Lamdec Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 June 1991 |
| Date | 05 June 1991 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
British United Shoe Machinery Co LtdVAT (1977) 1 BVC 1062; (1977) VATTR 187
Larullah LtdVAT (LON/84/172) No. 1779; (1985) 2 BVC 205,148
Scorer (HMIT) v Olin Energy Systems LtdTAX [1985] BTC 181
Shepherd (HMIT) v Lyntress Ltd; News International plc v ShepherdTAX [1989] BTC 346
Appeal - Issue of credit note - Whether credit note issued by agreement with commissioners - Whether agreement withinFinance Act 1985 section 25Finance Act 1985, sec. 25- Whether credit note valid - Unjust enrichment -Finance Act 1989 section 24 subsec-or-para (3)Finance Act 1989, sec. 24(3) - Recovery of VAT - Value Added Tax Act 1983 schedule 7 subsec-or-para 6 schedule 7 subsec-or-para 6 Value Added Tax Act 1983, Sch. 7, para. 6(2), (3).
The issues were whether the parties came to an agreement within theFinance Act 1985 section 25Finance Act 1985, sec. 25and whether the commissioners, having purported to withdraw from the agreement, were bound by it. If either of these issues were decided in the negative, whether a credit note issued by the appellant was valid and consequently the appellant was entitled to a repayment of VAT on the sum stated on the credit note.
The appellant, which was in receivership and in liquidation, was, prior to the liquidation, a construction company. Between 1985 and 1987 the appellant carried out construction work for Petrolite Ltd ("Petrolite") which was a chemical manufacturer. The appellant thought that the work was standard-rated and charged VAT in all except one of 315 invoices. The tax inclusive sums invoiced amounted to £12,514,474.83. Petrolite accepted and paid 291 of the invoices, the tax charged on which amounted to £1,588,443.97, but withheld payment on the other 24 invoices on which the tax charged amounted to £43,878.90. The appellant accounted for tax on the 291 invoices but did not account for tax on the other 24.
Customs, when this was noticed at an inspection, raised an assessment in respect of the 24 unactioned invoices. When the assessment was considered by solicitors to the appellant they came to the conclusion that the work done by the appellant for Petrolite was zero-rated and wrote to the commissioners to that effect. On 11 March 1989 the commissioners confirmed that the whole supply was zero-rated and said that the way to correct that situation was to issue a credit note detailing the VAT incorrectly charged in respect of each invoice issued to Petrolite by the appellant. The solicitors for the appellant wrote again to the commissioners on 7 August 1989 saying that they would issue a credit note which would show (1) invoice £204,393.29 VAT zero-rated and (2) a VAT-only credit note for £1,621,536.36.
The VAT on the credit note would be included in box 4 of the VAT return for the period 08/89. The commissioners replied to this letter on 30 August 1989 stating that the matter could be brought to a conclusion if the appellant issued and dispatched to Petrolite a VAT credit note for £43,878.90. All previous invoices where VAT had been wrongly charged would be allowed to stand. Customs would withdraw the assessment and subsequent invoices would be charged at the zero rate. On 12 September 1989 the appellant issued a credit note to Petrolite for the tax of £43,878.90 charged on the 24 invoices.
On 27 December 1989 the appellant went into receivership and its business was sold by the receiver as a going concern at the end of February 1990. The receivers decided to issue a credit note for the VAT incorrectly accounted for and on 19 June 1990 they issued a VAT-only credit note for £1,632,322.87 less the credit note issued on 12 September 1989 of £43,878.90 making a net amount of £1,588,443.97. This credit note contained nine pages with details of the 315 invoices sent out. The receivers wrote to the commissioners on 20 June enclosing the pre-receivership VAT return for the period 1 October 1989 to 26 December 1989, in respect of the appellant, claiming a net repayment of £1,556,395.74. The letter explained that the reclaim had occurred because of the VAT-only credit note.
On 19 July the commissioners disallowed the credit note stating that it would result in the unjust enrichment of the appellant (Finance Act 1989 section 24 subsec-or-para (3) Finance Act 1989, sec. 24(3)). The appellant went into liquidation on 23 July but continued to argue with the commissioners about the validity of the credit note. On 16 October 1990 the commissioners confirmed that the credit note must be disallowed as invalid.
The appellant appealed on 22 November 1990 and on the same date wrote to the commissioners reiterating its contention that the credit note was valid. On 3 January 1991 Mrs Cobb wrote on behalf of the commissioners to Price Waterhouse, the appellant's accountants, stating that the commissioners had reconsidered their decision on the validity of the credit note and that it was agreed that the appellant was entitled to a refund of VAT overpaid in error. The letter went on to say accordingly a repayment of the amount claimed would be made as soon as possible and that, in view of the revised decision, the appellant might consider withdrawing its appeal. The appellant wrote to the commissioners on 11 January 1991 agreeing to withdraw its appeal subject to the satisfactory settlement of its costs.
Subsequently the letter from Mrs Cobb was reconsidered by the commissioners, in conjunction with their solicitor's office, and they decided that it should be withdrawn. On 14 January a letter was sent to Price Waterhouse withdrawing the letter. In the letter of withdrawal the commissioners stated that they would be prepared to repay the VAT direct to Petrolite or to the appellant on the understanding that the money would be passed in full to Petrolite. In the light of this letter the appellant did not withdraw its appeal.
The appellant submitted that the letters together amounted to an agreement in writing within the meaning of Finance Act 1985 section 25 subsec-or-para (1)sec. 25(1) and so the disputed decision must be treated as discharged or cancelled.
The commissioners submitted that, since one of the terms was that consideration would be given to the withdrawal of the appeal and since such a term was otiose by virtue of Finance Act 1985 section 25 subsec-or-para (1)sec. 25(1), the agreement could not have been intended to operate under that section. The commissioners also submitted that in the context of the earlier correspondence a reasonable man would not conclude that an agreement had been reached. Finally the commissioners submitted that the letter from Mrs. Cobb expressed disagreements with arguments put forward by the appellant and so could not constitute an agreement within Finance Act 1985 section 25sec. 25. If there was an agreement, the commissioners contended that it had been withdrawn by the subsequent...
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