Commissioners of Customs and Excise v Ali Baba Tex Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 22 May 1992 |
| Date | 22 May 1992 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Auld J.
Robert Jay (instructed by the Solicitor for Customs and Excise) for the Crown.
The taxpayer did not appear and was not represented.
The following cases were referred to in the judgment:
ACT Construction Ltd v C & E Commrs WLRVAT[1981] 1 WLR 1542, (1981) 1 BVC 451 (HL)
Associated Provincial Picture Houses Ltd v Wednesbury CorporationELR[1948], KB 223
A-G's Reference (No. 1 of 1988) ELRUNK[1989] AC 971; (1989) 5 BCC 625
British Railways Board v C & E Commrs WLRVAT[1977] 1 WLR 588; (1977) 1 BVC 116
C & E Commrs v Top Ten Promotions Ltd WLR[1969] 1 WLR 1163
James v Jones ELR[1894] 1 QB 304
Van Dijk's Boekhuis B V v Staatssecretaris van FinanciënVAT(Case 139/84) [1985] ECR 1405; (1985) 2 BVC 200, 161
Value added tax - Zero-rating - Material processed by pleating - Pleated pieces returned to customer for making skirts - Incomplete article suitable only for production of clothing for young children - Whether article qualified for zero-rating -Value Added Tax Act 1983 schedule 2 subsec-or-para 2Value Added Tax Act 1983, Sch. 2, para. 2; Value Added Tax Act 1983 schedule 5 group 17Sch. 5, Grp. 17, item 1, Note (2).
This was an appeal by the Customs and Excise Commissioners from a decision of the VAT tribunal ((1990) 5 BVC 824) that a pleating process applied to pieces of fabric sufficiently altered their character as to be regarded as a supply of goods within theValue Added Tax Act 1983 schedule 2 subsec-or-para 2Value Added Tax Act 1983, Sch. 2, para. 2, and parts of garments suitable only for making clothes for young children qualified for zero-rating within the Value Added Tax Act 1983 schedule 5 group 17Value Added Tax Act 1983, Sch. 5, Grp. 17, item 1.
The taxpayer's business consisted of pleating textiles for garment manufacturers before the garments were made up. The pieces of material (gores) were sent to the taxpayer cut out and hemmed ready for pleating. The pleating process reduced the pleated gore to one third of its original size radically altering its appearance.
The taxpayer appealed to the VAT tribunal against assessments raised in respect of invoices issued to customers whose business it was to make the pleated pieces into skirts for young girls which were not suitable for older girls or women claiming that those supplies were zero-rated.
The first question was whether the taxpayer, by pleating its customers' pieces of material, produced goods by applying to them a treatment or process within the meaning of those words in theValue Added Tax Act 1983 schedule 2 subsec-or-para 2Value Added Tax Act 1983, Sch. 2, para. 2. It was agreed that the pleating was a treatment or process within that provision. The issue was whether the taxpayer in so doing produced goods. If it did, it was a supply of goods capable of being a zero-rated supply under Grp. 17. If it did not, it was a supply of services to which that provision could not apply.
The second question was whether, if the taxpayer's pleating service was a supply of goods, it was in fact zero-rated as coming within the description in Value Added Tax Act 1983 schedule 5 group 17Sch. 5, Grp. 17, item 1 of a supply of articles designed as clothing for young children and not suitable for older persons. It was agreed that the finished garments would be suitable only for children but the issue was whether the pleated pieces of material were articles designed as clothing when the taxpayer returned them to its customers to be made into skirts.
The tribunal chairman found that the supplies were supplies of goods, i.e. pleated gores, not supplies of services, i.e. pleating, and that the pleated gores were zero-rated as components of children's clothing.
Held, dismissing Customs' appeal:
1. The tribunal chairman had identified the proper legal test, namely whether the combination of various criteria, in this case of size, shape, appearance and composition resulted in so significantly changed goods that they could be described as new or different goods. The change in the character of the fabric resulting from the pleating process was so significant that the tribunal was entitled to regard it as amounting to the production of new or different goods.
2. The retention in item 1, by Note (2), of objects such as buckles and buttons indicated that item 1 was not confined to completed articles of clothing and might refer to uncompleted garments or parts of garments suitable only to be used in making clothing for young children. The fact that more remained to be done to them did not deny them the description of "articles designed as clothing for young children".
By a notice of motion dated 25 September 1990 the Customs and Excise Commissioners appealed against a decision of the London VAT tribunal (chairman Mr PWE Taylor QC). The grounds of appeal were -
(2) that the tribunal had erred in law in holding that the supply made by the taxpayer was a supply of goods; and
(3) that the supply was a supply of clothing designed for children and not suitable for other persons falling within item 1 of Value Added Tax Act 1983 schedule 5 group 17Grp. 17 of Sch. 5 to theValue Added Tax Act 1983.
Auld J: This is an appeal by the Commissioners of Customs and Excise under section 13 subsec-or-para (4)sec. 13(4)of the Tribunals and Inquiries Act 1971 and the Tribunals and Inquiries (Value Added Tax Tribunals) Order 1972 (SI 1972/1210) from a decision of a VAT tribunal chaired by Mr PWE Taylor QC on 29 August 1990 allowing an appeal by Ali Baba Tex Ltd ("Ali Baba") and discharging an assessment by the commissioners of VAT on Ali Baba for £809.76 in respect of two periods of three months ending on 31 August 1986 and 28 February 1987 respectively.
Ali Baba, though properly served and notified of the date for the hearing of this appeal, has not appeared, by counsel or otherwise, to support the tribunal's decision.
Ali Baba carried on the business of pleating textiles for other companies and firms making ladies' and girls' outer garments. The assessment was raised on 12 invoices issued by Ali Baba between 11 June, 1986 and 12 February, 1987 in respect of work done by it in the pleating of pieces of textile belonging to customers whose business it was to make the pleated pieces into skirts for young girls, that is, into skirts that were not suitable for older girls or women.
Ali Baba had charged no VAT on these invoices because it regarded them as zero-rated under the VAT legislation.
Value Added Tax Act 1983 section 1Section 1 of theValue Added Tax Act 1983 imposes VAT on the supply of goods and services in the UK and on the importation of goods into the UK.Value Added Tax Act 1983 section 3 subsec-or-para (1)Section 3(1) of the Act provides that Value Added Tax Act 1983 schedule 2Sch. 2 to the Act governs the determination of what is to be treated as a supply of goods or a supply of services. The relevant provision in Value Added Tax Act 1983 schedule 2 subsec-or-para 2Sch. 2 is para. 2 which provides:
Where a person produces goods by applying to another person's goods a treatment or process, he shall be treated as supplying those goods.
Value Added Tax Act 1983 section 16 subsec-or-para (1) section 16 subsec-or-para (2)Section 16(1)...
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