Iveco Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lord Justice Henderson,Lady Justice Sharp |
| Judgment Date | 01 December 2017 |
| Neutral Citation | [2017] EWCA Civ 1982 |
| Docket Number | Case No: A3/2016/3783 |
| Court | Court of Appeal (Civil Division) |
| Date | 01 December 2017 |
[2017] EWCA Civ 1982
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
UT/2014/0037
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Sharp
Lord Justice Henderson
and
Lord Justice Newey
Case No: A3/2016/3783
Mr Andrew Hitchmough QC and Miss Barbara Belgrano (instructed by PricewaterhouseCoopers LLP) for the Appellant
Miss Eleni Mitrophanous (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing dates: 8-9 November 2017
Judgment Approved
The appellant, Iveco Limited ("Iveco"), is the representative member of a value added tax ("VAT") group that includes companies engaged in the sale of commercial vehicles. These proceedings arise out of promotional payments (or rebates) that the companies appear to have made to customers between the beginning of 1978 and the end of 1989. According to Iveco, the rebates served to reduce the price of the relevant vehicles, but it did not make any VAT adjustment in respect of them. On that basis, it claims to be entitled to the repayment of £73,361,865.
The present appeal is concerned with whether Iveco's claim is time-barred. The First-tier Tribunal ("FTT") directed that the point should be determined as a preliminary issue. Judge Roger Berner, sitting in the FTT, ruled on the issue in decisions released on, respectively, 6 December 2013 and 13 May 2014 (one aspect having been deferred to await the Court of Appeal's judgments in another case). He ruled in favour of Iveco, taking the view that its claim was not subject to either a domestic time limit or any requirement under European Union ("EU") law for a claim to be brought within a reasonable period after a price reduction.
HM Revenue and Customs ("HMRC") appealed to the Upper Tribunal, which, in a decision of Warren J and Judge Greg Sinfield released on 13 June 2016 (and corrected on 18 July of that year), disagreed with Judge Berner and concluded that Iveco's claim was time-barred. Iveco, however, now challenges that ruling in this Court.
The proceedings have thus far been conducted on the basis of assumed facts. HMRC have reserved the right to dispute these in the future if Iveco's claim is held not to be time-barred.
The appeal raises issues as to whether claims to recover VAT overpaid as a result of price reductions made when article 11C(1) of the Sixth Council Directive of 17 May 1977 (77/388/EEC) ("the Sixth Directive") ought to have been implemented by the United Kingdom but had not been (i.e. between 1978 and 1989) are still maintainable.
The legislative framework
The Sixth Directive provided for the harmonisation of VAT across the European Economic Community. Article 1 of the Directive stipulated that Member States were to modify their VAT systems in accordance with the Directive by no later than 1 January 1978. Article 11C(1) provided:
"In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.
However, in the case of total or partial non-payment, Member States may derogate from this rule."
The United Kingdom did not introduce legislation to give effect to article 11C(1) of the Sixth Directive ("Article 11C(1)") until the end of the 1980s. In the intervening years, HMRC's VAT Notice 700 (revised September 1975) allowed the parties to a price reduction to make VAT adjustments by mutual agreement. Thus, paragraph 118 of the Notice stated:
"When a supplier allows a credit or contingent discount to a customer who is a fully taxable person, he is not obliged to adjust the original VAT charge provided that both he and the customer agree not to do so. If they do not agree, the original VAT charge must be adjusted by both; the supplier must issue a credit note to the customer and keep a copy of it."
As was noted by Mr Andrew Hitchmough QC, who appeared with Miss Barbara Belgrano for Iveco, the mechanism required both parties to a transaction to be fully taxable.
Domestic legislation implementing Article 11C(1) first took effect on 1 January 1990. On that date, the Value Added Tax (Accounting and Records) Regulations 1989 ("the 1989 Regulations") came into force. Regulation 7 of those Regulations was in these terms:
"(1) This regulation applies where-
(a) there is an increase in consideration, or
(b) there is a decrease in consideration
which includes an amount of tax and the increase or decrease occurs after the end of the prescribed accounting period in which the original supply took place.
