Direct Cosmetics Ltd v Commissioners of Customs and Excise
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 November 1983 |
| Date | 09 November 1983 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
Hearing subsequent to No. 1438 for both parties to make further submissions concerning the questions to be put to the European Court of Justice.
VAT Tribunal
Supply - Value - Direction by Commissioners under schedule 3 subsec-or-para 3Finance Act 1972, Sch. 3, para. 3(now schedule 4 subsec-or-para 3VATA 1983, Sch. 4, para. 3) that tax was to be charged on the "open market value on the sale by retail" - Whether direction valid - Whether Commissioners had complied with art. 11 of the EC Sixth Directive - schedule 3 subsec-or-para 3 section 14 subsec-or-para (1)Finance Act 1972, Sch. 3, para. 3,4 - Finance Act 1981, sec. 14(1)(now schedule 4 subsec-or-para 3VATA 1983, Sch. 4, para. 3), schedule 4 subsec-or-para 3Sch. 4, para. 3)- EC Sixth Directive, art. 11, art. 27.
The appellant purchased goods which could not be sold through the normal retail channels and sold them direct to women working in hospitals, offices and factories at prices which were below the recommended retail price. An agent was appointed within each group of women and agents were offered a discount of 20%. Until 1982 the appellant accounted for VAT on the price which was actually received from the agent but, following a visit from Customs, the appellant changed its system and included the 20% discount in accounting for the tax. In December 1982 the Commissioners made a written direction to the effect that the appellant was to charge tax on the "open market value on a sale by retail". The appellant appealed against this direction on three grounds. First, it contended that the direction was invalid having regard to the provisions of art. 11 of the Sixth EC Directive. Secondly, the direction had no application because the supplies made by the appellant were to non-taxable persons and were not made to be sold by retail. Thirdly, the direction had no practical effect because the cash consideration received by the appellant was the open market value of the goods and the discount of 20% offered to agents was a prompt payment discount and not a trade discount.
The Commissioners had not notified the European Commission of the changes to schedule 3 subsec-or-para 3Sch. 3 para. 3,of the Finance Act 1972 made by the Finance Act 1981. They contended that the changes made were intended to make the statutory provisions less ambiguous and easier to administer and did not amount to the introduction of new measures and so did not have to be approved by the European Commission. The Commissioners also contended that the supplies were made to non-taxable persons to be sold by them by retail and that schedule 3 subsec-or-para 3Sch. 3, para. 3 overruled schedule 3 subsec-or-para 3para. 4 of the prompt payment discount paragraph of the same schedule.
Held, giving both parties the opportunity of making further submissions:
1. Where goods are supplied to an agent and are sold on by retail to her customers, the open market value of such goods in the particular circumstances of this case should be taken as the cash consideration at the appellant's full list price but without the deduction of any discount.
2. Although the discount was referred to as a discount for prompt payment its real nature was a commission or trading discount and although the discount was forfeited if prompt payment was not made this did not make it a discount for prompt payment within schedule 3Sch. 3.
3. The provision of the Finance Act 1981 materially altered the law and it was doubtful whether the alteration fell within the explanation of making the provisions less ambiguous and easier to administer.
4. There was at least a material doubt whether the direction was not an unauthorised derogation of art. 11 of the EC Sixth Directive and the Tribunal reached the conclusion that it was unable to resolve this doubt without referring to the European Court of Justice.
5. The Tribunal was reluctant to make such a remittal without giving both parties the opportunity of making further submissions and granted liberty to both parties to apply within six weeks for it to make further submissions.
[The Tribunal set out the facts summarised above and continued as follows.]
Subject to the validity of the Direction with which we deal in Section B of this Decision, we reach the following conclusions on the basis that we assume without deciding that the Direction dated 7 December 1982 is valid.
In the first place we hold...
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