Cooper & Chapman (Builders) Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 27 November 1992 |
| Date | 27 November 1992 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Brooke J.
Joe Smouha (instructed by H H Mainprice) for the taxpayer.
Charles Flint (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgment:
EC Commission v France VAT(Case 50/87) [1988] ECR 4797; (1990) 5 BVC 205
EC Commission v Germany (Case 29/84) [1985] ECR 1661
Lenihan v C & E Commrs VAT[1992] BVC 73
Pittalis & Anor v Grant & Anor ELR[1989] QB 605
Rompelman & Anor v Minister van Financiën VAT(Case 268/83) [1985] ECR 655(1985) 2 BVC 200,157
Sheppard and Sheppard VAT(1977) VATTR 272(1977) 1 BVC 1063
Verbond van Nederlandse Ondernemingen v Inspecteur der Invoerrechten en Accijnzen (Case 51/76) [1977] ECR 113
Value added tax - Input tax - First supply - House converted into ten flats - Flats intended for and advertised as holiday accommodation - Some but not all flats first let for holidays - Exempt lease of whole building granted to a company - Whether proportion of input tax credited in relation to conversion costs recoverable by Customs - schedule 6 group 1Value Added Tax Act 1983, Sch. 6, Grp. 1, item 1, Note (10); SI 1985/886Value Added Tax (General) Regulations 1985 (SI 1985/886), regs. 30, 34; Sixth VAT Directive 77/388 of 17 May 1977 (OJ 1977 L145/1), eu-directive 77/388 article 17(2)art. 17(2)(a).
This was an appeal by the taxpayer against a decision of the VAT tribunal ([1991] BVC 520) that the Customs were entitled to recover input tax provisionally allowed in respect of flats intended to be and advertised as holiday accommodation but in the event let on an exempt lease.
The taxpayer company was the representative member of a group of companies, one of whose members converted a house into ten flats. The work was completed at the end of 1988. While the work was in progress it was the group's intention that the completed flats should be let as holiday accommodation. The Tourist Board was informed that the flats were available and letting agents were engaged.
Up to 28 February 1989 four of the flats were let as holiday accommodation. After that, however, all the flats were empty and an offer was accepted from a company to enter into a lease of the whole building as accommodation for their employees. A lease for one year was granted on 23 February 1989.
Because the intended provision of holiday accommodation was a taxable supply, input tax had been deducted from the payments for goods and services needed for the conversion work but an assessment was made to recover the input tax credited which was attributable to the flats which had never been let as holiday accommodation.
The VAT tribunal held that the Customs were entitled to claw back input tax credited on a provisional basis if an original intention to make a taxable supply was not fulfilled and that the supply of each flat might be treated as an individual supply so that the fact that a few flats had been supplied as holiday accommodation did not disentitle the Customs from treating the supply of the remaining flats to the company as exempt supplies made before any intended taxable supplies were made within the meaning of the SI 1985/886 section 34 subsec-or-para (1)Value Added Tax (General) Regulations 1985, reg. 34(1)(b).
Two questions were before the High Court: whether, because all the flats were originally advertised as holiday accommodation, the effect of the schedule 6 group 1Value Added Tax Act 1983, Grp. 1, item 1, Note (10) of Sch. 6 (in its form at the material time) was that there was a taxable supply of all the flats even though only four of them were in fact let and used as holiday accommodation; and whetherSI 1985/886 section 34reg. 34 of the 1985 regulations, as amended, whose provisions had enabled the commissioners to succeed before the tribunal, was ultra vires because it had not been enacted in accordance with what were said to be the mandatory provisions of the sixth VAT directive.
The taxpayer submitted that the effect of the legislation was that once the flats had been advertised or held out as holiday accommodation, they then qualified as taxable supplies when let, notwithstanding that the first occasion on which six of them were let was under a lease which had nothing to do with holiday accommodation.
