Bicc Plc
| Jurisdiction | UK Non-devolved |
| Judgment Date | 27 January 1998 |
| Date | 27 January 1998 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
Aer Lingus plc VAT(LON/90/1747) and (LON/92/1140) No. 8893; [1993] BVC 596
C & E Commrs v Fine Art Developments plc VAT(1989) 4 BVC 26
Elida Gibbs Ltd v C & E Commrs VAT(Case C-317/94) [1997] BVC 80
Pepper v Hart TAX[1992] BTC 591
Recovery of overpaid VAT - Input tax unclaimed in 1992 - Claim for repayment made in April 1997 - Appellant a "repayment trader", accounting for net amount of output tax - Whether appellant had "overpaid VAT", so that three-year rule applied - Value Added Tax Act 1994, s. 25 and 80; Value Added Tax Regulations 1995 (SI 1995/2518), reg. 29, 35 and 37.
The issue was whether a claim for input tax made in April 1997 relating to input tax arising in 1992 was liable to be "capped" on the basis that the claim, if correctly made, would have reduced the amount of net tax due to the commissioners, with the result that the appellant had "paid an amount to the commissioners by way of VAT which was not VAT due to them" and the claim was capped.
The appellant was the representative member of a group of companies. It was partly exempt and apportioned its input tax using a special method. Between April and November 1992 it incurred costs in relation to the issue of shares and scrip dividends which were paid to EC and non-EC residents. In 1992 the issue of shares for a person outside the EC was zero-rated. The VAT on the cost relating to the share issues should have been treated by the appellant as residual input tax rather than as directly attributable to exempt supplies; it should therefore have been wholly recoverable. For the five accounting periods between March 1992 and March 1993, its returns showed amounts of tax due to the commissioners ranging from £1.1m to £6.8m. In early 1997, the appellant became aware that it should have reclaimed the input tax in its 1992 returns. By letter dated 25 April 1997 it requested repayment of the amount underclaimed. Customs rejected the claim on the basis that it was for refunds of overpaid VAT and subject to the three-year cap. However, the parties agreed that the amount which should have been claimed was £108,636. The appeal was confined to matters relating to UK legislation, which were to be decided as a preliminary issue.
The appellant contended that its claims were for input tax and were governed by Value Added Tax Regulations 1995 (SI 1995/2518), SI 1995/2518 section 29reg. 29 and had to be corrected under Value Added Tax Regulations 1995, SI 1995/2518 section 35reg. 35. It had not "paid an amount to the commissioners by way of VAT which was not VAT due to them" and the claim did not fall withinValue Added Tax Act 1994 section 80Value Added Tax Act 1994, s. 80.
The commissioners contended that, as a "payment trader" paying over £1m VAT in the relevant period, it was really claiming the repayment of the difference between the tax paid in a period and the lesser amount that should have been paid in the period had the proper input tax been on the VAT return. This was a claim which should have been made under Value Added Tax Act 1994 section 80s. 80 and was time barred.
Held, dismissing the company's appeal on the preliminary issue:
1. Value Added Tax Act 1994 section 25 subsec-or-para (3)Section 25(3), Value Added Tax Act 1994 gave a repayment trader the right to immediate payment of any excess of input tax over output tax due. However, the appellant was not a repayment trader and was not entitled to such a payment. Customs might have authorised the payment of £108,636 under SI 1995/2518 section 29 subsec-or-para (1)reg. 29(1), which gave them a power to make special provision for special circumstances, but they had chosen not to do so.
2. The appellant relied on the final sentence of para. 11 of Leaflet manual 700/45/93700/45/93, which made provision for the repayment by Customs of an amount due as a result of an error, after setting it against any outstanding balance due to them. However, this lacked the force of law. The appellant could only claim as of right under Value Added Tax Act 1994 section 25 subsec-or-para (3)s. 25(3), but the circumstances giving rise to a "tax credit" under the subsection were not present in any of the relevant periods. This determined the issue in the commissioners' favour.
3. Going on to consider whether the claim fell withinValue Added Tax Act 1994 section 80s. 80, which the appellant denied, it followed from the plain meaning of the section that the appellant had paid an amount by way of VAT, which was not VAT due to the commissioners, when it failed to exercise the entitlement conferred by Value Added Tax Act 1994 section 25 subsec-or-para (2)s. 25(2) to deduct the full amount of input tax, resulting in the VAT paid for the period being greater than it would otherwise have been.
