Commissioners of Customs and Excise v Marchday Holdings Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 05 July 1995 |
| Date | 05 July 1995 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Laws J.
Nigel Pleming QC (instructed by the Solicitor for Customs and Excise) for the Crown.
Roderick Cordara QC and Perdita Cargill-Thompson (instructed by HH Mainprice) for the taxpayer.
The following cases were referred to in the judgment:
Associated Provincial Picture Houses Ltd v Wednesbury CorpELR[1948] 1 KB 223
C & E Commrs v Great Shelford Free Church (Baptist) VAT(1987) 3 BVC 48
C & E Commrs v Lewis VAT[1994] BVC 201
C & E Commrs v London Diocesan Fund; C & E Commrs v Penwith Property Co Ltd; C & E Commrs v Elliott & AnorVAT[1993] BVC 123
C & E Commrs v Viva Gas Appliances Ltd VAT(1983) 1 BVC 588
St Andrews Building Co Ltd VAT(EDN/86/12) No. 2127; (1986) 2 BVC 208,104
Swan Developments (Land Co) Ltd VAT(LON/91/219) No. 7394; [1992] BVC 853
Wimpey Group Services Ltd v C & E Commrs VAT(1988) 3 BVC 340
Value added tax - Construction of building - Office block constructed using concrete frame of an old factory - Whether "conversion, reconstruction, alteration or enlargement of an existing building" - Value Added Tax Act 1983, Sch. 5, Grp. 8, item 2, Note (1A) (Note (9) from 31 March 1989) (replaced by Value Added Tax Act 1994 schedule 8 group 5Value Added Tax Act 1994, Sch. 8, Grp. 5, item 2, limited to dwellings, etc.).
This was an appeal by customs against a decision of the VAT tribunal ((LON/89/1666) No. 11, 990; [1995] BVC 786) that the cost of building work on a factory which was virtually dismantled in order to create an office block was not precluded from zero-rating by Note (1A) to the Value Added Tax Act 1983, Sch. 5, Grp. 8, item 2.
Between January 1986 and March 1987 a company ("Marchday") carried out building work on a site on which stood a light industrial building consisting of three floors and a basement. The work involved the demolition of virtually everything except reinforced concrete columns and beams, concrete floor slabs, party walls and foundations. The completed building, which was substantially different in appearance after the work was completed, consisted of a modern office block with an additional storey.
The question was whether the supplies made in the course of carrying out the project fell within the Value Added Tax Act 1983, Sch. 5, Grp. 8, item 2 ("item 2") in which case they would be zero-rated, or were excepted from item 2 by Note (1A) to the group ("Note (1A)") in which case they would be standard-rated.
The tribunal applied a test that, if what otherwise might be described as conversion, reconstruction, alteration or enlargement was so extensive that the building was essentially a new building, then Note (1A) did not apply and went on to allow the appeal, holding that a new building had been created.
Customs contended that there were three questions to consider: whether there was an existing building; whether the taxpayer carried out works on that existing building; and whether those works could be described as conversion, reconstruction, alteration or enlargement. But, they said, the tribunal had added a fourth question: was a new building brought into existence? Posing that question, they argued, would constitute an unwarranted gloss on the statute. Alternatively, Customs submitted that even if the tribunal had applied the right test, their decision was such that no reasonable tribunal could have held that a new building was created.
The taxpayer contended that the "new building test" was inherent in the statutory provisions, since if the result of the work was the creation of a new building, it could not be categorised as a conversion, reconstruction, alteration or enlargement of an existing building.
Held, dismissing Customs' appeal:
1. There was a single test to be applied: whether, as a question of fact, there was conversion, reconstruction, alteration or enlargement of an existing building, and great weight was to be given to the words "existing building". Therefore, looking at the building before the work was started and when the work was completed, it had to be asked whether the existing building remained or whether there was a new building: C & E Commrs v London Diocesan FundVAT[1993] BVC 123 followed.
