John Dee Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NEILL,LORD JUSTICE ROCH,LORD JUSTICE HUTCHISON |
| Judgment Date | 12 July 1995 |
| Judgment citation (vLex) | [1995] EWCA Civ J0712-10 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 95/0301/D |
| Date | 12 July 1995 |
[1995] EWCA Civ J0712-10
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
On appeal from Mr Justice Turner
Before: Lord Justice Neill Lord Justice Roch and Lord Justice Hutchison
95/0301/D
MR S RICHARDS and MR P MANTLE (instructed by the solicitor for Customs and Excise, Salford) appeared on behalf of the Appellants.
MR R ENGLEHURT QC and MR A LEWIS (instructed by Dickinson Dees, Newcastle) appeared on behalf of the Respondents.
This case raises important questions as to the nature and scope of an appeal brought pursuant to section 40 of the Value Added Tax Act 1983 (as amended) (the 1983 Act) to a Value Added Tax Tribunal constituted in accordance with Schedule 8 to the 1983 Act. It is to be noted that the 1983 Act was repealed by the Value Added Tax Act 1994 and that the provisions as to appeals to a tribunal are now contained in sections 83 and 84 of the 1994 Act.
For many years prior to 1991 a number of companies carried on road haulage businesses as a group under the name of the John Dee Group. By the beginning of 1990, however, it became apparent that the group was experiencing financial and management problems. On 3 January 1991 joint administrative receivers were appointed. According to the directors' statement of affairs the estimated total deficiencies of the group at 3 January 1991 exceeded £24,000,000. The debts owing by the group included over £1,000,000 due to the Commissioners of Customs and Excise in respect of Value Added Tax.
On 23 January 1991 a company named Index Agent Limited was incorporated. On 19 March 1991 this company changed its name to John Dee Limited. John Dee Limited (whom I shall call "the company") took over 20% of the undertaking of the former John Dee Group. Two of the initial directors of the appellants had been directors of companies in the John Dee Group. Mr. Davison had been a director of five of the six companies in the group. Mr. Newton had been a director of one of the six companies in the group.
The Commissioners of Customs and Excise (the Commissioners) became concerned about what they considered to be the apparent links between the company and the former John Dee Group of companies and decided to exercise their powers to require the company to give security for the payment of any VAT which either was or might become payable. At the material time this power, which had formerly been contained in section 32(2) of the Finance Act 1972, was contained in paragraph 5(2) of schedule 7 to the 1983 Act. The relevant provision was in these terms:
"Where it appears to the Commissioners requisite to do so for the protection of the revenue they may require a taxable person, as a condition of his supplying goods or services under a taxable supply, to give security or further security of such amount and in such manner as they may determine, for the payment of any tax which is or may become due from him."
On 10 January 1992 a letter was written on behalf of the Commissioners to the company requiring the company to provide security in accordance with paragraph 5(2). So far as is material the letter was in these terms:
"The Commissioners … have noted the VAT record of the above business and other businesses in which your directors Mr. John Davison and Mr. Peter Newton were involved and for the protection of the revenue and in pursuance of their powers under Schedule 7, paragraph 5(2) of the [1983 Act] they require you, as a condition of your supplying goods or services under a taxable supply within the meaning assigned to it by Section 2(1) of the said Act, to give security to them by guarantee or by a cash deposit in the sum of £355,900.00 … for the payment of any Value Added Tax which is or may become due from you.
Alternatively the Commissioners will accept £237,200.00 … if monthly returns are submitted.
…………………….
Although the security is required immediately, the Commissioners will allow you a period of 30 days from the date of this letter in order to give you the time to make the necessary arrangements. If you do not provide the required security by the end of this 30 day period, and you continue to trade, further action will be taken."
Enclosed with the letter was a leaflet setting out the procedure for making an appeal to a Value Added Tax Tribunal.
On 13 January the company replied. They indicated that they wished to appeal and stated the grounds of the appeal as follows:
"(a) Firstly the new company John Dee Limited has no connection with the old John Dee Group Limited apart from two of its directors were former directors of the John Dee Group Limited. Apart from this the new company was purchased from the Official Administrative Receiver which was a very small part of the old Group and the part purchased is profitable, this can be seen from the enclosed audited accounts.
