HM Revenue and Customs v RSPCA; HM Revenue and Customs v ToTel Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 08 March 2007 |
| Date | 08 March 2007 |
| Court | Chancery Division |
Chancery Division.
Lawrence Collins LJ.
Rhodri Thompson QC and Kieron Beal (instructed by the Solicitor for HM Revenue and Customs) for the commissioners in the RSPCA appeal.
Philippa Whipple (instructed by Deloitte & Touche LLP) for the RSPCA.
Andrew Macnab (instructed by the Solicitor for HM Revenue and Customs) for the commissioners in the ToTel appeal.
Michael Patchett-Joyce (instructed by Hassan Khan & Co) for ToTel Ltd.
The following cases were referred to in the judgment:
Ahmed v JauraUNK [2002] EWCA Civ 210
Associated Provincial Picture Houses Ltd v Wednesbury CorpELR [1948] 1 KB 223
Bank of Austria Trade Services GmbHVAT No. 16,918; [2001] BVC 4,066
C & E Commrs v L Rowland & Co (Retail) LtdTAX [1992] BTC 5,102
Deeny v Gooda Walker Ltd (No. 3)UNK [1996] IRLR 168
EC Commission v ItalyECASTAX (Case C-78/00) [2003] BTC 5,255; [2001] ECR I-8195
Edwards v BairstowELRTAX [1956] AC 14; (1955) 36 TC 207
Garage Molenheide BVBA v BelgiumECASECASECASTAX (Joined Cases C-286/94, C-340/95 and C-47/96) [1998] BTC 5,088; [1997] ECR I-7281
Halifax plcVAT [2001] BVC 2,029
Lennartz v Finanzamt München IIIECASTAX (Case C-97/90) [1993] BTC 5,202; [1991] ECR I-3795
London, Chatham & Dover Railway Co v South Eastern Railway CoELR [1893] AC 429
Marshall v Southampton and South West Hampshire Area Health AuthorityECASELR (Case C-271/91) [1993] ECR I-4367; [1994] QB 126
Metallgesellschaft Ltd v IR Commrs; Hoechst AG v IR CommrsECASTAX (Joined Cases C-397/98 and 410/98) [2001] BTC 99; [2001] ECR I-1727
Nader (t/a Try Us) v C & E CommrsTAX [1993] BTC 5,263
Olympia Technology LtdVAT No. 19,145; [2005] BVC 4,102
Optigen Ltd, Fulcrum Electronics Ltd & Bond House Systems Ltd v C & E CommrsECASTAX (Joined Cases C-354/03, 355/03 and 484/03) [2006] BTC 5,050; [2006] ECR I-483
R v Secretary of State for Social Security, ex parte SuttonECASICR (Case C-66/95)[1997] ECR I-2163; [1997] ICR 961
R (on the application of Elite Mobile plc) v C & E CommrsUNKTAX [2004] EWHC 2923 (Admin); [2005] BTC 5,113
R (on the application of Mobile Export 365 Ltd) v R & C CommrsUNK [2006] EWHC 311 (Admin)
R (on the application of UK Tradecorp Ltd) v C & E CommrsTAX [2005] BTC 5,097
Seeling v Finanzamt StarnbergECASTAX (Case C-269/00) [2003] BTC 5,343; [2003] ECR I-4101
Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v IR CommrsUNKTAXUNKTAX [2005] EWCA Civ 389; [2005] BTC 202 (CA); [2004] EWHC 2387 (Ch) ; [2004] BTC 358
Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd (No. 2)UNK [1990] 3 All ER 723
UK Tradecorp LtdVAT No. 18,714; [2005] BVC 4,008
Westdeutsche Landesbank Girozentrale v Islington London Borough CouncilELR [1996] AC 669
Value added tax - Input tax - Overpayment - Appeal against refusal of input tax credit - Withdrawal of decision appealed against - Interest on repayment of overpaid tax - Determination of interest payable - Determination of period for which interest payable - Whether interest payable in addition to repayment supplement - Whether interest simple or compound - Value Added Tax Act 1994, Value Added Tax Act 1994 section 84 subsec-or-para 8s. 84(8)
These were appeals by Revenue and Customs from the VAT and Duties Tribunal raising the question of the correct approach to exercise of the discretion to award interest under s. 84(8) of the Value Added Tax Act 1994 in VAT appeals.
In the RSPCA case, the dispute related to the disallowance of VAT incurred by the taxpayers on the construction of new headquarters. Following enquiries by Customs, assessments relating to the taxpayers' input tax claims were withdrawn and, in 2005, Customs paid a five per cent repayment supplement of £216,964 to the RSPCA. The taxpayers applied to the tribunal for interest in respect of the disallowed input tax, from the due date of the returns until the date of payment, at eight per cent compound interest plus costs. Customs objected to the application, contending that, although the RSPCA was entitled to interest under s. 84(8), in the absence of borrowing to support a higher rate than under s. 78, the interest had already been met by the repayment supplement.
