Commissioners of Customs and Excise v McLean Homes Midland Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 16 February 1993 |
| Date | 16 February 1993 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Brooke J.
Stephen Richards (instructed by the Solicitor for Customs and Excise) for the Crown.
Andrew Park QC and Roderick Cordara (instructed by the divisional solicitor, John McLean & Sons Ltd) for the taxpayer.
The following cases were referred to in the judgment:
ACT Construction Ltd v C & E Commrs WLRVATWLRVAT[1981] 1 WLR 49, (1981) 1 BVC 356 (CA); [1981] 1 WLR 1542, (1981) 1 BVC 451 (HL)
Austin (F) (Leyton) Ltd v C & E Commrs ELR[1968] Ch 529
British Airways plc v C & E Commrs VAT(1990) 5 BVC 97
British Railways Board v C & E Commrs WLRVAT[1977] 1 WLR 588; (1977) 1 BVC 116
Buchler v Buchler ELR[1947] P 25
Cozens v Brutus ELR[1973] AC 854
C & E Commrs v Ali Baba Tex Ltd VAT[1992] BVC 93
Edwards (HMIT) v Bairstow & Anor ELR[1956] AC 14
Gray v Fidler [1943] KB 694
Harrington Construction Ltd VAT(EDN/88/110) No. 3470; (1989) 4 BVC 592
McCarthy & Stone plc (No. 2) VAT(LON/91/382) No. 7752; [1992] BVC 897
Palser v Grinling ELR[1948] AC 291
Ransom (HMIT) v Higgs WLR[1974] 1 WLR 1594
Value added tax - Disallowance of input tax - Built-in wardrobes incorporated in new houses - Whether "finished or prefabricated furniture" or whether components of wardrobes "materials for the construction of fitted furniture" - Whether recovery of input tax disallowed in respect of materials - SI 1981/1741 section 8 subsec-or-para (2) section 8 subsec-or-para (2)Value Added Tax (Special Provisions) Order 1981 (SI 1981/1741) art. 8(2)(a), (b) as amended.
This was an appeal by Customs from a decision of the VAT tribunal ((1990) 5 BVC 850) that built-in wardrobes in new houses, of which the bedroom walls, floors and ceilings formed the top, bottom and sides were not "fitted furniture" within the meaning of theSI 1981/1741 section 8 subsec-or-para (2)Value Added Tax (Special Provisions) Order 1981, art. 8(2)(a) or SI 1981/1741 section 8 subsec-or-para (2)(b) (as amended).
The taxpayer's business was building houses for sale. There were various standard designs of different sizes. Each house was designed to contain one or more built-in wardrobe. The architraves and frames on which the wardrobe doors were to be hung were fitted to the walls and the doors were either panel doors as used in the rest of the house or mirror doors hung from a horizontal beam and mounted on small wheels which ran in a track attached to the floor. Where necessary the width of the wardrobe was made up by panels of the same plasterboard used for the interior partitions of the house. All the wardrobes were fitted with a shelf with a hanging rail attached to its under-side.
The taxpayer deducted input tax paid on the materials used in constructing the wardrobes including timber, architraves, plasterboard, doors with handles and catches, tracks, shelves and hanging rails.
Customs made assessments, covering periods between 1983 and 1989, to recover the deductions made in respect of all the materials. On appeal against those assessments the VAT tribunal held in favour of the taxpayer that the wardrobes were not "finished or prefabricated furniture" within the SI 1981/1741 section 8 subsec-or-para (2)Value Added Tax (Special Provisions) Order 1981, art. 8(2)(a), nor were the components of the wardrobes "materials for the construction of fitted furniture" within SI 1981/1741 section 8 subsec-or-para (2)para. (b).
Customs contended that the materials used were within SI 1981/1741 section 8 subsec-or-para (2)para. (b). The natural inference from the primary facts was that when the wardrobes were finished they were fitted furniture and the tribunal had applied the wrong test. Applying the correct functional test, they fulfilled the same purpose as any other kind of wardrobe. The tribunal erred in law since any inference from the primary facts was a question of law. Once the primary facts were found, therefore, the interpretation of the word "furniture" was a question of law to be determined by the court.
The taxpayer contended that the meaning of "fitted furniture" was a question of fact for the tribunal and the tribunal had applied the right test. They had in mind the finished wardrobes and found that they could not be regarded as furniture. These wardrobes were not units of furniture which could be taken away and installed somewhere else. They were to be compared to under-stair cupboards or airing cupboards which were part of the building and accepted by Customs as not being furniture.
Held, dismissing the Crown's appeal:
The tribunal had considered the right question and had looked at the finished product and found that the wardrobes were not "furniture" which was an ordinary English word to be given its popular meaning. That was a question of fact. The meaning of "fitted furniture" was therefore a matter for the tribunal of fact to determine and it could not be said that the VAT tribunal had reached an unreasonable conclusion in finding that the wardrobes were not "fitted furniture". (Cozens v Brutus ELR[1973] AC 854 at p. 861 per Lord Reid, Ransom (HMIT) v Higgs WLR[1974] 1 WLR 1594 at p. 1618 per Lord Simon of Glaisdale and ACT Construction Ltd v C & E Commrs VAT(1981) 1 BVC 451 per Lord Roskill at pp. 454-455 applied).
By a notice of motion dated 28 September 1990 the Commissioners of Customs and Excise appealed against a decision of the VAT tribunal (chairman His Honour Judge Medd QC). The grounds of the appeal were that the tribunal erred in law in holding that the taxpayer was entitled to deduct input tax on wardrobes incorporated into dwellings, and failing to hold that the materials used in constructing the wardrobes were "finished or prefabricated furniture" or "materials for the construction of fitted furniture".
Brooke J: There is before the court an appeal by the Commissioners of Customs and Excise from a decision of a VAT tribunal sitting in Birmingham, which was released on 6 September 1990, when the tribunal allowed an appeal by the taxpayer against the assessments raised by the commissioners. The commissioners now apply, by way of appeal, for the decision to be reversed on the ground that the tribunal erred in law in holding that the taxpayer was entitled to deduct input tax on wardrobes incorporated into dwellings and in failing to hold that the goods were either finished or prefabricated furniture, or materials for the construction of fitted furniture. It is a matter of regret in a case involving a point of law in this court - in which I understand that the sum of £1m is in issue in relation to the group of which the taxpayer forms part, and £20m in all - that the appeal has taken nearly two and a half years to come to this court.
The assessments in question were made, first, in the sum of just over £20,500 in July 1989 in respect of a period between July 1983 and December 1988, and, secondly, a larger assessment in the sum of £122,104.40 in relation to the month of May 1989. This is a test case. I am told there are other appeals within the group and other disputes turn on the decision of the court in this case.
The assessments were made to recover sums for which the commissioners had given credit to the taxpayer after it had claimed to be entitled to deduct those sums as input tax from the amount of output tax payable by it in its returns over the relevant periods. The dispute in each case was whether, as a matter of law, the taxpayer was entitled to deduct the sums in question.
The taxpayer is a building company engaged in the business of building dwelling houses for sale. At the material time it was building 750 such houses a year. It was part of the Tarmac Group whose building division was building 12,000 houses a year. The houses in question were either three or four bedroomed detached houses or two bedroomed semi-detached houses. There were a number of different standard designs, all of which were put before the tribunal: eight such standard designs of four bedroomed houses, five of three bedroomed...
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