Commissioners of Customs and Excise v Isle of Wight Council
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE PUMFREY,Mr Justice Pumfrey |
| Judgment Date | 12 November 2004 |
| Neutral Citation | [2004] EWHC 2541 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CH/2004/APP/0323 |
| Date | 12 November 2004 |
[2004] EWHC 2541 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Pumfrey
Case No: CH/2004/APP/0323
Christopher Vajda Q.C. and Paul Harris (instructed by Solicitor's office, Commissioners for Customs & Excise) for the Appellant
Julie Anderson (instructed by Linda Leach of Chiltern plc) for the Respondent
Hearing dates: 26 & 27 October 2004
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an Appeal by the Commissioners of Customs and Excise ('The Commissioners') against the decision of the VAT and Duties Tribunal (Stephen Oliver Q.C. Chairman) dated 6 th April 2004. The decision of the Tribunal decides two preliminary issues in an appeal by the Council against the Commissioners' refusal to pay a claim made under section 80 of the Value Added Tax Act 1994 (' VATA'). I can quote from the Tribunal's decision setting out the issues with which it is confronted:
"2. The Appeal concerns the Council's liability to VAT on payments received in respect of its operation of off-street parking facilities. The Appeal raises four issues:
The first ("the special legal régime issue") is whether, as the Council contends, its provision of off-street parking facilities is excluded from charge to VAT by the operation of article 4.5 of the EC Sixth Directive as being "activities or transactions in which they engage as public authorities";
The second ("the implementation issue") is whether the second paragraph of article 4.5 (which treats as taxable persons local authorities that engage in such activities ("where treatment as non-taxable would lead to significant distortions of competition") has been properly implemented into UK law;
The third ("the competition issue") is whether, as the Commissioners contend and assuming that the second paragraph of article 4.5 has been properly implement, treatment of the Council as a non-taxable person would lead to significant distortions of competition and
The fourth ("the overpayment issue") is whether VAT is chargeable on amount which exceed the published tariff in circumstances where the parking machine cannot give change."
In its decision, the Tribunal considered only the first and second questions. It resolved the special legal régime issue in favour of the council, and the Commissioners do not appeal against that decision. The only issue which arises on the present appeal is the implementation issue.
By their Notice of Appeal, the Commissioners contend (1) that article 4.5 of the Sixth Directive has been properly implemented into UK domestic law by a combination 3, 4 and 42 of VATA "as properly construed and interpreted in the light of the Sixth Directive"; (2) the Council is not able, as a matter of law, to rely upon and apply the first sub-paragraph of article 4.5 without also accepting the application of the second sub-paragraph of article 4.5; (3) moreover, even if the second sub-paragraph of article 4.5 has not been properly implemented into domestic UK law in whole or in part the Commissioners are entitled and/or obliged to apply and rely upon both the first and second sub-paragraph of article 4.5 in relation to the council which is an "emanation of the state".
It was common ground at the hearing before me that there were two issues to be considered. First, whether it was possible to interpret the relevant provisions of VATA so as to be consistent with the provisions of the Sixth Directive in an application of what is usually called the Marleasing principle. Second, if the Marleasing principle was incapable of application, whether as between the Council and the Commissioners the provisions of article 4.5 were of direct effect, either (as the Commissioners contend) in their entirety or (as the Council contends) as to the first sentence only.
The decision of the Tribunal is concerned with the first of these questions only. Although the question of direct effect is referred to in the Commissioners' Skeleton Argument before the Tribunal, I think it is fair to say that occupies a rather subordinate position and I understand also that the greater part of the argument before the Tribunal was devoted to the Marleasing doctrine, to which the question of direct applicability was presented as a fall-back argument in a few paragraphs.
Conclusions
My conclusions are as follows. (1) The whole of article 4.5 of the Sixth Directive is directly applicable as between the Council and the Commissioners. It follows that the Tribunal must embark upon the factual investigation called for by the third and fourth issues in the Appeal which I have set out above. (2) The Marleasing doctrine is of doubtful applicability in the present case. Although it is not necessary to decide the question having regard to my conclusions on the issue of direct applicability, it seems to me that to attempt to get over the various problems presented by VATA by a wholesale rewriting of the kind suggested by the Commissioners lies at the very edge of a permissible approach to the Marleasing doctrine.
My reasons for these conclusions are as follows.
The Domestic Provisions
By section 4(1) of VATA, VAT shall be charged on any supply of goods or services made in the United Kingdom where it is a taxable supply made by a taxable person in the course of furtherance of any business carried on by him. Sub-section (2) defines "taxable supply" as a "supply of goods or services made in the United Kingdom other than an exempt supply".
Section 3 of VATA defines a "taxable person" for the purposes of the act as a person who is or required to be registered under the Act. By section 42 'a local authority which makes taxable supplies is liable to be registered under this Act, whatever the value of the supplies; and accordingly Schedule 1 shall apply, in a case where the value of the taxable supply made by a local authority in any period of one year does not exceed the sum for the time being specified in paragraph 1(1)(a) of that schedule as if that value exceeded that sum'. It follows that any local authority which makes taxable supplies is liable to VAT on the value of the supplies whether or not they exceed the threshold applicable to other taxable persons.
Section 31 VATA defines exempt supplies as supplies of a description for the time being specified in Schedule 9 to the Act, and does not need to be considered further. Section 94 defines "business" as including any trade, profession or vocation. This definition is an inclusive definition, and it is plainly very wide. Its scope is unaffected by the deeming provision contained in sub-section 94(2) to which it is not necessary to refer. As a matter of ordinary construction, the scheme of the charging provision so far as they affect local authorities is, it seems to me, quite clear. Local authorities pay VAT on all supplies falling within sub-section 4(1).
The Council, and other local authorities, contend that this is entirely inconsistent with the provisions of the Sixth Council Directive of 17 th May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes/common system of value added tax: uniform bases of assessment (77/388/EEC) ("the Sixth Directive"). To those provisions I now turn.
The Sixth Directive
By Article 4.1, "taxable person" shall mean "any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purposes or results of that activity". Paragraph 2 provides that
"the economic activities referred to in paragraph 1 shall comprise all activities of produces, traders and persons supplying services including mining and agriculture activities and activities of the profession. The exploitation of tangible and intangible property for the purpose for obtaining income there from on a continuing basis shall also be considered an economic activity."
By article 4.5:
"States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, in connection with these activities or transactions.
However, when they engage in such activities or transactions, they shall be considered taxable persons in respect of these activities or transactions where treatment as non-taxable persons would lead to significant distortions of competition.
In any case, these bodies shall be considered taxable persons in relation to the activities listed in Annex D, provided that they are not carried out on such a small scale as to be negligible.
Member states may consider activities of these bodies which are exempt under article 13 or 28 as activities which they engage in as public authorities."
Article 4.5 exempts the specified public authorities from the charge to tax on the basis of who they are rather than on the nature of the business carried on by them. The effect of the second paragraph, article 4.5(2) is to remove that exemption if the activities of the public authority would lead to significant distortions of competition if the public authority is treated as a non-taxable person. Plainly, the effect of the domestic provision is nothing like this. Indeed, it seems to start from the opposite end of the spectrum, making all public authorities chargeable to tax whenever they make a taxable supply or, in other words, a non-exempt supply of goods or services in the furtherance of any business. The only qualification, therefore, on the charge imposed by ...
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