(b) Secondly the two directors mentioned in your letter do not own the Company in fact there has been a substantial third party investment ….
(c) The payments made to the Customs & Excise for John Dee Ltd. since the commencement of business on 11 March 1991 have been made as per the terms and conditions laid down by H.M. Customs & Excise.
(d) As I am sure you are fully aware to ask for a security of such a large amount would only create further problems to a new company trying to survive during these difficult economic times."
By a Notice of Appeal dated 18 February 1992 the company exercised their right to appeal against the decision of the Commissioners to require security. On 4 June 1992 the Commissioners served a Statement of Case in accordance with rule 8 of the Value Added Tax Tribunal Rules 1986 ( SI 1986/590) (as amended) (the 1986 Rules).
The appeal was heard before a tribunal sitting at Newcastle upon Tyne on 30 June 1993. The Decision of the tribunal was released on 11 October 1993. Before I turn to the decision, however, I should first refer further to the 1983 Act and to the provisions relating to appeals to a Value Added Tax Tribunal.
Appeals to a Value Added Tax Tribunal.
Value Added Tax, which was introduced by the Finance Act 1972, is a tax on the supply of goods and services in the United Kingdom and on the importation of goods into the United Kingdom. In broad terms the tax is charged where the supply is by a person in the course of a business carried on by him where the supplies made by that person over a specified period exceed a certain amount in value. Schedule 7 to the 1983 Act contains provisions relating to the administration, collection and enforcement of the Act. By paragraph 1(1) of Schedule 7 it is provided that the tax is to be under "the care and management of the Commissioners".
A number of obligations are placed on persons who make taxable supplies in the course of business. These obligations include the duty to register and to make returns. For their part the Commissioners have wide powers relating to the administration, collection and enforcement of the Act. Thus, by way of example, the Commissioners are empowered to make assessments of tax due (paragraph 4 of schedule 7), and to require security and the production of evidence (paragraph 5 of schedule 7). In addition, again by way of example, the Commissioners may in certain circumstances impose penalties or surcharges.
It will be apparent that in the course of their administration of the tax the Commissioners will frequently find it necessary to make decisions with regard to the affairs of individual tax payers. Against some of these decisions and in respect of specified matters the tax payer is given a right of appeal under section 40(1) of the 1983 Act (as amended). As I indicated earlier, one of the decisions against which a right of appeal lies is a decision to require security under paragraph 5(2) of schedule 7: see section 40(1)(n). Furthermore, in addition to the decisions specified in section 40(1) (as amended), a taxpayer can also appeal against a decision if it falls within the scope of section 40(6), which provides:
"Where an appeal under this section is against a decision of the Commissioners which depended upon a prior decision taken by them in relation to the appellant, the fact that the prior decision is not within subsection (1) above shall not prevent the tribunal from allowing the appeal on the ground that it would have allowed an appeal against the prior decision."
It may be noted that section 40(6) of the 1983 Act re-enacted section 40(6) of the Finance Act 1972, subsection (6) having been added to section 40 by section 15 of the Finance Act 1981. This amendment followed the decision of the House of Lords in Customs and Excise Commissioners v. J.H. Corbitt (Numismatists) Ltd. [1981] AC 22 (the Corbitt case).
In the case of some of the decisions specified in section 40(1) of the 1983 Act (as amended) the Act itself (or later legislation) gives guidance as to the matters which are to be determined by the tribunal and as to the powers of the tribunal on an appeal. It is sufficient to take three examples:
(1) One of the features of the VAT system is that a taxable person, when accounting for and paying tax in respect of supplies made by him, may in specified circumstances deduct the tax which he has had to pay in respect of supplies made to him. Put shortly, this means that "input tax" can be credited against "output tax". There are cases, however, where there are disputes between the Commissioners and the taxpayer as to whether certain input tax can be credited under section 15 of the 1983 Act. In these cases the Commissioners may make...
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