct include references to property or a pecuniary advantage obtained both in that connection and some other.
(7) If a person benefits from conduct his benefit is the value of the property obtained.
84 Property: general provisions
(1) Property is all property wherever situated and includes
(b) all forms of real or personal property;
(c) things in action and other intangible or incorporeal property.
(2) The following rules apply in relation to property
(a) property is held by a person if he holds an interest in it;
(b) property is obtained by a person if he obtains an interest in it;
(c) property is transferred by one person to another if the first one transfers or grants an interest in it to the second;
5 (1) VAT due from any person shall be recoverable as a debt due to the Crown.
(2) Where an invoice shows a supply of goods or services as taking place with VAT chargeable on it, there shall be recoverable from the person who issued the invoice an amount equal to that which is shown on the invoice as VAT or, if VAT is not separately shown, to so much of the total amount shown as payable as is to be taken as representing VAT on the supply.
(3) Sub-paragraph (2) above applies whether or not
(a) the invoice is a VAT invoice issued in pursuance of paragraph 2(1) above; or
(b) the supply shown on the invoice actually takes or has taken place, or the amount shown as VAT, or any amount of VAT, is or was chargeable on the supply; or
(c) the person issuing the invoice is a taxable person;
and any sum recoverable from a person under the sub-paragraph shall, if it is in any case VAT be recoverable as such and shall otherwise be recoverable as a debt due to the Crown."
Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."
The confiscation proceedings and the issues before the Crown Court
i) which transactions should be included in the benefit figure ? In particular, should they includea) the total amount of purchases made by the conspirators through the buffer companies, orb) the total amounts of the inputs claimed from HMRC, orc) the figure paid out to the exporter in the chain ?
ii) if either (a) or (b) applies, would it be disproportionate in the light of Article 1 of the First Protocol to make a calculation of benefit which exceeded the amount under (c) ?
i) each offender had been convicted of conspiracy to cheat the Revenue;
ii) the activity included both the "front end" and the "back end" frauds identified in Sangha. The companies involved were not exclusively exporters and had also acted as buffer companies within the chain;
iii) the corporate veil was torn away;
iv) the lifestyle provisions applied;
v) the Court must therefore conclude that each defendant had benefited from general criminal conduct;
vi) section 6(5)(a) required the court to decide the recoverable amount. This is an amount equal to the defendants' benefit from the conduct concerned;
vii) a person benefits from criminal conduct if he obtains property as a result of or in connection with the conduct. If a person obtains a pecuniary advantage as a result of or in connection with conduct, he is to be taken to obtain as a result of or in connection with the conduct a sum of money equal to the value of the pecuniary advantage;
viii) the question arises as to whether, on the facts presented to the jury, the defendant companies (and therefore the Defendants (including the Appellants) have obtained the payments in their bank accounts which represent monies received either as a result of sales to other traders in the carousel or which represent VAT charged or collected by other traders in the carousel and not accounted for to HMRC;
ix) the court had to apply the section 10 assumptions in determining what the recoverable amount was. These related to property transferred to, held by or incurred by a defendant any time after the "relevant day;"
x) these assumptions could only be applied if they can be made without risk of injustice. There were protections in place at section 10(6)(a)-(b). It would only be in very unusual circumstances that a conclusion would be disproportionate if the checks and balance included in section 10(6) are properly applied;
xi) having decided the recoverable amount, the court had to take two further steps before making a confiscation order [under section 6(5)(b)] requiring the defendant to pay the recoverable amount;
xii) the penultimate step was to apply paragraph 16 of Waya  UKSC 51  1 AC 294 and to make an order except and insofar as such an order would be disproportionate and thus a breach of Article 1 Protocol 1;
xiii) the final step was to see whether section 7(2) of POCA 2002 applied whether the defendant had shown that the available amount was less than the benefit. If yes, the confiscation order should be the available amount or a nominal amount.
Grounds of Appeal
i) the loss to HMRC was the aggregate of the amounts claimed by the exporter, and that was the benefit for the purposes of sections 10 and 76;
ii) if that was wrong as a matter of interpretation of the provisions of POCA 2002, the application of Article 1 of Protocol 1 meant that the benefit should be limited to that sum.
