General Motors Acceptance Corporation (UK) Plc

JurisdictionUK Non-devolved
Judgment Date28 January 2003
Date28 January 2003
CourtValue Added Tax Tribunal

VAT Tribunal

General Motors Acceptance Corporation (UK) plc

The following cases were referred to in the decision:

Chartered Trust Ltd v Pitcher UNK[1999] GCCR 1099

EC Commission v Germany VAT(Case C-427/98) [2003] BVC 205

Freemans plc v C & E Commrs VAT(Case C-86/99) [2001] BVC 365

Goldsmiths (Jewellers) Ltd v C & E Commrs VAT(Case C-330/95) [1997] BVC 494

Consideration - Decrease in consideration - Adjustment through VAT accounts - Hirer of car returns car to HP company as of right and is absolved from making further payments - Sale of car by HP company - Whether sale proceeds abate the decrease in consideration - Hirer returns car to HP company voluntarily - Whether resulting documentation qualifies as document having same effect as credit note - Right for hirer to return car to HP company after three years - Three-year cap denies relief for decrease in consideration occurring more than three years after original HP agreement - Whether incompatible with Community law rights - Value Added Tax Regulations 1995 (SI 1995/2518), reg. 24, 38(1), 38(1A) and 38(3).

Cars Order - Finance agreement - HP agreement - Repossessed car - Car returned voluntarily by hirer sold on by HP company - Whether car "repossessed" by HP company under terms of HP agreement - Value Added Tax (Cars) Order 1992 (SI 1992/3122), art. 4(1)(a).

Bad debt relief - Car on HP - Hirer wrongly sells car to third party - Third party a bona fide purchaser for value - Hire Purchase Act 1964, Pt. III gives title to third party - Loss to HP company - Whether loss qualifies for bad debt relief - Whether property in car passes to a person deriving title "from, through or under" the hirer - Value Added Tax Act 1994, s. 36(2) and (4)(b).

Three consolidated appeals were heard dealing with five preliminary issues relating to motor car hire purchase (HP) agreements between the appellant and its customers. Three of the issues arose in situations in which the hiring terminated without the customer purchasing the car, so that part of the total price ceased to be payable. In all cases in which a customer returned a car without being in default, it was agreed that the appellant was entitled, under reg. 38 of the Value Added Tax Regulations 1995 (SI 1995/2518) and art. 11(C)(1) of Directive 77/388, the sixth VAT directive, to a VAT adjustment in respect of the part of the purchase price no longer payable. However, the tribunal was required to answer three questions: whether relief from VAT under reg. 38 was lost if the customer returned the car more than three years after commencement of the HP agreement; whether the paperwork held by the appellant failed to satisfy the statutory conditions for relief; and whether the appellant was liable for VAT on the proceeds arising from its resale of the car. The remaining two issues arose where the customer defaulted on the terms of the HP agreement and concerned the appellant's entitlement to VAT bad debt relief.

The first of the three questions concerning the return of cars by customers, who are not in default, was referred to as the three-year limitation issue. The commissioners contended that relief under reg. 38 was lost by reason of reg. 38(1A) if the customer returned the car more than three years after the HP agreement started. The appellant sought to rely on Community law rights given by art. 11(C)(1) of the sixth directive. It claimed that the three-year limit imposed by reg. 38(1A) had no objective justification and violated their Community law rights by making those rights ineffective. The commissioners argued that the three-year limitation was permissible; it promoted legal certainty and thereby protected the State. In the commissioners' view, the fact that it prevented the appellant making claims was simply a feature of the way the appellant chose to conduct its business.

The second question was whether the paperwork held by the appellant failed to satisfy the statutory conditions for relief under reg. 38. This reg. allows registered traders to make adjustments through their VAT accounts where there is an increase or a decrease in consideration for the supply. For this purpose, reg. 24 defines "increase in consideration" as the increase due on a supply made by a taxable person which is evidenced by a credit or debit note or other document having the same effect, and "decrease in consideration" is interpreted accordingly. The commissioners submitted that where the appellant bore VAT on the full amount payable at the start of a HP agreement, but suffered a reduction when the customer exercised his rights under the Consumer Credit Act 1974 to terminate the hiring or where the customer defaulted, there was no "decrease in consideration" within the meaning of reg. 24 because the appellant was unable to produce a credit or debit note or other document to evidence the decrease.

