Bugeja v Commissioners of Customs and Excise (No.2)
| Jurisdiction | England & Wales |
| Judgment Date | 25 November 1999 |
| Date | 25 November 1999 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown office List).
Carnwath J.
Philippa Whipple (instructed by the Solicitor for Customs and Excise) for the Crown.
James Henderson (instructed by Roodyn Manski) for the taxpayer.
The following cases were referred to in the judgment:
Argos Distributors Ltd v C & E Commrs VAT(Case C-288/94) [1997] BVC 64; [1996] ECR I-5311
Boots Co plc v C & E Commrs VAT(Case 126/88) (1990) 5 BVC 21; [1990] ECR I-1235
C & E Commrs v Civil Service Motoring AssociationVAT[1998] BVC 21
C & E Commrs v Westmorland Motorway Services LtdVAT[1998] BVC 154
Elida Gibbs Ltd v C & E Commrs VAT(Case C-317/94) [1997] BVC 80; [1996] ECR I-5339
Empire Stores Ltd v C & E Commrs VAT(Case C-33/93) [1994] BVC 253; [1994] ECR I-2329
Goldsmiths (Jewellers) Ltd v C & E Commrs VAT(Case C-330/95) [1997] BVC 494; [1997] ECR I-3801
HJ Glawe Spiel und Unterhaltungsgeräte Aufstellungsgesellschaft mbH & Co KG v Finanzamt Hamburg-Barmbek-Uhlenhorst VAT(Case C-38/93) [1994] BVC 242; [1994] ECR I-1679
Naturally Yours Cosmetics Ltd v C & E Commrs VAT(Case 230/87) (1988) 3 BVC 428; [1988] ECR 6365
Rosgill Group Ltd v C & E Commrs VAT[1997] BVC 388
Staatsecretaris van Financiën v Co-öperatieve Aadappelenbewaarplaats GA (Case 154/80) [1981] ECR 445
Value added tax - Taxable amount - Supply for consideration not wholly consisting of money - Value to be attributed to non-cash element in consideration - Taxpayer made initial supply of video for £20 and undertook to exchange it on return for payment of £10 - Whether any and if so what value to be attributed to return of second-hand video - Value Added Tax Act 1994Value Added Tax Act 1994, s. 19(3); sixth Council directive (Directive 77/388) of 17 May 1977, eu-directive 77/388 article 11(A)(1)art. 11(A)(1)(a) (OJ 1977 L145/1).
This was an appeal against a decision of the VAT and duties tribunal (No. 15,586; [1998] BVC 2306) that no value was to be attributed to a returned item which the taxpayer undertook to replace on payment of half the original purchase price.
The taxpayer sold video cassettes which he obtained at a cost of £2 or £3. The first time a customer bought a cassette he paid £20 ("the introductory supply"). Whenever a customer returned a video he would be supplied with another for £10 ("the replacement supply"). There was no obligation on a customer to return any video and no time-limit for the exchange, but 70 to 80 per cent of the videos taken by customers were returned within a week.
The taxpayer would not accept a badly damaged video for exchange but many returned items were thrown away, either because they were not in a usable condition or because they were out of date.
The issue was what consideration was given by the customer for the replacement supply.
Customs contended that this case fell within the principle that where the parties had expressly or implicitly attributed a money value to the non-monetary element in the consideration, that would determine its value. The taxpayer received two things from the customer when making a replacement supply: £10 and the old video. The old video was part of the consideration. The value to be attributed to it was the difference between the "normal selling price" on a sale (£20) and a part-exchange (£10). That difference represented the value which the parties attributed to the handing back of the old video.
The taxpayer contended either that the difference between the sale price and the part exchange price should be treated as a discount withineu-directive 77/388 article 11(A)(3)art. 11(A)(3)(b)of the sixth directive ("the discount argument"). Alternatively, the payment on the introductory supply was for the right to enter the "system" under which further videos could be obtained for £10. It therefore could not be treated as the value attributed to a returned video ("the monetary value argument").
Held, allowing Customs' appeal in part:
1. There were two possible angles from which to view the value of a returned video: that of the consumer, since VAT was a tax on consumption, and that of the supplier, since the taxable amount was to be "everything obtained by the supplier" as consideration. But whichever approach was adopted, the value was to be a "subjective" value, derived from the particular transaction rather than from the market in general. That might be the actual amount spent by the customer, the amount actually received by the supplier, or an amount assigned jointly by the parties.
2. No value had been agreed between the parties and the returned video had no value to the customer. Therefore, the best guide was the "subjective" value to the taxpayer as supplier. That would be the amount he would have had to spend to obtain equivalent goods: the £2 to £3 which he paid to his supplier. That figure might need to be adjusted downward to reflect the fact that not all returned videos were reusable: Empire Stores Ltd v C & E Commrs VAT(Case C-33/93) [1994] BVC 253 applied.
3. The "discount argument" ignored the return of the videos and would offend against the terms of eu-directive 77/388 article 11(A)(1)art. 11(A)(1)(a) of the sixth directive, which deemed consideration to be "everything which has been obtained by the supplier".
4. The monetary value argument assumed that the customer obtained something more from the introductory supply than from a replacement supply, but in both cases what was obtained was a video.