(2) Where this regulation applies the taxable person shall adjust his value added tax account in accordance with the provisions of this regulation.
(3) The maker of the supply shall-
(a) in the case of an increase in consideration, make a positive entry; or
(b) in the case of a decrease in consideration, make a negative entry
for the relevant amount of tax in the tax payable portion of his value added tax account.
(4) The recipient of the supply, if he is a taxable person, shall-
(a) in the case of an increase in consideration, make a positive entry; or
(b) in the case of a decrease in consideration, make a negative entry
for the relevant amount of tax in the tax allowable portion of his value added tax account.
(5) Every entry required by this regulation shall, except where paragraph (6) below applies, be made in that part of the value added tax account which relates to the prescribed accounting period in which the increase or decrease is given effect in the business accounts of the taxable person.
(6) Where any entry required by this regulation is to be made in the value added tax account of an insolvent person then any such entry shall be made in that part of the value added tax account which relates to the prescribed accounting period in which the supply was made or received..."
Regulation 7 of the 1989 Regulations was later replaced in identical terms by regulation 38 of the Value Added Tax Regulations 1995 ("the 1995 Regulations"), which revoked and remade, with certain amendments, a variety of regulations relating to VAT. For convenience, I shall use the shorthand "Regulation 38" in this judgment to refer to both regulation 7 of the 1989 Regulations and regulation 38 of the 1995 Regulations. It is common ground that, as drafted, Regulation 38 did not apply to rebates paid before 1 January 1990.
Like the 1989 Regulations, section 24 of the Finance Act 1989 (" FA 1989") came into force on 1 January 1990. The section provided as follows:
"(1) Where a person has paid an amount to the Commissioners by way of value added tax which was not tax due to them, they shall be liable to repay the amount to him.
(2) The Commissioners shall only be liable to repay an amount under this section on a claim being made for the purpose.
(3) It shall be a defence, in relation to a claim under this section, that repayment of an amount would unjustly enrich the claimant.
(4) No amount may be claimed under this section after the expiry of 6 years from the date on which it was paid, except where subsection (5) below applies.
(5) Where an amount has been paid to the Commissioners by reason of a mistake, a claim for the repayment of the amount under this section may be made at any time before the expiry of 6 years from the date on which the claimant discovered the mistake or could with reasonable diligence have discovered it.
...
(7) Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of value added tax by virtue of the fact that it was not tax due to them.
(8) The preceding provisions of this section apply to an amount paid before, as well as to an amount paid after, the day on which this section comes into force, except where the Commissioners have received a claim for repayment of the amount before that day..."
A claim for repayment could thus be made within six years of the original payment or, where the payment had been made as a result of a mistake, the date on which the mistake was or could reasonably have been discovered.
Current Law Statutes Annotated, in its commentary on section 24 of FA 1989, noted that the House of Lords had held in Customs and Excise Commissioners v Fine Art Developments plc [1989] STC 85 that a taxpayer had a statutory right to repayment of overpaid VAT. Section 24, it explained, "puts the right to repayment on a new basis, giving the Customs and Excise a defence of unjust enrichment" and with a six-year time limit.
With the passage of the Value Added Tax Act 1994 (" VATA 1994"), section 24 of FA 1989 became section 80 of that Act. In its original form, section 80 of VATA 1994 corresponded precisely to section 24 of FA 1989. However, section 47 of the Finance Act 1997 (" FA 1997") amended section 80 to set a three-year time limit for claims, with no possibility of extension for mistake. Following the decision of the House of Lords in Fleming (trading as Bodycraft) v Revenue and Customs Comrs [2008] UKHL 2, [2008] 1 WLR 195, section 80 was revised again, by the Finance Act 2008. This stated that the time limit contained in section 80 was not to apply to claims made before 1 April 2009 (during what has been termed "the Fleming window") and, for the future, substituted a four-year limit for the three-year one.
At the time Iveco submitted its claim to HMRC (9 November 2011), section 80 of VATA 1994 took this form:
"(1) Where a person-
(a) has accounted to the Commissioners for VAT for a prescribed accounting period (whenever ended), and
(b) in doing so, has brought into account as output tax an amount that...
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