Dormers Builders (London) Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 12 April 1988 |
| Date | 12 April 1988 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Mr. Roderick Cordara (instructed by Mr. H.H. Mainprice) for the company.
Mr. Guy Sankey (instructed by the Solicitor for Customs and Excise) for the Crown.
Before: McNeill J.
The following cases were referred to in the judgment:
Buckle v. Holmes ELR[1926] 2 K.B. 125
C. & E. Commrs. v. Faith Construction Ltd. VAT(1987) 3 BVC 133
C. & E. Commrs. v. West Yorkshire Independent Hospital (Contract Services) Ltd. VAT(1988) 3 BVC 253
Furniss (H.M.I.T.) v. Dawson & Ors. ELRTAX[1984] A.C. 474; [1984] BTC 71
Garforth (H.M.I.T.) v. Newsmith Stainless Ltd. TAX(1978) 52 T.C. 522
I.R. Commrs. v. Burmah Oil Co. Ltd. TAXTAX(1981) 54 T.C. 200; [1982] BTC 56
Jones v. Biernstein ELR[1900] 1 Q.B. 100
Ramsay (W.T.) Ltd. v. I.R. Commrs. ELR[1982] A.C. 300
Tenax Steamship Co. Ltd. v. The Brimnes (Owners) ELR[1975] Q.B. 929
Value added tax - Alteration or enlargement of existing building - Zero-rating withdrawn from 1 June 1984 - Zero-rating available for work done after that date if paid for in advance - Cost of alteration work paid into deposit account of builder before 1 June 1984, to be transferred to current account only on issue of architects' certificates - Whether work paid for before 1 June 1984 - Value Added Tax Act 1983 section 5 subsec-or-para (1) schedule 5 group 8Value Added Tax Act 1983, sec. 5(1), Sch. 5, Grp. 8, item 2, Note (1A).Value added tax appeals - Leave to appeal to Court of Appeal - Whether leave was necessary - Whether conditions as to repayment of tax might be imposed - section 13 subsec-or-para (4)Tribunals and Inquiries Act 1971. sec. 13(4).
This was an appeal by the taxpayer ("Dormers") from the decision of aVAT Tribunal (VAT(1987) 3 BVC 565) that VAT at the standard rate was payable on the cost of alterations to a building.
The managing director of Dormers was interested in acquiring a property in Bayswater for conversion into luxury flats. The project was too big for Dormers to handle alone so Dormers agreed to a joint venture with another company ("Harringtons"). A company ("Wharf"), in which Dormers and Harringtons were equal shareholders, was set up to carry out the joint venture.
The property was purchased by Wharf on 28 February 1984, financed partly by the two shareholders and partly by loans. Wharf as owner was to employ Dormers to do the conversion work.
Until 31 May 1984 alteration work on a building was zero-rated for VAT purposes under the Value Added Tax Act 1983, Value Added Tax Act 1983 schedule 5 group 8Sch. 5, Grp. 8, item 2 but after that date building alterations were standard-rated. The change was announced in March and a Customs and Excise notice advised that work done after 1 June would qualify for zero-rating if it was paid for before that date; the date of payment being treated as the tax point.
Accordingly it was arranged with a bank that Wharf should borrow £600,000, secured on the property and guaranteed by the participants, to pay for the work in advance. At the end of May 1984 Dormers entered into an agreement under seal with the bank ("the subordination agreement") in which Dormers was described as depositor. Under the agreement the bank deposited £600,000 in the name of Dormers to be drawn down and paid into Dormers' current account on the issue of architects' certificates as the work progressed. Interest on the balance was credited to Dormers.
The Commissioners of Customs and Excise took the view that the deposit of £600,000 did not amount to payment for Dormers' services and assessed VAT for the period 1 March 1984 to 28 February 1985 on payments credited to Dormers' current account from the deposit account pursuant to architects' certificates.
The question for the Tribunal was whether the amount of £600,000 advanced by the bank in May 1984 was payment received by Dormers withinValue Added Tax Act 1983 section 5 subsec-or-para (1)sec. 5(1) of the 1983 Act.
The Tribunal dismissed the appeal, holding that because Dormers was prevented from transferring the money from the deposit account to its current account until architects' certificates were issued, Dormers did not control the money and payment was not made until it was paid into its current account. Dormers appealed.
Held, allowing Dormers' appeal:
1. The deposit of £600,000 was not a payment to Wharf or to the bank itself; it was credited to Dormers. To hold otherwise would be inconsistent with the subordination deed describing Dormers as depositor. The purpose of the loan was to put Wharf in funds to pay Dormers and should not be construed to frustrate that purpose.