The tribunal held (Decision No. 19,440; [2006] BVC 4,059) that the result of the withdrawal by Customs of the decision under appeal was that they conceded that the VAT credit due to the taxpayers had not been paid. The effect was that the payment of interest under s. 84(8) was mandatory and s. 78 did not apply. In determining the rate of interest payable under s. 84(8), no adjustment was to be made by reason of the payment of a supplement under s. 79. Where a substantial sum was due over an extended period, an adjustment was appropriate to take account of the fact that the base lending rates were lower, because they were to be compounded, than they would be for simple interest rates. The interest payable to the taxpayers was determined by the tribunal at the simple rate of 4.3 per cent. Although that rate was lower than that sought by the taxpayers, it was substantially more than Customs had been prepared to pay. Therefore, the taxpayer was awarded 90 per cent of the costs of the application.
In the ToTel case, the appeal was originally against Customs' refusal to repay the taxpayer's input tax claim. That refusal was initially on the basis that the input tax was incurred on mobile telephones used in the perpetration of a carousel fraud. Following the European Court of Justice's decision in Optigen Ltd ([2006] BTC 5,050), Customs released the withheld input tax together with a repayment supplement. The taxpayer maintained its appeal on the grounds that interest should be paid in addition to the repayment supplement.
The tribunal held (Decision No. 19,578; [2006] BVC 4,087) that, without an appeal to the tribunal, a taxpayer who was due a repayment which was delayed was entitled to interest in "certain cases of official error" (Value Added Tax Act 1994, s. 78) and repayment supplement if he received a "delayed payment or refund" (s. 79). However, it was clear that where, as in this case, s. 84(8) applied, because the non-repayment of any amount was appealed, s. 78(1) did not apply and the fact that repayment supplement might be due had to be disregarded. Having decided that interest was payable, the tribunal determined the date from which it was to run as 30 days after receipt by the commissioners of the relevant return. Since mobile phones had been extensively used to perpetrate fraud and Customs had a duty to investigate claims for input tax credit from traders dealing in such goods, a period of 30 calendar days in which to make enquiries was not excessive. Turning to the rate of interest payable, the tribunal considered that it was bound by the decision of the Court of Appeal in Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v IR Commrs [2005] BTC 202 in which it was held that restitutionary awards of interest were not analogous to awards of interest on damages or debt, that the appropriate rate of interest was that at which commercial loans were offered to borrowers and that compound interest should be allowed. The rate of interest was determined at three per cent above base rate.
Customs appealed against both decisions and ToTel cross-appealed. Customs said that the effect of the decisions, and of other recent decisions of the tribunal, was to raise the possibility that s. 78 would become increasingly redundant, as parties sought to displace or supplement the statutory rates of interest (or the repayment supplement under s. 79) available on an administrative basis, with higher awards than were perceived to be routinely available on application to the tribunal. Customs said that that was not the intention of Parliament in enacting the scheme laid down by VATA 1994, s. 78, 79 and 84.
Held, allowing Customs' appeals and dismissing ToTel's cross-appeal:
1. VATA 1994, s. 84(8) gave the tribunal a discretion, and contained no guidance as to how it was to be exercised or what factors were relevant in the exercise of the jurisdiction. Conventional practice in commercial cases was to award simple interest at base rate plus one per cent but there was no overriding reason of principle why a higher rate should not be adopted by the tribunal in a particular case, either because that rate was reasonably considered too low, or because on the facts the taxpayer had had to borrow at a higher rate. The former case would be rare and in the latter case there had to be some evidence on which the tribunal could act. In commercial cases, although a rate higher than the conventional rate might be justified, any such claim was normally dependent on evidence that a claimant had in fact borrowed funds at a higher rate. The rate would normally reflect the cost of borrowing rather than the return on lending.
2. Customs' argument was that, in the absence of specific evidence supporting the award of a higher rate of interest, the rate of interest payable by Customs under s. 84(8) should be the rate prescribed by s. 78. However, policy considerations invoked by Customs did not justify, in effect, reading s. 78 into s. 84(8). There was no inconsistency in logic or practice between having one rate where an official error was resolved prior to appeal, and another rate where there was an appeal. When exercising the discretion to award interest under s. 35A of the Supreme Court Act 1981, the court might take into account the s. 78 rate. That rate was simply a matter to which the tribunal might have regard or which it might take into account before assessing what was just in the circumstances. It was not the rate which had to be applied, nor was it the rate which should be taken as the starting point. It was s. 84(8) which governed, and not s. 78. (R (on the application of Elite Mobile plc) v C & E Commrs [2005] BTC 5,113 and R (on the application of Mobile Export 365 Ltd) v R & C...
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