2. Applying that test, the tribunal's decision that the pre-existing building had ceased to exist could not be faulted either as a result of their approach to the construction of Note (1A) or as being unreasonable.
Customs appealed against a decision of the London VAT tribunal dated 18 March 1994 (chairman Mr Theodore Wallace) that works carried out by the taxpayer at 44/52 Banner Street, London EC1 were zero-rated for VAT purposes.
Laws J: This is a statutory appeal by Customs against the decision of the London VAT tribunal dated 18 March 1994, when the tribunal allowed the taxpayer's appeal against a decision of Customs regarding the treatment for VAT purposes of a construction project carried out by the respondents at 44/52 Banner Street, London EC1. Customs had held that the supplies in the course of the project were standard-rated for VAT purposes; the tribunal held that they were zero-rated.
Where a supply is zero-rated within s. 16 of the Value Added Tax Act 1983 the consequences (by s. 16(1)) are that no tax shall be charged on the supply but in all other respects it shall be treated as a taxable supply. The result is that the taxpayer will be entitled to credit in respect of input tax upon supplies made to him in connection with the zero-rated supplies made by him.
Section 16(2) provides:
A supply of goods or services is zero-rated by virtue of this subsection if the goods or services are of a description for the time being specified in Schedule 5 to this Act or the supply is of a description for the time being so specified.
The relevant part of Sch. 5 for the purposes of this case is "Group 8 - Construction of Buildings etc.". The material provisions of Grp. 8 are as follows:
Item No.
(2) The granting by a person constructing a building of a major interest in, or in any part of, the building or its site.
(3) The supply in the course of the construction or demolition of any building or any civil engineering work of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity …
Notes:
(1A) Any reference in item 2 or the following Notes to the construction of any building or the construction of any … civil engineering work does not include a reference to-
(a) the conversion, reconstruction, alteration or enlargement of any existing building or civil engineering work …
The question in this case was whether the supplies made in the course of a project fell within item 2, in which case they would be zero-rated, or were excepted from it by Note (1A), in which case they would be standard-rated. More specifically, the tribunal had to decide whether the works carried out by or on behalf of the taxpayers at 44/52 Banner Street amounted to "the conversion, reconstruction, alteration or enlargement of any existing building" within Note (1A) of Grp. 8. Customs contend that the tribunal applied an erroneous legal test for the determination of this question. The tribunal said:
If what might otherwise be described as conversion, reconstruction, alteration or enlargement is so extensive that the building is essentially a new building, then Note (1A) does not apply.
The tribunal concluded:
Having seen the plans, photographs, specifications and correspondence, visited the site and considered the evidence of the witnesses, it is our unanimous impression, viewed from our differing professional experience, that considered as a totality the work is so extensive that the building was essentially new. In our opinion to describe the work as the conversion, reconstruction, alteration or enlargement of an existing building is unrealistic.
Mr Pleming QC for Customs contends that where an issue arises, on facts such as the present, whether particular works fall within item 2 or are excepted from it under Note (1A), its correct resolution does not involve any consideration of the question whether the overall result is the existence of a new building or not. He says that to treat such a question as relevant, let alone decisive, is to travel beyond the statutory language which includes no reference to the concept of a "new building". He submits that having regard to the words of the Act there are three, and only three, questions which the tribunal is to consider:
(2) Was there an existing building at the site in question?
(3) Did the taxpayer carry out works on that existing building?
(4) Can the works fairly and reasonably be described as conversion, reconstruction, alteration or enlargement?
Mr Pleming says that the tribunal have added a fourth question:
In the course of the work was a new building brought into existence?
The posing of this question constitutes or invites an unwarranted gloss upon the statute.
It is alternatively submitted for Customs that even if the tribunal got the legal test right, the result on the facts at which they arrived is vulnerable in this court as transgressing the Wednesburyprinciple (Associated Provincial Picture Houses v Wednesbury Corporation [1948] 1 KB 223): no reasonable tribunal, so it is said, could have held that this was a case in which a new building was created.
For the taxpayers the...
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