Discussion and Conclusions
i) the court is not concerned under the POCA code to determine the amount of profit made, as calculated in an accounting exercise. The statutory code is aimed at determining the degree of benefit calculated in accordance with the statutory assumptions in section 10; see R v May  UKHL 28,  1 AC 1028 at 1045C and Waya at  UKSC 51,  1 AC 294 at paragraph 25 (set out at paragraph 56 below). There is in our view a sound public policy reason for that. Normal accounting practice relates to traders conducting lawful business, where transactions are not sham, nor designed to obscure criminality. It was a matter for a buffer trader in this case whether, having received a repayment or a credit for one, he took it and applied it lawfully, or instead put it towards the next sham transaction in the carousel fraud. It is no less a benefit received because he has not, in the event, seen the full fruits of it because he elected to use it in the next part of the fraud;
ii) equally, the exercise is not concerned with limiting the benefit obtained by reference to the loss caused to another. The effect of the Code is not to limit the recovery of benefit generated by criminal conduct by reference to whether it is equivalent to the actual loss caused to another: see Dimsey and Allen per my Lord, Laws LJ, at page 501."We also consider that there is force in the Crown's submission that a confiscation order falls to be clearly distinguished from a compensation order which may be made under section 35 of the Powers of Criminal Cases Act 1973. The amount of a confiscation order is referable to the applicant's benefit arising from the commission of his crime, not the loss suffered by the victim. As the Revenue's skeleton, paragraph 28, puts it:"The confiscation order is made to deprive the offender of the proceeds of his crime. A compensation order is made to compensate the victim of the crime."
"33 It would, in our view, be surprising if Parliament intended the costs of committing an offence to form part of the benefit of the offence. In Crown Prosecution Service v. Jennings  1 AC 1046, Lord Bingham giving the considered view of the Committee said:
"13. ... It is, however, relevant to remember that the object of the legislation is to deprive the defendant of the product of his crime or its equivalent, not to operate by way of fine. The rationale of the confiscation regime is that the defendant is deprived of what he has gained or its equivalent. He cannot, and should not, be deprived of what he has never obtained or its equivalent, because that is a fine." (Emphasis added)
34 In R v Olubitan  2 Cr App R(S) 14, May LJ said, at page 78:
"The section [section 71(1A) of the 1988 Act, the precursor to s 6 of POCA] is not to be construed so that a person may be held to have obtained property or derived a pecuniary advantage when a proper view of the evidence demonstrates that he has not in fact done so."
This passage was cited with apparent approval by the House of Lords in May, at paragraph 19.
35 To make a confiscation order which includes within the benefit the costs of committing a crime seems to be contrary to the object of the legislation and that part of the confiscation order would, it seems to us, operate by way of a fine."
"We agree with the judge that Ahmad should be distinguished . the circulating funds in Ahmad were not property obtained as a result of the criminal conduct. Nor were they sufficiently connected with the criminal conduct."
"(4) The third assumption is that any expenditure incurred by the defendant at any time after the relevant day was met from property obtained by him as a result of his general criminal conduct."
i) the claim for inputs resulted in a credit being made or a repayment. If the amount exceeded the outputs, the registered trader would be entitled to payment of the difference. On any view the credit given was a pecuniary advantage;
ii) each successful claim for inputs on "buffer" transactions represented the obtaining of a pecuniary advantage, and/or the obtaining of property;
iii) in fact, if one applies the four section 10 assumptions and the terms of s 76 stricto sensu, the entirety of all the monies paid (principal and VAT) at each stage of the carousel is to be counted as part of the benefit. The Prosecution position is thus to have drawn back from that approach.
"20 The difficult question is when a confiscation order sought may be disproportionate. The clear rule as set out in the Strasbourg jurisprudence requires examination of the relationship between the aim of the legislation and the means employed to achieve it. The first governs the second, but the second must be proportionate to the first. Likewise, the clear limitation on the domestic court's power to read and give effect to the statute in a manner which keeps it Convention compliant is that the interpretation must recognise and respect the essential purpose, or "grain" of the statute.