The taxpayer's second point was that the regulations provided for an adjustment in the deduction of input tax which was less favourable than that provided for by the sixth directive, and to the extent that it did so could not be enforced against the taxpayer. eu-directive 77/388 article 17(2)Article 17(2)(a) of the sixth directive contained an absolute right to deduct VAT and that right could not be taken away by national legislation going beyond what was permitted by the directive.
On the EC directive, the Customs contended that proviso (c) toeu-directive 77/388 article 17(5)art. 17(5) gave a member state permission to authorise or compel a taxable person to make the deduction on the basis of the use of all or part of any goods or services, rather than on the basis of a proportion of turnover, and the UK had taken advantage of that permission when the scheme in SI 1985/886 section 30 section 34regs. 30 and 34 was introduced. Traders were permitted to make provisional deductions pending the time when actual use was known but no right to deduct arose until the goods or services in question were in fact used in a taxable supply.
Held, dismissing the taxpayer's appeal:
1. schedule 6 group 1Note (10) to item 1 was included so that a letting would not escape VAT simply because the Customs were unable to prove that holiday accommodation advertised as such was in fact used as holiday accommodation. However, the supply of holiday accommodation became taxable on the provision of the accommodation, not on the publication of the advertisement. If, as here, there was no causative nexus between the publication of the advertisement and the letting of the whole building for some quite different purpose then there was no provision of holiday accommodation and no taxable supply.
Accordingly, there was no error of law in the tribunal's decision so far as English law was concerned. When the original intention to let some of the flats as holiday accommodation was changed, the taxpayer was obliged under SI 1985/886 section 34 subsec-or-para (2)reg. 34(2) to carry out the same exercise of apportionment as he would have had to do if the original intention had been to let the flats for a non-holiday purpose.
2. The derogation permitted by eu-directive 77/388 article 17(5)art. 17(5)(c) covered not only a conventional once and for all deduction where there was no time-lag between intended use and actual use but also a scheme of provisional deduction followed by adjusted deduction. Thus SI 1985/886 section 30 section 34regs. 30 and 34 fell within the permitted derogation and did not offend the principles prescribed by the directive.
The taxpayer appealed against a decision of the VAT tribunal (chairman His Honour Judge Medd QC). The grounds of the appeal were:
1. That the tribunal had erred in law in holding that the supplies made to the taxpayer were not wholly referable to subsequent taxable supplies; and
2. That the tribunal erred in law in holding that the provisions ofSI 1985/886 section 34 subsec-or-para (1)reg. 34(1) of the Value Added Tax (General) Regulations 1985 were intra vires the provisions of the sixth VAT directive.
Brooke J: This is an appeal pursuant to section 13sec. 13 of the Tribunals and Inquiries Act 1971 against a decision of Judge Medd QC, sitting as a Chairman of a VAT tribunal at the London Tribunal Centre on 9 January 1991, when he gave directions concerning the apportionment of input tax for which the taxpayers had been credited on a provisional basis and adjourned the hearing to enable the parties to agree the apportionment. The taxpayers were dissatisfied with his direction because they considered the commissioners had no right to reclaim any of these credits. Hence their appeal to this court. A curiosity of the appeal is that the tribunal made no ruling on either of the two points of law of which complaint is now made, although it was said by the taxpayers that they had raised the first of them, at any rate, before the tribunal. The commissioners did not formally object to either of these points being taken before me, no new evidence was needed for me to be able to deal with them, and in accordance with the principles set out in Pittalis v GrantELR[1989] QB 605 I was willing to hear argument on them. However, I share the lack of enthusiasm for this course of action which was expressed by Macpherson J in Lenihan v C & E CommrsVAT[1992] BVC 73 and if there had not already been such a long delay I would probably have remitted these new points back to the tribunal for its decision.
The dispute concerns a large Victorian dwelling-house known as Montford House in Queens Road, Richmond, Surrey. The taxpayers' company, which carries on business as general builders, is the representative member of a group of companies, another of which is called Grafton...
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