Lex Service Plc v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | LORD WALKER OF GESTINGTHORPE,LORD MILLETT,LORD STEYN,LORD NICHOLLS OF BIRKENHEAD,LORD HOFFMANN |
| Judgment Date | 04 December 2003 |
| Neutral Citation | [2003] UKHL 67 |
| Date | 04 December 2003 |
| Court | House of Lords |
[2003] UKHL 67
HOUSE OF LORDS
The Appellate Committee comprised:
Lord Nicholls of Birkenhead
Lord Steyn
Lord Hoffmann
Lord Millett
Lord Walker of Gestingthorpe
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Walker of Gestingthorpe. For the reasons he gives, with which I agree, I would dismiss this appeal.
My Lords,
I have read the opinion of Lord Walker of Gestingthorpe. I am in complete agreement with the reasons he has given. I too would dismiss the appeal.
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Walker of Gestingthorpe. For the reasons he gives, with which I agree, I would dismiss this appeal.
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Walker of Gestingthorpe. I have found this case more difficult than your Lordships; in particular, I have found it difficult to accept that a sum of money which is not available to the seller of a second hand vehicle except by way of an allowance against the price of a new vehicle is an unequivocal attribution of value to the second hand vehicle. In so far as the sum exceeds that which would be paid for the second hand vehicle free from any obligation to apply it towards the purchase of the new, it seems to me to have all the characteristics of a hidden discount.
But the question is one of fact, and your Lordships take a different view. In those circumstances, though with some misgiving, I too would dismiss the appeal.
My Lords,
This appeal is concerned with the quantification of non-monetary consideration for the purposes of value added tax (VAT). Non-monetary consideration has often given rise to difficulties in the operation of the VAT system, since VAT is essentially a tax on consumption of goods and services measured by monetary consideration (that is, price). This appears from Article 2 of the First Directive (67/227/EEC):
"The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.
On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.
The common system of value added tax shall be applied up to and including the retail trade stage".
The Court of Justice of the European Communities (ECJ) has on several occasions given guidance on how non-monetary consideration is to fit into this price-based system. It is to be quantified by finding the appropriate monetary equivalent. In giving guidance the ECJ has stated and applied some important general principles, including the principle of fiscal neutrality, the principle of legal certainty, and the need to quantify non-monetary consideration by reference to its "subjective value". Mr Prosser QC, appearing for the appellant Lex Service Plc ("Lex") has submitted that the Court of Appeal (both in this case and in earlier cases) has misunderstood these general principles and treated them as inflexible rules.
Lex (which is the representative member of a group of companies, and is here used to include any relevant group company) carries on business as a car dealer. It trades through about 100 subsidiaries (mostly owning a single showroom and workshop). It holds franchises for the sale of new cars, including Rover and Volvo. It also sells used cars. Both new and used cars are often sold by way of part-exchange.
The background facts as found by the VAT and Duties Tribunal (Mr Theodore Wallace, Chairman) were as follows:
"11. The retail car market was very competitive. In terms of the national market Lex was not a large player. Retailers offered a wide variety of incentives including straight price discounts, good terms on cars taken in part-exchange and schemes under which customers could cancel the sale within a specified time.
12. Lex sold around 90% of cars taken in part-exchange either to other garages or by auction. These were known as trade sales. Typically a Lex dealer would only retain for retail sale low mileage cars of the same make as that of the franchise held by the dealer. Sales to other group dealers were presumably treated as trade sales. The group's second-hand sales were usually fleet or leased cars.
13. At the top end of the market manufacturers frowned on visible price discounting while not objecting to high part-exchange prices. Many customers wished to trade in a car but considered its value to be higher than the price which Lex could obtain in a trade sale.
14. From the viewpoint of Lex it was immaterial whether a customer received a discount in the price of the car he bought or received a higher price on the car taken in part-exchange; the net effect was the same. Since most customers were primarily concerned with the car traded in, Lex responded by offering good trade-in prices in order to obtain the business. It was a marketing tool."
The choice of method was not however wholly immaterial if it made a difference to the VAT treatment of the transaction; and as this litigation shows, the proper VAT treatment was open to argument.
