Customs and Excise Commissioners v London Diocesan Fund; Customs and Excise Commissioners v Elliott and another; Customs and Excise Commissioners v Penwith Property Company Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 24 March 1993 |
| Date | 24 March 1993 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
McCullough J.
Stephen Richards (instructed by the Solicitor for Customs and Excise) for the Crown.
David Milne QC and Andrew Hitchmough (instructed by Coopers & Lybrand Deloitte) for the London Diocesan Fund.
Mark S Lomas (instructed by Reynolds Porter Chamberlain) for Penwith Property Co Ltd.
The taxpayers in the Elliott case did not appear and were not represented.
The following cases were referred to in the judgment:
Associated Provincial Picture Houses Ltd v Wednesbury CorporationELR[1948] 1 KB 223
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
C & E Commrs v Ali Baba Tex Ltd VAT[1992] BVC 93
C & E Commrs v Great Shelford Free Church (Baptist) VAT(1987) 3 BVC 48
C & E Commrs v McLean Homes (Midland) Ltd VAT[1993] BVC 99
C & E Commrs v Perry VAT(1983) 1 BVC 541
C & E Commrs v Viva Gas Appliances Ltd VATVATVAT(1982) 1 BVC 504; (1983) 1 BVC 531; (1983) 1 BVC 588 (HL)
Cozens v Brutus ELR[1973] AC 854
Gray (Charles) (Builders) Ltd v C & E Commrs VAT(1990) 5 BVC 120
Morton (CAR/77/137) No. 438
Parish Council of St Luke v C & E Commrs VAT(1982) 1 BVC 521
St Andrews Building Co Ltd VAT(EDN/86/12) No. 2127; (1986) 2 BVC 208,104
Wimpey Group Services Ltd v C & E Commrs VAT(1988) 3 BVC 340
Value added tax - Zero-rating - Construction of building for relevant charitable purpose - Church almost totally demolished except for tower left standing - New church built - Whether excluded from zero-rating as alteration or enlargement of building - schedule 5 group 8Value Added Tax Act 1983, Sch. 5, Grp. 8, item 2, Note (9).Value added tax - Zero-rating - Construction of dwelling - Ruined cottage made into larger dwelling house - Whether excluded from zero-rating as reconstruction of building - schedule 5 group 8Value Added Tax Act 1983, Sch. 5, Grp. 8, item 2, Note (1A)(replaced by Note (9), Finance Act 1989 schedule 3Finance Act 1989, Sch. 3).Value added tax - Zero-rating - New accommodation built to be used as addition to nursing home - Internal access between new and existing buildings - Whether excluded from zero-rating as enlargement of building or extension with access to existing building - schedule 5 group 8Value Added Tax Act 1983, Sch. 5, Grp. 8, item 2, Note (1A)(replaced by Note (9), Finance Act 1989 schedule 3Finance Act 1989, Sch. 3).
These were three appeals by Customs from different VAT tribunals all to the effect that the exceptions from zero-rating contained in schedule 5 group 8Note (9) to Grp. 8 of Sch. 5 to the Value Added Tax Act 1983 (construction of dwellings etc.) did not apply in each case.
The Church of St Paul's, Brentford was built about 1867 with a tower and spire, nave and two aisles, south porch, clerestory and chancel. In 1987 planning permission was obtained to build a new church but the planning authority insisted on the retention of the tower which was left standing physically separated from the new church. The works were treated as three separate projects carried out under three separate contracts. The contracts were (1) to block off and repair the tower, (2) to construct a new church and (3) to construct a new meeting hall and other facilities. The architect incorporated in the new church some features of the old one including the east window, seven columns from the nave, three walls of the chancel and the south porch. None of those items was retained except with severe "editing or modification" and amounted to no more than ten per cent of the new structure. In particular, the columns were only decorative and did not fulfil their original function of supporting the roof.
The London Diocesan Fund ("the taxpayer"), in whom the site was vested, appealed against the commissioners' decision that, apart from the work involving the tower, which was agreed to be zero-rated, the project was standard-rated, being the "alteration or enlargement of an existing building" within schedule 5grpNote (9) to Grp. 8 of Sch. 5 to the Value Added Tax Act 1983.
The taxpayer maintained that the work constituted the construction of a new building for a relevant charitable purpose and was therefore zero-rated by virtue of schedule 5 group 8Sch. 5, Grp. 8, item 2 and was not within the exception in schedule 5 group 8Note (9).
