Kishore – Court of Appeal rejects HMRC's strike out application

05 January 2022

In HMRC v Dhalomal Kishore [2021] EWCA Civ 1565, the Court of Appeal rejected HMRC's application to strike out the taxpayer's grounds of appeal against penalties for inaccuracies contained in VAT returns, as the application was an abuse of process.


Dhalomal Kishore claimed input tax in his VAT returns in respect of purchases of goods from UK suppliers which he then exported. HMRC denied that Mr Kishore was entitled to deduct input tax, on the basis that he knew, or ought to have known, that the transactions were connected with VAT fraud and therefore the principles established in the decision of the Court of Justice of the European Union in joined cases C-439/04 and C-440/04 Kittel v Belgium; Belgium v Recolta Recycling SPRL [2008] STC 1537 (Kittel) applied.

Mr Kishore appealed each of HMRC's decisions to the First-tier Tribunal (FTT), following which protracted litigation ensured. Mr Kishore failed to comply with certain directions issued by the FTT and HMRC made an application to the FTT for an order providing for Mr Kishore’s appeals to be struck out under Rule 8 of the FTT Rules unless he complied with the FTT’s directions. The FTT issued a direction requiring Mr Kishore to confirm, within 21 days, whether he intended to pursue the appeals and to comply with the relevant directions, failing which the appeals were to be struck out. Mr Kishore failed to comply with that direction and the FTT informed the parties that Mr Kishore’s appeals had been struck out. Mr Kishore applied for the appeals to be reinstated, which was refused following an oral hearing. Both the FTT and the Upper Tribunal (UT) refused permission to appeal.

Separately, HMRC informed Mr Kishore that they were imposing misdeclaration penalties under section 63, Value Added Tax Act 1994, for inaccuracies contained in the relevant VAT returns. Mr Kishore appealed the penalty assessments to the FTT. HMRC applied to strike out Mr Kishore's grounds of appeal. In particular, it contended that it would be an abuse of process for Mr Kishore to be permitted to litigate the Kittel issues in the penalty appeals. Among other things, HMRC asserted that “[i]n advancing a case that he had a reasonable excuse for the misdeclarations, the Appellant is maintaining that he did not have means of knowledge of the connection with fraud”.

FTT decision

The FTT allowed the application, save that it declined to strike out a ground of appeal to the effect that the penalties were disproportionate. 

The FTT considered that Mr Kishore did not have a reasonable prospect of: (a) showing either that it would not be an abuse of process for him to be allowed to re-open issues in the Kittel appeals; or (b) impugning the penalty assessments on the basis that there had been a breach of Article 6 of the European Convention on Human Rights (the Convention).

Mr Kishore appealed to the UT.

UT decision

The appeal was allowed in part. 

The UT concluded that the FTT had erred in striking out those of Mr Kishore’s penalty appeal grounds which it did on the basis that there was no arguable case that his Article 6 rights were breached as a result of unreasonable delay and on the basis that it was an abuse of process for Mr Kishore to advance a defence of reasonable excuse. 

Approaching the abuse of process issue by reference to Lord Bingham’s speech in Johnson v Gore Wood & Co [2002] 2 AC 1, the UT considered that the FTT had adopted too narrow an approach to the evaluation exercise and failed to take into account Mr Kishore’s argument that it would not be abusive to advance arguments in the penalty appeal relevant to reasonable excuse, even though they were also relevant to the issue of knowledge in the Kittel appeals, in circumstances where throughout the Kittel appeals there had been no intimation by HMRC of an intention to make a penalty assessment.

The UT further held that the FTT had been mistaken in thinking that Mr Kishore was barred from contending in the penalty appeals that the Kittel appeals had been struck out because of lack of funds caused by HMRC’s conduct. Regarding Article 6 of the Convention, the UT explained that it would proceed on the assumption that the start point for Article 6(1) delay purposes coincided with HMRC’s decisions to refuse repayment of input tax and it disagreed with the FTT’s conclusion that Mr Kishore’s case that his Article 6 rights were infringed due to unreasonable delay which had prejudiced him, had no prospect of success. The UT was of the view that it was not in a position to resolve the factual questions whether there was indeed unreasonable delay and whether that prejudiced Mr Kishore, and it decided that those matters would need to proceed to trial.

HMRC appealed and Mr Kishore cross-appealed to the Court of Appeal.

Court of Appeal judgment

The appeal and cross-appeal were dismissed.

HMRC argued that the UT failed to apply the correct line of authority, and therefore to adopt the correct approach, when considering whether there was an abuse of process. HMRC maintained that the abuse of process issue should have been determined by reference to cases dealing with situations where a party brings a second action in respect of matters which were raised in a first action but where that action had been struck out on procedural grounds and without any consideration of the merits (Morris J in Davies v Carillion Energy Services Ltd [2017] EWHC 3206 (QB)). HMRC accepted that neither the FTT nor the UT was referred to the cases in question but asked that the Court should nevertheless entertain this ground of appeal (the Principal Ground), which it said raised a pure point of law.

HMRC further contended that the UT erred in: (a) failing to recognise that Mr Kishore’s alleged lack of funds could not excuse his conduct in the Kittel appeals (the Second Ground); and (b) finding that the absence of any notification of an intention to impose a misdeclaration penalty on Mr Kishore was relevant to the question of whether the penalty appeals were abusive (the Third Ground).

Lord Justice Newey (with whom Lord Justice Nugee and Lady Justice King agreed) did not accept the Principal Ground, noting that the Court was not referred to any case in which it has been held that, absent a special reason, it is an abuse of process for a defendant in a civil claim to raise by way of defence a point that he ran in previous proceedings in which his claim or defence (as the case may be) was struck out on account of procedural failings. He rejected the Second Ground, as it was parasitic on the Principal Ground which he had already rejected. He also rejected HMRC's Third Ground, deciding that the absence of notification could potentially be of relevance to a Johnson v Gore Wood & Co assessment. 

In his cross-appeal, Mr Kishore argued that the UT should have set aside the penalty assessments. In that connection, he invoked Article 6 of the Convention and also claimed that the imposition of penalties involved abuse of process on the part of HMRC. However, in rejecting the cross-appeal, Lord Justice Newey agreed with the UT that there were issues as to the reasons for the delay and its consequences which could not be decided now but must go to trial.


The Court of Appeal disagreed with HMRC’s arguments concluding that there was a difference between cases where an appeal on the substantive issue had been heard and decided against a taxpayer and cases, such as this one, where an appeal had been struck out on procedural grounds but there had been no findings of fact against the taxpayer. Accordingly, the appeal against the penalty assessments was not struck out. 

This decision clarifies the law in relation to abuse of process and provides helpful  guidance in this important area of the law.

The decision can be viewed here.

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