The Law supporting the penalty
VAT Act 1994, Schedule 11 paragraph (2) (3) and VAT General Regulations 1995 Regulation 22
This states that UK VAT registered traders who make supplies of goods to registered traders in other EC Member States are required to submit EC Sales Statements.
VAT Act 1994, Section 65
This gives HMRC the power to impose a penalty on traders who submit EC Sales Lists which contain material inaccuracies.