British Telecommunications Plc v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NOURSE,LORD JUSTICE MILLETT,MR. JUSTICE TUCKER |
| Judgment Date | 18 March 1998 |
| Judgment citation (vLex) | [1996] EWCA Civ J0508-11 |
| Docket Number | QBCOF 95/1249/D |
| Court | Court of Appeal (Civil Division) |
| Date | 18 March 1998 |
[1996] EWCA Civ J0508-11
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mr. Justice Dyson)
Royal Courts of Justice
Strand
London WC2
Lord Justice Nourse
Lord Justice Millett
and
Mr. Justice Tucker
QBCOF 95/1249/D
MR. K. PARKER QC (instructed by the Solicitor of Customs & Excise, London SE1) appeared on behalf of the Appellants.
MR. D. MILNE QC and MR. A.J. SHIPWRIGHT (instructed by the Solicitor of British Telecommunications Plc, London EC1) appeared on behalf of the Respondents.
Wednesday, 8th May 1996
I will ask Lord Justice Millett to deliver the first judgment.
This is an appeal by the Commissioners of Customs and Excise from a judgment of Mr. Justice Dyson given on 16th January 1995, when he dismissed an appeal by the taxpayer, British Telecommunications Plc ("BT"), from a decision of a Value Added Tax Tribunal which discharged an assessment to output tax. The appeal raises a question of general importance both in the United Kingdom and in other Member States on the common system of value added tax upon which there is as yet no decision of the European Court of Justice.
The case is concerned with the liability to output tax of a taxable trader who makes continuous supplies of goods or services and invoices and receives payment from customers at periodic intervals in the course of a continuing contractual relationship with the customer. Such arrangements are commonplace, particularly in relation to the supply of utilities, though they are not confined to such cases. Under the domestic legislation of the United Kingdom, where there are continuous supplies of goods or services, the supplier must account for output tax at the date when payment for the supply is received or at the date when the supplier issues a tax invoice relating to the supply, whichever is the earlier. The question on this appeal is concerned with the supplier's liability to output tax where the customer, in settling his present liability, mistakenly makes an overpayment and the supplier, instead of repaying the amount of the overpayment immediately, retains it and credits the customer with it when next invoicing him. Customs and Excise contend that the amount of the overpayment must be treated as a payment on account of future supplies, with the result that value added tax is payable at the date of receipt of the overpayment. If the overpayment were to be treated as a payment on account, this result would follow. The judge, however, held that it was not and could not be treated as a payment on account, with the result that value added tax was not payable in respect of the overpayment until the date of the next invoice when the customer received credit for the payment.
I am in such full agreement with the reasoning and conclusions of the judge, on which I find it impossible to improve, that I have been minded to dispose of this appeal by saying that it should be dismissed for the reasons given by the judge, without adding any reasons of my own. It is only out of courtesy to the full and careful arguments of counsel that I give a reasoned judgment of my own.
THE FACTS
The facts are taken from the judgment of the judge. BT supplies continuous telecommunications services to customers, issues invoices to customers quarterly, and accounts for output tax quarterly on the basis of the invoices issued in the relevant quarter. From time to time customers mistakenly make overpayments of the amounts due from them. Where the overpayment is deliberate and stated to be so by the customer, BT accounts for output tax on the amount of the overpayment when it is received. In the overwhelming majority of cases, however, the overpayment is accidental. The most common mistake is double payment, once when the customer receives the original invoice and once when he receives a reminder, the customer having forgotten that he has already paid. Sometimes a customer will pay a previous invoice; sometimes he will misread the amount due or transpose the figures; sometimes he will have confused his telephone bill with another bill, say for gas. In many cases BT is unaware of the reason for the mistake unless informed by the customer; sometimes even the customer cannot explain the reason.
BT's general terms and conditions of supply make no provision in respect of overpayments mistakenly made by customers. It is conceded by Customs and Excise that, in the absence of a contractual provision to the contrary, the payment gives rise to an immediate liability on the part of BT to make repayment to the customer of the amount of the overpayment. BT, however, does not do so. It has 20 million customers, and the administrative inconvenience of communicating with each customer who has made an overpayment and the cost of making immediate repayment would probably be out of all proportion to the individual sums involved. Accordingly, BT makes repayment only if asked to do so by the customer. Unless repayment is requested, BT credits the customer's running account with the whole amount received, including the amount of the overpayment, and takes it into account when calculating the sum payable on the next quarter's invoice. It does not account for output tax on the overpayment until the invoice is issued for the quarter following receipt of the overpayment (that is to say, the invoice which contains the credit entry), which it disregards in calculating the amount of tax chargeable.
Although the individual amounts involved are small, the total sums are substantial. In a two-month period BT received no less than £17m in overpayments by customers. The value added tax on these payments amounts to £2.6m.
THE LEGISLATION
Value added tax is a European tax and accordingly the governing legislation is the EC Council Sixth Directive 77/388EEC ("the Sixth Directive"). This establishes the basic system, and the domestic legislation which implements it must be interpreted, so far as possible, in conformity with the Sixth Directive.
Under the Sixth Directive, value added tax is a tax on "the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such": Article 2; and the taxable amount is "everything which constitutes the consideration which has been or is to be obtained by the supplier from the…customer…": Article 11.1(a). Decisions of the European Court of Justice establish the need for a direct link between the service provided and the consideration for that service.
At the time of the transactions in question in the present case the legislation in force in the United Kingdom was the Value Added Tax Act 1983. That Act has since been replaced by the Value Added Tax Act 1994,...
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