BUPA Purchasing Ltd v Commissioners of Customs and Excise (No.2)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Park |
| Judgment Date | 08 October 2005 |
| Neutral Citation | [2005] EWHC 2117 (Ch) |
| Docket Number | Case No: CH2002/APP/905 & |
| Court | Chancery Division |
| Date | 08 October 2005 |
[2005] EWHC 2117 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Park
Case No: CH2002/APP/905 &
CH/2003/APP/284
Roderick Cordara QC (instructed by Ernst & Young, chartered accountants) for the Appellants
Nigel Pleming QC and Philippa Whipple (instructed by the Solicitor for HM Revenue and Customs) for the Respondents
Hearing dates: 14 & 15.07.2005
Abbreviations, etc.
In the table which follows and elsewhere in this judgment 'my previous judgment' means the judgment which I delivered in this case on 31 July 2003, and which is reported at [2003] STC 1203. The neutral citation number of that judgment is [2003] EWHC 1957 (Ch). Abbreviations, etc, used in this judgment are as follows.
Introduction and Overview
| Act, the | |
| BHL | BUPA Hospitals Limited |
| BPL | BUPA Purchasing Limited; one of three nominal appellant companies, |
|
| but effectively the sole appellant for this judgment. |
| BUPA | The British United Provident Association Limited |
| Ridgeons Bulk | Ridgeons Bulk Ltd v C & E Commissioners [1994] STC 427 , a decision of Popplewell J |
| s. or section | Unless otherwise indicated, a reference to a section is a reference to a section of the Act. Thus, for example, s.73 is section 73 of the Value Added Tax Act 1994. |
| Sooner Foods | C & E Commissioners v Sooner Foods Ltd [1983] STC 376 , a decision of Forbes J |
| Tribunal, the | The VAT and Duties Tribunal |
| VAT | Value Added Tax |
On 31 July 2003, some two years ago now, I delivered judgment in a case between BUPA Purchasing Limited and two other associated companies of the one part and Customs & Excise of the other. The case was an appeal from the main part of a decision of the Tribunal released on 26 September 2002. My judgment decided a question of principle which arose in connection with a VAT avoidance scheme adopted by the BUPA group. I decided the question in favour of Customs & Excise, affirming the decision of the Tribunal. There has been no appeal from my decision. The Tribunal had said that four main issues arose. Its decision dealt with all four, but my 2003 judgment was concerned only with what the Tribunal had called the principal issue. It referred to the other three issues as the subsidiary issues, and addressed them in the closing paragraphs of its decision (paragraphs 85 to 100). In paragraph 2 of my previous judgment I wrote (referring to the subsidiary issues): 'There are, however, certain technical points about the machinery of VAT assessments which are also subject to appeal. Those points have not yet been argued, and in this judgment I deal only with the question of principle.' The technical points have now been argued. One of the three has not been pursued, and this judgment relates to the other two.
There were three appellants affected by the previous decision, of which BPL was the foremost and the appellant by reference to which I wrote my judgment. It was common ground that my decision in principle as regards BPL would govern the identical principle which arose also in the cases of the two other appellant companies. The technical issues which were left over on that occasion and have been argued now arise only in the case of BPL. Thus, although all three companies are still nominally appellants, BPL is the only effective appellant so far as this judgment is concerned. The other companies in the BUPA group to which I will need to refer from time to time are BUPA itself and BHL (see the Abbreviations in paragraph 1 above). I understand that they are the main companies in the group which supply medical, surgical and other associated services to patients and other clients or customers.
At the time of the events which gave rise to this case and at the time of my previous judgment the Government Department responsible for V AT was HM Customs & Excise. Thus Customs & Excise were the respondents to the appeal by BPL and the other two associated companies (the appeal which was determined by my previous judgment). Recently Customs & Excise and HM Commissioners of Inland Revenue have been merged so as to constitute HM Revenue & Customs. Accordingly the respondents to the present appeal are named as the Commissioners of HM Revenue & Customs. However, for consistency with the history of the case I shall refer to Customs & Excise in the text of this judgment.'