21 Both Mr Perry and Lord Pannick submitted that it would be very unusual for orders sought under the statute to be disproportionate. Both drew attention to the severity of the regime and commended its deterrent effect. The purpose of the legislation is plainly, and has repeatedly been held to be, to impose upon convicted defendants a severe regime for removing from them their proceeds of crime. It is not to be doubted that this severe regime goes further than the schoolboy concept of confiscation, as Lord Bingham explained in R v May  1 AC 1028. Nor is it to be doubted that the severity of the regime will have a deterrent effect on at least some would-be criminals. It does not, however, follow that its deterrent qualities represent the essence (or the "grain") of the legislation. They are, no doubt, an incident of it, but they are not its essence. Its essence, and its frequently declared purpose, is to remove from criminals the pecuniary proceeds of their crime. Just one example of such declarations is afforded by the explanatory notes to the statute (para 4):
"The purpose of confiscation proceedings is to recover the financial benefit that the offender has obtained from his criminal conduct."
22 A confiscation order must therefore bear a proportionate relationship to this purpose. Lord Bingham recognised this in his seminal speech in R v May, in adding to his "Endnote" or overview of the regime, at para 48, two balancing propositions:
"The legislation does not provide for confiscation in the sense understood by schoolchildren and others, but nor does it operate by way of fine."
23 Some general propositions may be offered in the light of the submissions of Mr Perry and Lord Pannick.
24 For the reasons given above, it must clearly be understood that the judge's responsibility to refuse to make a confiscation order which, because disproportionate, would result in an infringement of the Convention right under A1P1 is not the same as the re-creation by another route of the general discretion once available to judges but deliberately removed. An order which the judge would not have made as a matter of discretion does not thereby ipso facto become disproportionate. So to treat the jurisdiction would be to ignore the rule that the Parliamentary objective must, so long as proportionately applied, be respected.
25 A great many of the more serious cases in which confiscation orders are appropriate are criminal lifestyle cases. The statutory test for a lifestyle case is contained in section 75, read with Schedule 2, of POCA. In essence, a defendant who has in the past six years committed a number of offences from which he has benefited, or who has committed certain specified offences, will meet the statutory test. If he does, the calculation of his benefit will normally not depend on the known benefit obtained from identified offences, but will be made after applying the statutory assumptions set out in section 10 as to the criminal source of any assets passing through his hands in the six year period. Although the starting point is that the assumptions "must" be made (section 10(1)), this duty is subject to two qualifications contained in section 10(6). The assumptions should not be made if they are shown to be incorrect: section 10(6)(a). Nor should they be made if making them would give rise to a risk of serious injustice: section 10(6)(b). The combination of these provisions, and especially the latter, ought to mean that to the extent that a confiscation order in a lifestyle case is based on assumptions it ought not, except in very unusual circumstances, to court the danger of being disproportionate because those assumptions will only be applied if they can be made without risk of serious injustice.
26 It is apparent from the decision in May that a legitimate, and proportionate, confiscation order may have one or more of three effects:
(a) it may require the defendant to pay the whole of a sum which he has obtained jointly with others;
(b) similarly it may require several defendants each to pay a sum which has been obtained, successively, by each of them, as where one defendant pays another for criminal property;
(c) it may require a defendant to pay the whole of a sum which he has obtained by crime without enabling him to set off expenses of the crime.
These propositions are not difficult to understand. To embark upon an accounting exercise in which the defendant is entitled to set off the cost of committing his crime would be to treat his criminal enterprise as if it were a legitimate business and confiscation a form of business taxation. To treat (for example) a bribe paid to an official to look the other way, whether at home or abroad, as reducing the proceeds of crime would be offensive, as well as frequently impossible of accurate determination. To attempt to enquire into the financial dealings of criminals as between themselves would usually be equally impracticable and would lay the process of confiscation wide open to simple avoidance. Although these propositions involve the possibility of removing from the defendant by way of confiscation order a sum larger than may in fact represent his net proceeds of crime, they are consistent with the statute's objective and represent proportionate means of achieving it. Nor, with great respect to the minority judgment, does the application of A1P1 amount to creating a new governing concept of "real benefit".
27 Similarly, it can be accepted that the scheme of the Act, and of previous confiscation legislation, is to focus on the value of the defendant's obtained proceeds of crime, whether retained or not. It is an important part of the scheme that even if the proceeds have been spent, a confiscation order up to the value of the proceeds will follow against legitimately acquired assets to the extent that they are available for realisation."