Commissioners of Customs and Excise v Marchday Holdings Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 11 December 1996 |
| Date | 11 December 1996 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Stuart-Smith, Aldous and Ward LJJ.
Nigel Pleming QC (instructed by the Solicitor for Customs and Excise) for the Crown.
Roderick Cordara and Perdita Cargill-Thompson (instructed by HH Mainprice) for Marchday.
The following cases were referred to in the judgment:
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 VAT[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 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, Sch. 8, Grp. 5, item 2, limited to dwellings etc.)
This was an appeal by Customs from the decision of Laws J ([1995] BVC 335), dismissing Customs' appeal from a decision of the VAT tribunal that building work carried out virtually dismantling an old factory in order to create an office block was not precluded from zero-rating.
The taxpayer acquired a lease of a property for which it obtained planning permission for change of use to an office block. Work commenced involving the demolition of virtually everything except reinforced concrete columns and beams, concrete floor slabs, party walls and foundations. The completed building was a modern office block. It was substantially different from the previous building in appearance and had an additional mansard storey.
The question was whether the supplies made in the course of carrying out the works to the property were zero-rated within the Value Added Tax Act 1983, Sch. 5, Grp. 8, item 2, or whether they were excepted from item 2 by Note (1A) to Grp. 8.
The tribunal asked whether the work was so extensive that the property was essentially a new building to see if the works fell within Note (1A), and held that the property was essentially new and therefore was not within the scope of Note (1A) and accordingly was zero-rated.
Laws J held that Note (1A) applied if the reasonable person, apprised of all the facts, would conclude that the building which existed before the works started still retained its identity on completion. 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 contended that the tribunal had been in error in applying a "before and after" test and that the sole question was whether there had been a conversion, reconstruction, alteration or enlargement of a building which had existed before any work had been done. The answer had to be yes unless the building had been demolished to ground level.
The taxpayer contended that the test of whether the property was essentially a new building was inherent in the statutory provisions, since if the result of the work was the creation of a new building, it was not to be categorised as a conversion, reconstruction, alteration or enlargement of an existing building.
Held, dismissing Customs' appeal by a majority:
Whether there had been conversion, alteration or enlargement of a building was a question of fact and degree. Approaching the question with common sense, at some point it had to be possible to say not only that the old building had ceased to exist so that a new building had come into existence, but also that the work being done could not sensibly be described as a conversion, reconstruction, alteration or enlargement of it. The tribunal was entitled to find that this constituted a new building.
Per Ward LJ, dissenting: The appropriate test to see whether Note (1A) applied was whether there was any building in existence at the beginning of the process, not whether the resulting building would be a new building.
Stuart-Smith LJ: This is an appeal from the decision of Laws J, [1995] BVC 335, brought with the leave of the judge, given on 5 July 1995 in which he dismissed Customs' statutory appeal against the decision of the London VAT Tribunal dated 18 March 1994. By that decision the tribunal allowed the company's appeal against a decision of Customs regarding the treatment for VAT purposes of a construction project carried out by the company at 44-52 Banner Street, London EC1.
The question at issue concerned the entitlement of the company to input tax credit which depends on whether the supply to which it is attributable, namely the supply of a major interest in (or any part of) the building, was zero-rated under item 1 of Grp. 8 of Sch. 5 to theValue Added Tax Act 1983. This turns on whether the company was "a person constructing a building" within item 1 or whether the case fell within the exclusion contained in Note (1A). Customs held that it fell within the exclusion and was therefore standard-rated; the tribunal held that it did not fall within the exclusion and was 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 purpose of this case is "Group 8 Construction of Buildings etc." The material provisions are as follows:
Item No.
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1. The granting by a person constructing a building of a major interest in, or in any part of, the building or its site.
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2. 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-
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(a) the conversion, reconstruction, alteration or enlargement of any existing building or civil engineering work; or
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(b) any extension or annexation to an existing building which provides for internal access to the existing building or of which the separate use, letting or disposal is prevented by the terms of any covenant, statutory planning consent or similar permission;
and the reference in item 1 to a person constructing a building shall be construed accordingly.
The critical question the tribunal had to answer was whether work carried out at 44-52 Banner Street, for and on behalf of the company amounted to "the conversion, reconstruction, alteration or enlargement of an existing building" within Note (1A).
The facts can be taken very largely from the tribunal's decision. There was undoubtedly an existing building before the company commenced any work. It was a light industrial building erected in 1955 on three storeys with a basement. It had lifts, and four...
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