2. Control and payment were two different concepts in law: once there was a payment in contract law, payment took place and once the payee became the owner of the money, payment was received notwithstanding that the payee did not have unfettered control of the money. (C. & E. Commrs. v. West Yorkshire Independent Hospital (Contract Services) Ltd. VAT(1988) 3 BVC 253, followed.)
3. The deposit of £600,000 in Dormers' name was payment received by Dormers discharging Wharf from its obligations. Payment was made before 1 June 1984 and the alteration work was therefore zero-rated.
After the judgment the Commissioners sought leave to appeal to the Court of Appeal if leave was necessary.
Dormers argued that leave was necessary and made an application seeking a ruling that if leave were given, it should be subject to a condition that the amount of disputed tax held by the Commissioners should be repaid pending the appeal.
The requirement that tax should be paid before an appeal was entertained by a VAT Tribunal and had been waived under the Value Added Tax Act 1983, Value Added Tax Act 1983 section 40 subsec-or-para (3)sec. 40(3) because the Commissioners accepted that Dormers would suffer hardship. Dormers' appeal having failed before the Tribunal, the Commissioners had obtained payment of the tax by inhibition of subsequent credit due for input tax.
Dormers submitted that the admitted power to impose conditions as to costs on appeal was merely an example of a general discretion to grant conditional leave, and repayment would do no more than restore to Dormers that which had been held rightfully to belong to it.
Held, granting leave to the Crown to appeal and refusing Dormers' application for repayment of tax:
1. Leave to appeal to the Court of Appeal was necessary by virtue of the Tribunals and Inquiries Act 1971, section 13 subsec-or-para (4)sec. 13(4).
2. The court had no general discretion to grant leave to appeal subject to conditions. The Rules of the Supreme Court at 59/14/7 stated that leave might be given subject to a condition as to costs but that was the only condition that might be imposed.
3. The court had no power under the Value Added Tax Act 1983 to order repayment.
By a notice of motion dated 5 May 1987 Dormers Builders (London) Ltd. appealed against the decision of a London VAT Tribunal that certain supplies of goods and services were taxable at the standard rate. The grounds of the appeal were that the Tribunal had erred in law in holding:
(2) That the supply in question was not a supply that was zero-rated for VAT purposes being a supply made before 1 June 1984.
(3) In concluding that the deposit of £600,000 in the deposit account of the appellant company did not constitute a payment received by that company.
(4) In failing to give any or any sufficient weight to the evidence that the said £600,000 was received by the appellant company prior to 1 June 1984.
McNeill J.: This is an appeal under section 13sec. 13 of the Tribunals and Inquiries Act 1971 from an appeal under Value Added Tax Act 1983 section 40sec. 40 of the Value Added Tax Act 1983 from a decision of a VAT Tribunal dated 9 April 1987 that a decision by the Commissioners of Customs and Excise that certain supplies of services were taxable at the standard rate be confirmed.
By their grounds of appeal the appellants ("Dormers"), who are building contractors, contend that the supply of services in question was zero-rated for VAT purposes, being made before 1 June 1984, and that a deposit of £600,000 in the deposit account of Dormers before 1 June 1984 was not a payment for that supply made on or after that date.
The issue which has been the subject of a number of hearings before the VAT Tribunals, and of two cases heard in this court, arises in this way. Prior to 1 June 1984 building alteration work was zero-rated. By notice dated 13 March 1984 the Commissioners of Customs and Excise issued a warning that such work was to be standard-rated from 1 June 1984. Contractors recognised, as it is accepted was intended, that they had some two and a half months to put their tackle in order if so desired.
The statutory background under the 1983 Act is as follows: ByValue Added Tax Act 1983 section 1 section 2sec. 1 and 2 VAT is charged on the supply of goods and services, being a taxable supply made by a taxable person in the course or furtherance of any business carried on by him. Supply is defined in Value Added Tax Act 1983 section 3sec. 3. No issue arises on those sections.
Value Added Tax Act 1983 section 4 section 5Sections 4 and 5 provide for the determination of the time when a supply of goods and services is to be treated as taking place for the purposes of the charge to tax. Value Added Tax Act 1983 section 4 subsec-or-para (2)Section 4(2) is not material. Value Added Tax Act 1983 section 4 subsec-or-para (3)Section 4(3)reads:
Subject to the provisions of Value Added Tax Act 1983 section 5section 5 below, a supply of services shall be treated as taking place at the time when the services are performed.
Value Added Tax Act 1983 section 5 subsec-or-para (1)Section 5(1), sometimes described as providing a trigger, or as accelerating the moment of supply, reads as follows:
If, before the time applicable under Value Added Tax Act...
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