The third and final question relating to the return of cars by customers who were not in default concerned the wording of art. 4(1)(a) of the Value Added Tax (Cars) Order 1992 (SI 1992/3122). This provides that the disposal of a used motor car by a person who repossessed it under the terms of a finance agreement shall be treated as neither a supply of goods nor a supply of services where the car is in the same condition as when it was repossessed. The commissioners submitted that the car was not repossessed in these situations, as the appellant had merely contracted in a way that gave the customer the freedom to give the car back to the company. It followed, in the commissioners' view, that VAT was due on the disposal of the returned car.

The remaining two issues related to the appellant's entitlement to bad debt relief where the customer was in default on his HP payments. In the first instance, the appellant maintained that it was entitled to an adjustment under reg. 38 and art. 11(C)(1) for the difference between what it should have been paid by the customer and the amount actually received, excluding the proceeds of sale of the car. The commissioners argued that relief is entirely through the bad debt relief provisions in s. 36(2) of the Value Added Tax Act 1994 and that the proceeds of sale must be taken into account when calculating the debt. The second bad debt relief issue arose where the customer purported to sell the car to a third party, even though he had not purchased it from the appellant. In certain circumstances, the third party would obtain good title to the car under legislation designed to protect the consumer. The commissioners contended that the appellant was not entitled to bad debt relief in such circumstances, because the property in the car passed to the third party by operation of a statute and not "from, through or under" the customer who supplied them, as required by s. 36(4)(b) of the 1994 Act.

Held, allowing the company's appeals:

1. The three-year limitation on making a claim by reference to the time when the original supply is made was incompatible with art. 11 generally and with the appellant's rights under art. 11(C)(1) in particular. Regulation 38(1A) had rendered ineffective the appellant's right to relief. To the extent that the commissioners' decision sought to deny the appellant's Community law rights, that decision was wrong.

2. The documentation relating to each contract and to its termination was held by the appellant in different places and stored on different databases. Contrary to the commissioners' submissions, the overall effect of the relevant documents taken together was the same as if credit notes had been issued by the appellant to its customers. The documents were evidence of a "decrease in consideration" for the purposes of reg. 38, having regard to the definition of that expression in reg. 24.

3. The commissioners had submitted that the cars returned by customers not in default were not repossessed in the terms envisaged by art. 4(1)(a) of the Value Added Tax (Cars) Order 1992 and that VAT was due on their subsequent disposal. However, the word repossessed, as used in art. 4(1)(a), was not to be construed as referring only to situations in which the finance company had retaken possession following default by the hirer. It applied equally to situations in which, under the terms of the finance agreement, the finance company had resumed possession.

4. Given that an adjustment through the VAT account was available to the appellant since it had been shown that there had been a "decrease in consideration", the appellant was entitled to make a reg. 38 adjustment without bringing the proceeds of sale of the car into the reckoning.

5. The purported sale of the hired car by the defaulting hirer, being an essential step in the process by which the third party derived title, made the hirer the person "through or under" whom title was derived. For that reason, the appellant was not excluded from bad debt relief by operation of s. 36(4)(b).

6. The five preliminary issues were determined in favour of the appellant and the assessments were directed by the tribunal to be determined accordingly.


[The tribunal set out the facts summarised above and continued as follows.]

1. This decision deals with three consolidated appeals by General Motors Acceptance Corporation (UK) PIc ("GMAC"). GMAC appeals against decisions by the commissioners refusing to repay approximately £5m claimed by GMAC in voluntary disclosures.

2. GMAC carries on a business of, among other things, selling motor cars on deferred payment terms to members of the public under the name "Vauxhall Finance". Where any of the documentation referred to later in this decision refers to Vauxhall and Vauxhall Finance we shall, for simplicity, use the name GMAC.

3. These three appeals raise five preliminary issues, each of which turn on one or more decisions of the commissioners. All the issues concern GMAC's liabilities to VAT relating to hire purchase agreements between GMAC and its customers. The evidence on which we have proceeded...

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