Commissioners of Customs and Excise v National Westminster Bank Plc
| Jurisdiction | England & Wales |
| Judgment Date | 29 July 2003 |
| Neutral Citation | [2002] EWHC 2204 (Ch) |
| Date | 29 July 2003 |
| Court | Chancery Division |
Chancery Division.
Jacob J.
Christopher Vajda QC and Philippa Whipple (instructed by the Solicitor for Customs & Excise) for the Crown.
Michael Conlon QC and James Henderson (instructed by Lovells) for the taxpayer.
The following cases were referred to in the judgment:
Amministrazione delle Finanze dello Stato v SpA San Giorgio(Case 199/82) [1983] ECR 3595
Comateb v Directeur général des douanes et droits indirects (Joined Cases C-192/95 to C-218/95) [1997] ECR I-165
Cotter v Minister for Social Welfare (Case C-377/89) [1991] ECR I-1155
C & E Commrs v Arnold VAT[1996] BVC 464
C & E Commrs v Corbitt (JH) (Numismatists) Ltd VAT(1980) 1 BVC 330
Elida Gibbs Ltd v C & E Commrs VAT(Case C-317/94) [1997] BVC 80; [1996] ECR I-5339
Hans Just I/S v Danish Ministry for Fiscal Affairs (Case 68/79) [1980] ECR 501
IR Commrs v National Federation of Self-Employed and Small Businesses Ltd ELR[1982] AC 617
Klensch v Secrétarie d'État à l'Agriculture et à la Viticulture (Joined Cases 201 and 202/85) [1986] ECR 3477
Marks & Spencer plc v C & E Commrs VATVAT[1999] BVC 107 (Ch); No. 14,692; [1997] BVC 2243
R v C & E Commrs, ex parte British Sky Broadcasting GroupVAT[2001] BVC 198
R v IR Commrs, ex parte Unilever plc TAX[1996] BTC 183
Weber's Wine World v Abgabenberufungskommission Wien(Case C-147/01) (opinion, 20 March 2003) (unreported)
Value added tax - Repayment - Unjust enrichment - Car leasing companies - Change of VAT treatment of manufacturers' bonuses - Taxpayer claimed repayment of VAT - Claim refused on ground of unjust enrichment - Taxpayers in similar position had made successful claims for repayment - Customs appealed against tribunal decision allowing taxpayer's appeal against refusal - Whether Customs had treated taxpayer unfairly and failed to establish defence of unjust enrichment - Value Added Tax Act 1994, s. 80(3), 83(t), 84(10).
This was an appeal by Customs against a decision of a tribunal (No. 17,962; [2003] BVC 2271) that a taxpayer was entitled to a repayment of VAT paid in respect of manufacturers' bonuses but subsequently found not to be due.
The taxpayer was the representative member of a VAT group one member of which ("Lombard") purchased motor cars for leasing to business customers. Manufacturers supplying cars to the group made periodic payments to it, known as manufacturers' bonuses, which were treated as consideration for taxable supplies of services. Accordingly, the taxpayer accounted for VAT at the standard rate on the bonuses received. Following the decision in Elida Gibbs Ltd v C & E Commrs (Case C-317/94) [1997] BVC 80; [1996] ECR I-5339, it was decided that manufacturers' bonuses should be treated as discounts on the purchase price of the cars. Therefore Customs issued Business Brief 16/97 inviting affected businesses to submit claims for VAT wrongly accounted for and the taxpayer claimed on 27 June 1998 a VAT repayment totalling £776,197. In July 1998, Customs paid £63,235 to the taxpayer. Notwithstanding the authorisation and repayment of similar claims from other car leasing businesses, Customs in 1998 informed the taxpayer of their decision to invoke s. 80(3) of the Value Added Tax Act 1994 and refuse to pay the balance of the claim, on the basis that such payment would unjustly enrich the taxpayer. The taxpayer complained to the Revenue Adjudicator, who concluded in 2001 that the taxpayer had been treated differently from other car leasing companies. However Customs in 2001 confirmed their decision to refuse the claim.
The tribunal allowed an appeal holding that Customs had breached the Community law principles of effectiveness and equality of treatment and that unjust enrichment had not been established. Customs appealed. The tribunal held that the 1998 decision was a prior decision within s. 84(10) of VATA 1994 so that the tribunal could consider it when considering the appeal against the 2001 decision letter under s. 83(t).