Where a customer wished to dispose of his existing car by way of part-exchange Lex's practice, at the material time, was to obtain quotations from the trade. Lex's salesman would make a careful appraisal of the car and the sales manager would then obtain offers by telephone (usually from three trade sources). The customer would be told of the offers, and the highest would be proposed as the trade-in price. If the customer was content with it, matters proceeded on that basis. But if (as happened about three times out of four) the customer was looking for more, the sales manager would often authorise a higher price. Three specimen cases were considered in detail by the Tribunal. In the case which was most fully discussed before your Lordships, Mr King bought a used Volvo (with about 10,000 miles on the odometer) for £21,302 and traded in a Daihatsu (which had done about 70,000 miles) for a stated part-exchange price of £2,000, of which £600 was described as "additional allowance". This represented the difference between the highest trade offer and the figure which Mr King successfully bargained for. The part-exchange price less the allowance (in this example, £1,400) appeared on Lex's form (headed 'Part Exchange Details & Declaration') as 'True Value'. A regional finance controller employed by Lex summed it up as follows in his evidence to the Tribunal:
"We say to the customer your car is worth £x but we will give you more if you buy from us".
Further details of the three specimen cases appear from the Tribunal's careful findings of fact. They explain two further matters which must be noted. First, at the material time, Lex had an advertised policy of permitting a customer to cancel a purchase within 30 days. If the customer exercised that right (which in practice seldom occurred) he was entitled to a refund of the purchase price, less certain deductions. But he was not entitled to the return of his part-exchange vehicle (which might have been sold already) and the refund in respect of it was limited to the "true value" shown on Lex's form.
Secondly, the customer's purchase (whether of a new or used car) would often be by way of a conditional sale agreement entered into with a finance company, after the company had first purchased the car from Lex. The other two specimen cases (those of Mrs Cheeseman and Mr Petrovic) involved conditional sale agreements. It is not necessary to go into the details of these transactions beyond noting that in each case the finance company used the full part-exchange price in its documentation, and the Tribunal found that the finance companies were not informed of any difference between the stated purchase price of a car taken in part-exchange and its true value (as stated on Lex's form).
The Tribunal also recorded that it was common ground that in no case did the part-exchange price exceed a proper value. There was no issue as to "bumping" (that is, the practice of artificially inflating the price of a car taken in part-exchange in order to meet a finance company's requirement as to the minimum deposit). Nor does anything turn in this case on the special VAT treatment of used cars under the Value Added Tax (Cars) Order 1992 (SI 1992 No. 3122), since the disputed issue comes back, by a rather different route, to the same basic statutory provisions.
Although the price differential between the part-exchange price and the true value was often modest, it was sometimes more substantial (in the case of Mr Petrovic, who traded in a Ford Granada which had done 41,000 miles, it was nearly £2,000). The cumulative effect was considerable. In respect of the whole of Lex's operations between September 1994 and September 1997 it produced a disputed VAT liability of about £1.8 million—the sum for which Lex submitted a repayment claim in December 1997. This represented VAT which had been paid on the basis that the monetary equivalent of vehicles taken in part-exchange should be determined by the full part-exchange price, rather than (as Lex now contends) the 'true value' shown on Lex's printed form. It is common ground that (whether or not a...
To continue reading
Request your trial
-
D.D v DPP
...hard copy. These will be introduced later. Citations: EUROPEAN CONVENTION ON HUMAN RIGHTS ART 6 ATTORNEY GENERALS REFERENCE (NO 2 OF 2001) 2004 WLR 1 EUROPEAN CONVENTION ON HUMAN RIGHTS ART 6(1) M (P) V MALONE 2002 2 IR 560 O'C (J) V DPP 2000 3 IR 478 M (S) V DPP UNREP MCGUINNESS 20.12.199......
-
DCM (Optical Holdings) Ltd v Commissioners for HM Revenue and Customs
...Commissioners [2010] EWHC 1393; [2010] STC 2258; [2010] BVC 880; [2010] STI 1721 Lex Service plc v Customs and Excise Commissioners [2003] UKHL 67; [2004] 1 WLR 1; [2004] 1 All ER 434; [2004] STC 73; [2004] RTR 18; [2003] BTC 5658; [2004] BVC 53; [2003] STI 2274; (2004) 101 (3) LSG 34; (200......
-
MBNA Europe Bank Ltd v HM Revenue and Customs
...in the same way. This may be found best enunciated by Lord Walker of Gestingthorpe in Lex Services Plc v Customs & Excise Commissioners [2003] UKHL 67 in paragraph 27 of his speech, as follows: "The principle of neutrality must however co-exist with other general principles, such as the obj......
-
Debenhams Retail Plc v HM Revenue and Customs
...Staatssecretaris van Financiën v. Coöperative Aardappelenbewaarplaats GA (the Dutch Potato case) ( Case C-154/80) and Lex Services plc v. Customs and Excise Commissioners [2003] UKHL 67; [2004] STC 73, paragraph 18. However what is meant is that taxable value for VAT purposes depends on "t......