Commissioners of Customs and Excise v Gil Insurance Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 16 February 2000 |
| Date | 16 February 2000 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Richards J.
The following cases were referred to in the judgment:
Ashmore v Corporation of Lloyds WLR[1992] 1 WLR 446
Associated Provincial Picture Houses Ltd v Wednesbury CorpELR[1948] 1 KB 223
Brasserie du Pêcheur SA v Germany; R v Secretary of State for Transport, ex parte Factortame Ltd (Joined Cases C-46/93 and C-48/93) [1996] ECR I-1029
C & E Commrs v Young TAX[1993] BTC 5148
Esso Española SA v Comunidad Autónoma de Canarias (Case C-134/94) [1995] ECR I-4223
FNCE v France (Case C-354/90) [1991] ECR I-5505
Ministero delle Finanze v IN. CO. GE. '90 srl (Cases C-10/97 to C-22/97) [1998] ECR I-6307
R v C & E Commrs, ex parte Lunn Poly Ltd UNKUNK[1998] STC 649 (DC); [1999] STC 350 (CA)
RI. SAN Srl v Municipality of Ischia and GEPI SpA (Case C-108/98) 9 September 1999 (unreported)
Syndicat Français de l'Express International (SFEI) v La Poste(Case C-39/94) [1996] ECR I-3547
Viscido v Ente Poste Italiane (Cases C-52/97 to C-54/97) [1998] ECR I-2629
Insurance premium tax - Tribunal - Procedure - Customs applied to strike out an issue raised by the taxpayers or to hear that issue and other issues as preliminary points - Whether discretion properly exercised by tribunal in refusing applications - Finance Act 1994 section 21Finance Act 1994, s. 21 (as amended by Finance Act 1997),Finance Act 1997 schedule 7 subsec-or-para 8s. 59, Sch. 7, para. 8.
This was an appeal by Customs from two decisions of the VAT and duties tribunal refusing to strike out a single issue raised by the taxpayers and refusing to hear that and other issues as preliminary points.
Insurance premium tax ("IPT") was introduced by Finance Act 1994 section 21s. 21 of the Finance Act 1994. The standard rate was four per cent, but a higher rate of 17.5 per cent was applied to certain types of insurance, including insurance of domestic appliances, by amendments enacted by the Finance Act 1997Finance Act 1997.
The six taxpayers provided insurance for domestic appliances. In 1998 they claimed, under the Finance Act 1994 schedule 7 subsec-or-para 8Finance Act 1994, Sch. 7, para. 8(1), repayment with interest of amounts paid by way of higher rate IPT.
The claim was made on three broad grounds:
(2) the differential tax represented a state aid in breach of the UK's obligations under the EC Treaty;
(3) The higher rate represented a form of VAT on insurance contrary toeu-directive 77/388 article 13 article 33art. 13 and 33 of the sixth Council directive; and
(4) as regards two of the taxpayers who were subsidiaries of a French and an Irish insurance group respectively, the higher rate infringed rights of freedom of movement and freedom to provide cross-border services.
Customs rejected the claim on the grounds that all the issues raised, except the issue of state aid, had been dismissed by the Divisional Court (and upheld by the Court of Appeal) in R v C & E Commrs, ex parte Lunn Poly Ltd in relation to travel insurance and that, if the differential rates resulted in an unlawful state aid, it would not follow that amounts paid by way of higher rate IPT would have been paid by way of tax that was not due to Customs.
The taxpayers had also commenced proceedings in the High Court claiming declaratory relief, damages and restitution of sums paid by way of higher rate VAT. Those proceedings were stayed pending the outcome of the tribunal proceedings.
Customs made an interlocutory application to the tribunal for a direction that the state aid issue be struck out or be heard as a separate preliminary issue of law. That application was dismissed on 26 October 1999. Customs then applied for a direction that the question of possible unauthorised VAT on insurance and freedom of movement be heard as preliminary issues of law. That application was also dismissed on 22 December 1999.
The tribunal decided that the Value Added Tax Tribunals Rules 1986 (SI 1986/590 section 19 subsec-or-para (3)SI 1986/590), r. 19(3) was most probably wide enough to give the tribunal power to direct that a ground of appeal which disclosed no reasonable ground for bringing an appeal be struck out. The tribunal then examined the state aid issue and decided that there was a possibility that the taxpayers' arguments would succeed and that they should have the opportunity of presenting their arguments in the substantive appeal rather than summarily on an application to strike out or as a preliminary issue, particularly as this was a developing and uncertain area of the law.
