GUS Merchandise Corporation Ltd v Commissioners of Customs and Excise;
| Jurisdiction | England & Wales |
| Judgment Date | 30 September 1993 |
| Date | 30 September 1993 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Hutchison J.
David Goy (instructed by Paisner & Co) for GUS.
Nigel Pleming QC (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgment:
Co-operative Retail Services Ltd VAT(MAN/89/843) No. 7527; [1992] BVC 725
C & E Commrs v Fine Art Developments plc ELRVAT[1989] AC 914(1989) 4 BVC 26
Vulgar (1976) VATTR 179
Value added tax - Retailers' Scheme H - Agreement between taxpayer and Customs - Retail sales through agents - Method of determination of proportion of sales of goods for resale by agents to sales for agents' own use - Whether arrangement between taxpayer and Customs was an adaptation of Scheme H - Whether taxpayer entitled to claim repayment of overpaid tax on discovering that past calculations were based on inaccurate sampling surveys - SI 1972/1148 section 2 subsec-or-para (2)Value Added Tax (Supplies by Retailers) Regulations 1972 (SI 1972/1148), reg. 2(2)(c); notice 727Customs Notice 727.
These were appeals by the taxpayer ("GUS") and by Customs against two decisions of the VAT tribunal ([1993] BVC 938 and[1991] BVC 528). The tribunal had decided that GUS had entered into a binding agreement with Customs to calculate the amount of VAT to be accounted for in a particular way, and could not resile from that agreement when it was discovered that the agreed method of calculation was based on inaccurate figures. The tribunal also decided that a return made after notifying Customs of the error might be made on the basis of revised figures.
GUS was the registered VAT representative member of a group of companies including two companies ("the companies") which sold goods exclusively by mail order by means of catalogues distributed to members of the public known as "agents". The agents purchased goods for their own use (agents' own purchases "AOPs") as well as for sale to third parties ("customer sales"). An order would be placed on a standard order form. In either case the full catalogue price had to be paid, usually in instalments over 20 weeks.
In respect of customer sales the agent was entitled to a ten per cent commission, and in respect of AOPs the agent was entitled to a ten per cent rebate. Entitlement to commission or rebate arose immediately on payment being received by the company but would not be paid unless requested. The agents were encouraged to leave sums to which they were entitled to be set against future purchases.
For many years by agreement with Customs the companies had operated a version of Retailers' Scheme H, permitted by notice 727Customs Notice 727, attributing an agreed proportion of sales between standard-rated and zero-rated goods. However, a further problem arose in that, for the purposes of calculating output tax, a reduction was to be made from gross takings to take account of the AOP rebate, whereas no such deduction fell to be made in respect of commission on customer sales. It was recognised that although it was theoretically possible to obtain the information necessary to make a precise calculation reflecting the distinction, it would in practice be impossibly onerous to require the companies to do so. Accordingly, arrangements were made between Customs and the companies pursuant to which the proportion of AOPs in each VAT return was determined by the application of an agreed percentage arrived at after a sampling process conducted by the companies at three-yearly intervals, the results of which were accepted by Customs.
In 1986 the companies discovered that there had been a significant statistical error in the sampling procedure previously used which indicated that the AOP percentage applied since 1982 was too low, with the consequence that too much VAT had been paid. Customs agreed to a new procedure for VAT periods ending after they were notified of the position.
There was one period, the last quarter of 1987, which had ended after Customs were notified but for which a return had not been submitted by one of the companies and GUS submitted a return on the new basis which was rejected by Customs. GUS also inserted a claim for repayment of overpaid tax in box 5 of its next return on the grounds that the inaccuracy of the sampling method had resulted in overpayment in previous periods. That claim was also rejected. These two items resulted in assessments of £361,021 and some £5m respectively against which GUS appealed.
The schedule 7 subsec-or-para 3Value Added Tax Act 1983, Sch. 7, para. 3 enabled the relevant regulations, the Value Added Tax (Supplies by Retailers) Regulations 1972, to be made, SI 1972/1148reg. 2 of which permitted a taxpayer to adopt one of a number of special schemes set out in a notice published by the commissioners, which might be varied by agreement with the retailer.