Carnwath J: This is an appeal by the Commissioners of Customs and Excise against a decision of the VAT and duties tribunal dated 21 April 1998. The tribunal allowed the appeal of Mr Bugeja and quashed assessments for the period July 1993 to October 1994 for the amount of £13,018 with interest of £1,425.
The facts are set out in the decision and are not in dispute. Mr Bugeja sold video cassettes. The first time a customer bought a cassette, it cost him £20 ("the introductory supply"). The video so supplied would be marked with a security tag. Whenever a customer handed in a video marked with the security tag, he would be supplied with another video for £10 ("the replacement supply"). The issue in this case concerns the amount of VAT due in respect of the replacement supply.
The tribunal found as "primary facts":
-
1. The published terms of business are: £20 to buy and £10 to exchange. (There was in fact a notice which read: "Videos. Sale £20: Part-Exchange £10".)
-
2. The videos that are on offer in Mr Bugeja's shop are all marked with the unique Bugeja security tag. The tag cannot be removed without leaving a mark on the video.
-
3. Videos bought in by Mr Bugeja from "wholesalers" as stock of the business cost £2-£3.
-
4. Apart from the videos purchased by Mr Bugeja from wholesale sources and those with Bugeja security tags already affixed to them which are taken back from customers, no other videos are stocked. In particular, a video which does not bear the Bugeja security tag is not accepted by Mr Bugeja from a customer.
-
5. Where an "introductory supply" is made to a customer, i.e. in return for the £20 payment, that customer learns that if he brings the video back he will be able to take another on payment of £10.
-
6. There is no obligation on any customer to return any video taken from the shop. 70-80 per cent of the videos taken by customers from the shop are brought back, mostly within a week, by customers in return for replacement supplies.
-
7. The right to a replacement supply does not depend on the length of time which the handed-in video has been away from the shop or on the time the replacement video is to be away.
-
8. No record is kept of the persons taking videos either following introductory supplies or following replacement supplies.
-
9. Mr Bugeja will not accept a badly damaged video in return for a replacement supply. A replacement supply is not available to a customer who has lost the video that was previously supplied to him by Mr Bugeja.
The tribunal did not make any express finding as to the use of the videos which were returned. Mr Henderson, for Mr Bugeja, submitted a statement made by his client to the following effect:
A large proportion of the videos were thrown away. Mr Bugeja cannot remember the exact proportion. Some of the videos were re-sold. Reasons why Mr Bugeja might throw away a video are:
-
(i) the video is no longer in a useable condition
-
(ii) the video is out of date.
Miss Whipple for Customs did not object to my taking account of the statement. She was content to accept it as a correct statement of additional facts, save that she challenged the reference to a "large" proportion of videos being thrown away. If it becomes relevant to determine what proportion of videos was thrown away, it might be necessary to consider whether to remit the matter to the tribunal.
Before the tribunal Mr Bugeja had argued that the replacement supply was one of rental services, but the tribunal found against him on this issue. It is common ground before me that the transactions were ones of sale, and that the customer obtained full title to the videos.
The second argument was that £10 out of the £20 paid for the introductory supply, or at least some part of it, was "paid for the right to obtain the replacement supply of a video for £10". The tribunal considered that the decision depended on "the determination of the real nature of the replacement supply". Having analysed the contractual effect of each transaction, they concluded:
… the question cannot be answered by focusing on the replacement in isolation. The consideration for the replacement supply has to be determined in its legal context. Seen in that light, Mr Bugeja can have attributed no monetary consideration to the customer's service of handing it in. So far as he was concerned he had no choice: he had to take the old video back, assuming it was in acceptable condition, and supply a...
To continue reading
Request your trial
-
Commissioners of Customs and Excise v Littlewoods Organisation Plc
...appealed to the High Court. 91 The facts found by the tribunal are set out by the judge in the third paragraph of his judgment, [2000] STC 1, at page 3f-j: "The tribunal found the following as 'primary facts'. (1) The published terms of business are: £20 to buy and £10 to exchange. (There w......
-
F & I Services Ltd v Commissioners of Customs and Excise
...principles are not in doubt. Moreover it is not credible that they were not in the mind of Carnwath J since in Bugeja v C&E Commissioners [2000] STC 1, in which he gave judgment on 25 November 1999, he had referred to many of these principles and had made a detailed analysis of the problems......
-
Trinity Mirror Plc (formerly Mirror Group Newspapers Ltd) v Commissioners of Customs and Excise
...of services. 33 We were referred, also, to a passage in the judgment of Mr Justice Carnwath in Customs and Excise Commissioners v Bugeja [2000] STC 1, at pages 8j-9a, where, after referring to the observations of Advocate General Jacobs in the Glawe Spiel case that VAT is "intended to be ch......
-
Abbey National PLC v The Commissioners of Customs & Excise, V 18236
...C – 33/93) [1994] STC 623; BP Supergas Anonimos v Greece (Case C – 62/93) [1995] ECR I-1883 (at para.35, I – 1918); and C&E Comrs v Bugeja [2000] STC 1 and [2001] STC 1568 neutrality principle and the accounts basis are important in understanding the scheme of VAT bad debt relief as it appl......