The VAT tribunal (see [1991] BVC 745) allowed the appeal in relation to the new church excluding the tower which it regarded as a separate project of alteration which was standard-rated. After expressing some doubts about the retention of the chancel walls, the tribunal held that the surviving ten per cent of the old church did not mean that the work consisted of alteration or enlargement of an existing building.
The tribunal stated that a three-stage test was of assistance. The three stages were: to establish that there was an existing building; whether there was still an existing building after any projected demolition was completed; and whether the completed building was to be described as the conversion, reconstruction, alteration or enlargement of the existing building.
The commissioners appealed to the High Court contending that in the original legislation, the meaning of the word "alteration" included all works to the fabric of a building which fell short of complete erection or complete demolition and the word "construction" meant the erection of a building as a whole. Those definitions had not changed as a result of amendments introduced in 1984 when alterations were removed from zero-rating. The commissioners submitted that the tribunal was wrong to apply the three-stage test, and in any event, the tribunal's conclusion was unreasonable and should be quashed: it was self-evident that the work done to the church was a substantial alteration or enlargement.
In 1987 the taxpayer purchased a derelict cottage which then comprised four walls which were damaged and unsafe, a chimney and some roof timbers but no roof. Part of that structure was retained and incorporated into a new house twice the size of the old building. On completion of the work the property was sold and input tax claimed on supplies received which was disallowed by the commissioners on the grounds that the work was the reconstruction of an existing building.
The VAT tribunal, applying the three-stage test, allowed the taxpayer's appeal holding that by reasonable standards there was no existing building after the demolition work was done and a new house was constructed. The word "reconstruction" imported an element of replication and the new building lacked any resemblance to the ruined cottage (see [1992] BVC 560).
The commissioners appealed against the tribunal's decision on the grounds that the decision was one which no reasonable tribunal could have come to. Not only had the tribunal wrongly applied the three-stage test, but had failed to have proper regard to the extent of the replication of the existing building.
The taxpayers obtained planning permission to build new accommodation to be used in conjunction with their existing nursing home and, in 1988 and 1989 the new building was constructed with internal access between the existing building and the new structure.
The taxpayers appealed to the VAT tribunal against the commissioners' decision that the new structure not was an "enlargement" of the existing building within schedule 5 group 8Sch. 5, Grp. 8, Note (9)(a) or an extension with internal access to the existing building within schedule 5 group 8Note (9)(b). The tribunal held that, in spite of the access, the new building was a separate building (see [1991] BVC 910).
On appeal to the High Court the commissioners contended that in view of the additional para. (b) inserted in schedule 5 group 8Note (1A) in 1987, which provided that schedule 5 group 8item 2 of Grp. 8 should not apply where there was internal access to an extension or where planning permission or other restrictions were imposed on the use of the extension, the work on the new building was standard-rated.
Held, dismissing the commissioners' appeal in relation to the church and the cottage but allowing their appeal in relation to the nursing home:
St Paul's Church
The tribunal properly asked the single question whether the work done amounted to the alteration or enlargement of an existing building in the sense in which those words were commonly used, or whether the end result was a new building. The tribunal had said only that a three-stage test was "helpful": they had not based their decision on that test. That was a question of fact. "Alteration" and "enlargement" were both straightforward words in common use so it was only open to the court to overturn the tribunal's decision if no reasonable tribunal could have concluded on the evidence that the work was not that of alteration or enlargement of the old church. (Cozens v BrutusELR[1973] AC 854 at p. 861 per Lord Reid and C & E Commrs v Viva Gas Appliances Ltd TAX[1983] BTC 5064 at p. 5068 per Lord Diplock applied. Decision in C & E Commrs v Viva Gas Appliances Ltd distinguished. St Andrews Building Co Ltd (EDN/86/12) unreported).
Penwith Property Co Ltd
The tribunal's approach in applying the three-stage test was wrong. However, the tribunal was entitled to conclude that the building was not a reconstruction of the cottage since the structure outside the central core and the internal arrangements were completely different.
Elliott
In the circumstances there was only one conclusion which was reasonably open to the tribunal in view of the fact that there was internal access between the new and the old buildings. The new building fell within schedule 5 group 8Note (9)(b) and was standard-rated.
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