4. The result also followed from (a) the principle that a taxable person's obligation to pay VAT related to the single net amount consisting of output tax less deductible input tax for the period and (b) eu-directive 67/227 article 2art. 2 of Directive 67/227, the first VAT directive, which provides that VAT "shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components." The position might have been different if the obligation to "pay VAT" in Value Added Tax Act 1994 section 25 subsec-or-para (1)s. 25(1) had been expressed as an obligation to "pay output tax", but that was not what the section said and was not its effect.
[The tribunal set out the facts summarised above and continued as follows.]
7. On 7 July 1997 BICC appealed. The grounds of appeal were that:
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(a) the underclaimed tax was input tax attributable to taxable supplies which it was entitled to recover by virtue of eu-directive 77/388 article 17(3)art. 17(3)(c) of the sixth directive [Directive 77/388], under Value Added Tax Act 1994 section 25 section 26ss. 25 and 26 [of the Value Added Tax Act 1994 ("the 1994 Act")] and under SI 1995/2518 section 29 subsec-or-para (1) section 35 section 107 subsec-or-para (1)regs. 29(1), 35 and 107(1)(c) of the Value Added Tax Regulations 1995 [("the 1995 Regulations")];
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(b) as the underclaimed tax comprised input tax it was not within the capping legislation; and
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(c) the capping legislation was "ultra vires, invalid and contrary to EC law".
In the premises, the grounds stated, BICC "is entitled to immediate repayment of the underclaimed tax together with interest … from 8 May 1997 until the date of payment".
8. At the start of this hearing of the appeal I directed that the question of whether the capping legislation violated EC legislation (and, if so, with what effect) to be stood over for the time being. The validity under domestic law of the commissioners' refusal of BICC's claim for repayment of the £108,636 is therefore being dealt with as a preliminary point.
9. The rival contentions of the parties are in essence these. Mrs Penny Hamilton for BICC, arguing for immediate repayment of the £108,636, contends that the claim is made under SI 1995/2518 section 29 section 35regs. 29 and 35 [of the 1995 Regulations]. The claim, she says, is not a claim for repayment of an amount paid "to the commissioners by way of VAT which was not VAT due to them"; consequently it does not fall underValue Added Tax Act 1994 section 80s. 80 [of the 1994 Act] and so is not subject to the three-year capping rule. Dr Paul Lasok QC, for the commissioners, argues that SI 1995/2518 section 29 section 35regs. 29 and 35, taken either together or separately, do not provide for a claim such as BICC is making. What BICC are asking for, i.e. immediate repayment of £108,636, can only be dealt with under the provisions of Value Added Tax Act 1994 section 80s. 80.
10. Before examining the rival claims procedures there is a preliminary point to make. In each of the prescribed accounting periods covering April-November 1992, the eight months during which BICC incurred the unclaimed input tax, BICC paid VAT of over£1m to the commissioners. Consequently, had the £108,636 of input tax been correctly claimed in the appropriate accounting period, the tax payable would have abated; but there would not, in any of those periods, been an excess of input tax over output tax making BICC a "repayment trader" for that period. Expressed in arithmetical terms, what BICC are claiming is repayment of the difference between the tax that they actually paid in each accounting period and the lesser amount of tax that should have been paid in that period had the proper amount of input tax been entered in their VAT return. Expressed in VAT return form (1992) terminology, the figure in Box 1 for each period (VAT due … on sales) was correct while the figure in Box 2 ("VAT reclaimed in this period on purchases and other inputs") was too small. As a result the figure in Box 3 ("Net VAT to be paid to Customs …") was too great. BICC's claim for immediate repayment of £108,636 is, therefore, based on a correct reworking of Boxes 2 and 3 for each of the periods in 1992 and is the aggregate of the resulting incorrect overreadings in Box 3.
11. The statutory procedures for obtaining money payments from the commissioners are contained in Value Added Tax Act 1994 section 25 section 80ss. 25 and 80 [of the 1994 Act]. Section 25 associated with SI 1995/2518 section 29 section 35regs. 29 and 35 [of the 1995 Regulations] provide[s] the procedure relied on by BICC for their claim for immediate payment of...
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