Held, allowing Customs' appeal:
1. It was clear from s. 80(3) that Customs had to establish the defence of unjust enrichment - in this case passing on of the extra cost to customers. There was no presumption of unjust enrichment but reasonable inferences could be drawn from the evidence. Accordingly, the court started with no presumption of unjust enrichment, assembled the available evidence and reached a fair decision taking into account reasonable inferences from the known facts. On the basis of all the known facts, Customs had established that it was more probable than not that the tax was passed on. That was the only rational inference from the known primary facts. The tribunal's reasoning in holding otherwise was flawed and amounted to an error of law. The only reasonable inference from the evidence before the tribunal was that those who bore the loss caused by the wrongful treatment of manufacturers' bonuses were the taxpayer's customers, not the taxpayer. For the taxpayer to be repaid the tax would be unjust enrichment.
2. There was ample material upon which the tribunal could conclude that the taxpayer was treated differently from its rivals. The first question was whether the question of unfair treatment was one within the jurisdiction of the tribunal. The actual decision impugned was that to invoke unjust enrichment in the case of the taxpayer. It was not a decision to invoke unjust enrichment in the case of the taxpayer but not others. That was what happened in fact but there was never a decision to that effect. There was authority to support the conclusion that general conduct towards taxpayers was outwith the tribunal's jurisdiction with which the court agreed and which it would follow. Thus the tribunal had no jurisdiction under s. 83(t) to decide on the question of unfair treatment. Moreover, the essence of the unfair treatment case was not that the VAT was not due. It was that even though it was due, it should be repaid because trade rivals were unjustifiably repaid. That, as a matter of construction, was outwith s. 80 and hence outwith s. 83(t). (Marks & Spencer plc v C & E Commrs [2000] BVC 35 followed.)
3. As regards jurisdiction under s. 84(10), there were two points in this case, unjust enrichment and unfair treatment. There was no dependence of one upon the other in any relevant sense. The unjust enrichment point (over which the tribunal did have jurisdiction) in no way depended on any prior decision about unfair treatment. The tribunal's reasoning for holding that it had jurisdiction was not clear but it was apparent that the tribunal did not refer to the language of s. 84(10) and appeared to have ignored the key words "depended on" in that provision. Thus the tribunal had no jurisdiction under s. 84(10).
4. In any event a case of unfair treatment had not been made out and there were objectively justifiable reasons why repayment should not be made. The general principle of equality or non-discrimination was one of the principles of EU law but it was within the ambit of objective justification to say that mistakes need not be perpetuated and to take into account the fact that what was involved here was both complex and a necessarily large administrative system. The tribunal had failed to consider that what it was ordering was payment of a sum which would enrich the taxpayer at the expense of the general body of taxpayers.
Jacob J:
[1] The Commissioners of Customs and Excise appeal from a decision of the VAT and Duties Tribunal (Chairman Mr Lawson) of 30 December 2002 ([2003] BVC 2271). The tribunal allowed an appeal by National Westminster Bank plc ("Natwest") against the commissioners' decision given by letter ("the decision letter") dated 23 August 2001. I shall call the respondents "Lombard" which was the name of the relevant Natwest trading entity involved. The case is about a claim for repayment to Lombard of overpaid VAT.
[2] The tribunal sets out the undisputed facts in para. 22-36 of its decision. I borrow, with gratitude and some modification, the summary contained in the commissioners' skeleton argument by Mr Christopher Vajda QC and Miss Philippa Whipple, their counsel.
[3] Lombard purchased vehicles for onward leasing to customers and at the end of the lease (typically three years) Lombard sold these vehicles at car auctions.
[4] Lombard and the manufacturers agreed a price for the vehicles, a price paid by Lombard with VAT. But in addition Lombard received payments from the manufacturers. These payments were known as "manufacturers" bonuses'. The payments were made on receipt by the vehicle manufacturer of a self-billed invoice generated by Lombard. The invoice consisted of a fee for a service (called a "fleet discount") "performed" by Lombard for the manufacturer plus the VAT on that fee. This was based on the bizarre notion that somehow Lombard, the buyer, was performing a service for the manufacturer because it was buying in bulk. (Mr Michael Conlon QC for Lombard valiantly tried to explain how this notion came about. Not even he could get me to understand and it does not matter.)
[5] Thus, manufacturers' bonuses were originally treated as being consideration for a taxable supply made by Lombard to the relevant manufacturer. Lombard accounted for the tax to the commissioners. The tax was an output tax (in the jargon of VAT). The ECJ gave a decision (Elida Gibbs Ltd v C & E Commrs VAT(Case C-317/94) [1997] BVC 80; [1996] ECR I-5339) which made it plain that all this was wrong. The commissioners realised that the manufacturers' bonuses should have been treated all along as what they obviously were, just discounts against the nominal purchase price of the cars. The prices really paid for the cars were lower than the stated agreed prices. Since the VAT was on that price, Lombard had been overpaying VAT. Its input tax was inflated by reason of the unreal high price. The amount of that inflation was the rate of VAT...
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