Customs contended not only that the tribunal had no jurisdiction to consider the issue of state aid but also that the authorities in the European Court showed that repayment of the higher rate IPT would not be an appropriate remedy even if unlawful state aid were found to exist. The taxpayers could only be compensated by damages that could not be awarded in proceedings before the tribunal.
Held, dismissing Customs' appeal:
1. Appeals on a point of law from an interlocutory decision of the tribunal were taken in exercise of the wide discretion of the tribunal in relation to the proceedings before it. It was thus not the function of the court to rehear the arguments and substitute its own decision for that of the tribunal. The court could only intervene where the tribunal had erred in law, either by way of an error in its reasoning or by reaching an unreasonable conclusion: C & E Commrs v YoungTAX[1993] BTC 5148 and Ashmore v Corporation of Lloyds WLR[1992] 1 WLR 446 applied.
2. The tribunal refused to strike out the state aid issue. It proceeded correctly on the basis that it had jurisdiction to strike out an issue by virtue of the Value Added Tax Tribunals Rules 1986 (SI 1986/590 section 19 subsec-or-para (3)SI 1986/590), r. 19(3), but it was entitled to take the view that the taxpayers' arguments might succeed and that, as this was an uncertain and developing area of the law, the taxpayers should have the opportunity of presenting arguments fully in a substantive hearing rather that summarily on an application to strike out.
3. The tribunal was entitled to refuse to hear any of the points raised as preliminary issues. In particular the tribunal was right to reject a fragmentation of issues which might be separately appealed, thus lengthening the proceedings and increasing costs. All the issues went ultimately to the question whether the provisions imposing higher rate IPT were unlawful. There was no basis for allowing Customs to pick off the points one by one. They should be considered together.
Richards J: 1. The commissioners appeal against two interlocutory decisions of the VAT and duties tribunal (chairman: Dr AN Brice), released respectively on 26 October 1999 and 22 December 1999, made in the context of appeals to the tribunal by a number of undertakings ("the taxpayers") concerning payments of insurance premium tax ("IPT").
2. The taxpayers all provide insurance for domestic appliances. TheFinance Act 1994 introduced IPT on supplies of such insurance.Finance Act 1997 section 21Section 21 of theFinance Act 1997 amended the relevant provisions by substituting new sections in the 1994 Act, which provided that tax was to be charged at a higher rate (17.5 per cent) on premiums of some descriptions and at a standard rate (4 per cent) on others. The taxpayers were subject to tax at the higher rate.
3. Another sector affected by the introduction of the higher rate was travel insurance. Certain undertakings in that sector challenged the legality of the arrangements under EC law, in particular on the ground that they distorted competition between competing providers of travel insurance, some of whom accounted for tax at the standard rate and some at the higher rate, and thereby gave rise to an unlawful state aid. The Court of Appeal upheld a decision of the Divisional Court that the differential rate did give rise to an unlawful state aid in that sector: see R v C & E Commrs, ex parte Lunn Poly UNKUNK[1998] STC 649 (DC); [1999] STC 350 (CA).
4. At about the same time as the dispute about the higher rate of IPT was raised in relation to the travel insurance sector, the taxpayers raised a similar claim that the higher rate was unlawful in relation to domestic appliance insurance. They too alleged, amongst other things, that the differential rate was an unlawful state aid.
5. The taxpayers brought proceedings in the High Court claiming declaratory relief, damages and the restitution of sums paid to the commissioners by way of IPT. Those proceedings are to be stayed by agreement between the parties pending the outcome of the tribunal proceedings that are the subject of the present appeals.
6. Those proceedings before the tribunal arose in this way. In 1998 the taxpayers claimed from the commissioners repayment, with interest, of amounts paid by way of higher rate IPT. The claim was made underFinance Act 1994 schedule 7 subsec-or-para 8para. 8(1) of Sch. 7 to the Finance Act 1994, whereby the commissioners are liable to repay amounts paid to them "by way of tax which was not tax due to them". The commissioners rejected the claim. That decision was maintained on a review under Finance Act 1994 section 59s. 59 of the 1994 Act, on the basis that:
(2) all the grounds of illegality invoked by the taxpayers save one (the state aid issue) had been dismissed by the Divisional Court in theLunn Poly case, and
(3) in relation to the state aid issue, if the differential rates of IPT resulted in an unlawful state aid, it would not follow that amounts paid by way of higher rate IPT would have been paid by way of tax that was not due to the commissioners.
7. Pursuant to Finance Act 1994 section 60s. 60 of the 1994 Act, an appeal lies to the tribunal against such a decision. The taxpayers duly appealed. In their appeal they claim that the higher rate IPT in relation to domestic appliance insurance is...
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