Scheme H, one of four schemes based on apportionment described innotice 727Notice 727 dated 1 October 1987, was adopted in the present case. Scheme H involved recording the expected selling price of goods, working out the split between zero-rated and standard-rated goods, and applying the split to "gross takings".
After examining the correspondence between the parties over the years, the tribunal decided that the agreed arrangements were not a variation of Scheme H but each time one of the companies submitted a return based on the arrangements it accepted an offer by Customs to permit its liability to be determined in accordance with those arrangements so far as the calculation of AOPs was concerned. The tribunal c oncluded that the appeal against the larger assessment relating to past returns had to be dismissed because of the agreement but, there having been no acceptance by the submission of a return, the appeal against the smaller assessment should be allowed.
The following issues arose on the appeals to the High Court: first, whether the arrangements arrived at in the correspondence between Customs and the companies were an adaptation by agreement of Retail Scheme H; secondly, whether there was, as the tribunal held, an agreement outside Scheme H; and thirdly, if there was either an agreed adaptation of Scheme H or an agreement outside the scheme, had the company sought to act inconsistently with it by claiming an alleged overpayment?
GUS submitted that if tax was overpaid, the taxpayer was entitled to reclaim the overpayment. Scheme H was only concerned with the standard/zero-rate split and had nothing to do with the proportion of AOPs to customer sales. The AOP discount was not a deduction from the catalogue price but an adjustment to be made before determination of the gross takings to be apportioned. It was therefore necessary to ask what were the companies' "gross takings". The answer was that the gross takings sum was 90 per cent of the catalogue price (100 per cent less the ten per cent rebate). This was simply a method of ascertaining the total payments made for supplies within sec. 10 of the Value Added Tax Act 1983. Therefore, the arrangements did not involve any modification or adaptation of Scheme H to the particular business.
GUS's analysis of the arrangements operated over the years was that Customs, by concession, permitted GUS to account for VAT on the basis of an apportionment of AOPs to customer sales. GUS was therefore able to take advantage of the concession or not as it pleased. The sampling error, accepted by Customs, had resulted in overpayment which could be reclaimed.
Customs argued that it was not to be expected that the published schemes would cover every retailer's situation so that modification would frequently have to be made by agreement as was permitted by SI 1972/1148reg. 2(2)(c) of the 1972 regulations. Here, the companies agreed to operate a scheme to fit their particular situation and the correspondence showed that the scheme involved catering not only for the standard/zero-rate split but also for the question of AOPs. It would be unrealistic to say that all the negotiations and discussions led to nothing more than a concession which the companies were free to act on, or cease to act on, at any time. The companies had made no error in calculating their returns which would entitle them to claim overpayment in box 5. Rather, they had discovered that the agreement into which they entered was disadvantageous and sought by illegitimate means, by resiling from the agreed basis of calculation, to recoup the difference between what they had paid under the agreement and what they would have had to pay had they reached some more advantageous agreement.
Held, dismissing GUS's appeal and allowing Customs' appeal:
1. The gross takings in respect of AOPs was 100 per cent given the requirement that the full price had to be paid and the rebate was not obligatory but only allowed when a claim was advanced for it.
2. The companies had adopted a modified version of Scheme H. The effect of the correspondence between GUS and Customs constituted offers, from time to time, to cover the ensuing three-year period which, when accepted by the submission of the first return made on the offered basis, were binding on the companies for the next three years. It was not open to the tribunal to find as they did that there was no modification of Scheme H.
Per Curiam: If it could not be said that a modified version of Scheme H had been adopted, there was still a binding agreement standing on its own which would have prevented the companies from altering the agreed basis of calculation within the three-year period unless Customs agreed.
GUS Merchandise Corporation appealed against two decisions of the VAT tribunal (chairman Mr A Hilton) released respectively on 17 January 1991 and 3 March 1993. The grounds of the appeal were:
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1. On the evidence before it the...
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