I will give more details in later sections of this judgment, but in the broadest of outlines the issues which I now have to decide arise in the following way. Because most of the supplies to outside consumers which the BUPA group made were (and still are) classified for VAT as 'exempt supplies', the group suffered the disadvantage of not being able to recover from Customs & Excise more than a small proportion of its 'input tax'—the V AT which its outside suppliers added to the invoiced prices of goods and services supplied to it. With a view substantially to removing that effect the group, over the period from 1992 to 1996, carried out a scheme, generally referred to as a 'group exit scheme'. BPL was a vital participant in the scheme. It bought in goods and services from outside suppliers, and supplied them on within the group to BUPA itself or to BHL. BUPA and BHL used the goods and services in the performance of the medical, surgical and associated services which it was their business to provide. The idea of the scheme was, first, that BPL would be able to recover from Customs & Excise all the input tax charged to it by the outside suppliers, and, second, that, when BPL supplied the goods or services on to BUPA or BHL, only a very small proportion of the price which it received would be liable to 'output tax' payable to Customs & Excise. Those results were believed to have been brought about by certain· provisions of the Act coupled with the detailed mechanics of the scheme.
By now, however, cases which have gone through the courts have established that the scheme did not work, either for goods or for services. But the reasons why it did not work differed as between supplies of goods and supplies of services. I will say rather more about this later (and fuller details can be found in my previous judgment), but in this overview it is sufficient to say that in relation to goods the scheme did not work for reasons affecting output tax, whereas in relation to services it did not work for reasons affecting input tax. BPL received and made supplies both of goods and of services. (The other two appellant companies received and made supplies only of services.)
BPL, entirely properly given the advice which it had received, submitted its periodical V AT returns on the basis that there were indeed large reclaims of input tax and small liabilities to output tax. Customs & Excise, considering that the returns were wrong, sought to correct the position by making V AT assessments. Customs & Excise should have made the assessments partly on output tax grounds (affecting output tax on supplies of goods by BPL) and partly on input tax grounds (affecting input tax on supplies of services received by BPL). However, in fact they made assessments solely on input tax grounds. BPL accepts that the assessments are correct in so far as they affect services, but on its behalf Mr Cordara QC contends that they are incorrect (and cannot be enforced against BPL) in so far as they purport to apply to supplies of goods. Customs & Excise accept that the assessments had been made partly on the wrong basis, but they nevertheless submit that it was open to the Tribunal to adjust the amounts and the VAT periods so as to be the correct amounts and periods; having done that the Tribunal should uphold the adjusted assessments. The Tribunal in essence accepted Customs & Excise's submissions.
Simply on the basis of the statutory provisions it seems to me that both cases are arguable. However, in my view the critical point with which I am concerned has already been decided in favour of the taxpayer and against Customs & Excise in Ridgeons Bulk (see the Abbreviations, etc, in paragraph 1 above), a decision of Popplewell J. On behalf of Customs & Excise Mr Pleming QC and Mrs Whipple invite me not to follow that case on the ground that it was wrongly decided. They also submit that there is other High Court authority to the opposite effect in the decision of Forbes J in Sooner Foods [1983] STC 376 (again see the Abbreviations, etc, in paragraph 1 above). I will go into this aspect of the case in some detail later, but at this stage I merely say that I do not myself see Sooner Foods in that way. A higher court than the High Court might or might not agree with Popplewell J's decision in Ridgeons Bulk; but I am certainly not prepared to say that the decision was wrong. I intend to follow it, and in consequence I will allow this appeal.
The structure of the group exit scheme
In paragraphs 11 to 13 of my previous judgment I described the group exit scheme by reference to a simplified example, and I will repeat the essence of that description here. In my previous judgment I assumed a supply of services, since the judgment was concerned with the scheme and the application of VAT to it only in so far as it applied to services. In the description which follows here, however, I take account also of the possibility of supplies of goods as well as of services. I assume a case where goods or services were purchased from an outside supplier by BPL and supplied onward within the group by BPL to BUPA. The principles would be exactly the same if the onward supply had been made by BPL to BHL.
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