Midlands Co-operative Society Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE BLACKBURNE |
| Judgment Date | 19 June 2007 |
| Neutral Citation | [2007] EWHC 1432 (Ch) |
| Docket Number | Case No: CH2005APP644 |
| Court | Chancery Division |
| Date | 19 June 2007 |
[2007] EWHC 1432 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
the Hon Mr Justice Blackburne
Case No: CH2005APP644
Kevin Prosser QC (instructed by KPMG LLP) for the Appellant
James Puzey (instructed by HM Revenue & Customs) for the Respondents
Hearing date: 17 May 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Blackburne:
Introduction
This is an appeal by Midlands Co-operative Society Ltd (“Midlands”) against a decision released on 20 July 2005 of the VAT and Duties Tribunal (“the Tribunal”) sitting in Manchester. The Tribunal (Mr Colin Bishopp) dismissed Midlands' appeal against the rejection by HM Commissioners of Customs and Excise (as they then were) of Midlands' claim, made under section 80 of the Value Added Tax Act 1994 (“the VAT Act”) and under regulation 35 of the Value Added Tax Regulation 1995, for repayment of output tax overpaid. It did so on the ground that Midlands had no standing to make the claim since the tax in question was overpaid, if at all, by Leicester Co-operative Society Ltd (“Leicester”) not by Midlands.
The facts
The Tribunal's decision set out the following, edited, version of the agreed statement of facts (altered only in this judgment to correct an obviously erroneous statutory reference in paragraph (9)). The edited statement provides the relevant factual background to the appeal.
“(1) Midlands is an industrial and provident society registered in accordance with the Industrial and Provident Societies Act 1965 (the Act).
(2) Midlands carries on business as a general retailer, selling food and non-food products through retail premises, providing funerals, acting as travel agents, and carrying on the business of a motor dealer.
(3) Midlands has been registered for the purposes of VAT since 6 September 1997 although returns have been rendered with effect from the prescribed accounting period 02/92.
(4) Leicestershire Co-operative Society Limited (Leicester) was an industrial and provident society registered in accordance with the Act carrying on a similar business to Midlands, including the business of a motor dealer. Leicester was registered for VAT.
(5) At general meetings of Leicester held on 7 March and 23 March 1995 the following special resolution was passed in accordance with section 51 of the Act:
'That this meeting of the members of [Leicester] hereby resolves to transfer the whole of the stock, property and other assets and all engagements of the Society to [Midlands] in consideration of [Midlands] issuing to each member of this Society paid up shares equal to the amount standing to the credit of each member in the share ledgers of this Society on the date when the transfer of engagements becomes effective.
The transfer shall become effective immediately on the expiration of the Saturday following the date of the registration of this resolution.'
(6) At a meeting of the Board of Midlands on 26 January 1995 it was resolved that a special members' meeting be called to change the name of the society and:
'That this meeting of the Central Board of Directors of [Midlands] hereby agrees in consideration of this Society receiving the whole stock, property and other assets of [Leicester] to issue paid up shares equal to the amount standing to the credit of each such member in the share ledgers of [Leicester] on the date when the transfer of engagements becomes effective.'
(7) On 30 March 1995 the Register of Friendly Societies acknowledged … the registration that day of the Special Resolution of Leicester and the registration of the change of name of Midlands.
(8) In consequence of the registration of the Special Resolution 'immediately upon the expiration of' Saturday 1 April 1995 the engagements of Leicester were transferred to Midlands pursuant to section 51(1) of the Act. At that moment Leicester had no spare members and no assets or liabilities whatsoever.
(9) On 30 April 1997, pursuant to section 16(l)(a)(iii) of the Act, the Registrar of Friendly Societies stated in respect of Leicester that:
'The registration of the above mentioned society is hereby cancelled on the ground that the society has ceased to exist following its Transfer of Engagements to [Midlands]'.
(10) On 30 June 2003 Midlands' representatives submitted two voluntary disclosure claims in respect of VAT claimed to have been over declared. The first voluntary disclosure for £63,054 relates to the period 1 April 1973 to 30 November 1999 in respect of output tax over declared under the margin scheme on the sale of demonstrator cars. The second voluntary disclosure for £38,493 relates to the period 1 April 1973 to October 1996 in respect of payments by car manufacturers of demonstrator discounts and bonuses. The two claims were made as a consequence of the decisions: in the cases of Commission v Italian Republic ( Case C-46/95) [1997] STC 1062 and Elida Gibbs v Customs and Excise Commissioners ( Case C-317/94) [1996] STC 1387 respectively.
(11) Customs, by letter dated 18 May 2004, have refused to pay any part of the voluntary disclosure in so far as it relates to VAT paid originally by Leicester prior to its transfer of engagements to Midlands on 1 April 1995.”
The relevant legislation
Section 80 of the VAT Act, under which the claims were made, was, at the material time (and so far as material), as follows:
“(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT 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.
…
(7) Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of VAT by virtue of the fact that it was not VAT due to them.”
Section 51(1) of the Industrial and Provident Societies Act 1965 Act (“the 1965 Act”) is as follows:
“(1) Any registered society may by special resolution transfer its engagements to any other society which may undertake to fulfil those engagements; and if that resolution approves the transfer of the whole or any part of the society's property to that other society, the whole or, as the case may be, that part of the society's property shall vest in that other society without any conveyance or assignment.”
The reference in that section to a “registered society” is to any industrial and provident society (such as Leicester and Midlands) registered in accordance with the 1965 Act.
The issue
It is not in dispute that, but for the transfer of engagements by Leicester to Midlands, Leicester would have been entitled to bring a claim under section 80 of the VAT Act in respect of any overpaid output tax for the periods in question and that, in principle, the Commissioners would have been liable to repay the amount of that tax. There are other questions that arise, and with which the Tribunal was not concerned, relating to the quantum of the claim, and defences based upon limitation and unjust enrichment. The sole question for decision by the Tribunal—in effect a preliminary issue—was whether, as the Commissioners maintained but Midlands disputed, Midlands had no standing to make the repayment claim under section 80 notwithstanding that Midlands was Leicester's transferee in respect of the latter's engagements.
The Tribunal decided the question in the Commissioners' favour.
The Decision
The reasons for the Tribunal's conclusion that Midlands had no standing to make the repayment claim appear in the following paragraphs of the Decision:
“13. I can see the attraction of Mrs Brown's argument [for Midlands, the appellant] that Leicester has transferred the entirety of its assets, of every description, to Midlands, leaving only a shell, and that Leicester's members have likewise transferred their own rights, now attaching to the assets of Midlands, including those acquired from Leicester. I also recognise the force of her argument that, if Midlands cannot claim the repayment, the right to claim is irretrievably lost, an injustice which I should seek to override if an interpretation of the legislation which does not lead to that result is possible. Nevertheless, I am bound to agree with Mr Puzey [for the Commissioners, the respondents] that, absent any provision of European law which allows for the transfer of the right to reclaim an overpayment of VAT, the domestic legislation allows only of a narrow interpretation. As the tribunal pointed out, in its decision in Shendish Manor, section 80(1) of the VAT Act provides that the Customs and Excise Commissioners (as they were) shall not be liable to repay tax except as provided by that section. The section provides only for repayment to the taxable person who has made the over-payment. In the absence of clear words, I do not think it is open to me to construe the requirement in a manner which allows an assignee to exercise an assignor's rights. The absence of any indication that payment to an assignee shall discharge the Respondents' obligations suggests that the assignment of a right to recover an overpayment of VAT was not in the draftsman's contemplation. Regulation 35 permits a taxable person to correct an error which he has made; it is impossible to read that provision in a manner which allows him to correct an error which someone else...
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