Phillip Drakard Trading Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 11 May 1992 |
| Date | 11 May 1992 |
| Court | Crown Court |
Queen's Bench Division (Crown Office List).
Brooke J.
Michael Sherry (instructed by Fussell Wright & Co, Bristol) for the taxpayer company.
Stephen Richards (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgment:
Apple and Pear Development Council v C & E Commrs (Case 102/86)TAX[1988] BTC 5116
Bennett v Griffin Finance (a firm) ELR[1967] 2 QB 46
C & E Commrs v Oliver VAT(1979) 1 BVC 314
Edwards (HMIT) v Bairstow & Anor ELR[1956] AC 14
Garnac Grain Co Inc v HMF Faure & Fairclough Ltd & AnorELR[1966] 1 QB 650
Liverpool City Council v Irwin & Anor ELR[1977] AC 239
Naturally Yours Cosmetics Ltd v C & E Commrs (Case 230/87)TAX[1988] BTC 5260
Potter & Anor (t/a P & R Potter Wholesale) v C & E Commrs TAX[1984] BTC 5037
Value added tax - supply - Settlement of hire-purchase debt by third party - Third party took possession and acquired title to vehicles on which taxpayer company could no longer keep up hire-purchase payments - Whether company made taxable supply to third party - Value Added Tax Act 1983 schedule 2 subsec-or-para 1Value Added Tax Act 1983, Sch. 2, para. 1(1).
This was an appeal by the taxpayer company against a decision of the VAT tribunal ((1990) 5 BVC 749) that VAT should have been accounted for in respect of two vehicles which were transferred to a third party by the taxpayer company on payment by the third party of outstanding hire-purchase debts.
In 1989 the company's road haulage business was in difficulties and it was unable to keep up hire-purchase payments on two of its vehicles. D, the managing director of the company, found another haulage contractor, M, who was willing to acquire the two vehicles on payment of the sum required to settle the hire-purchase debts.
The company had handed the vehicles to M who said he would settle the hire-purchase debts: there was no written agreement. M settled the debts by direct payment to the finance companies concerned because, if he had paid the money to the company, it would have been taken by the bank and the company would still have been liable under the hire-purchase agreements.
The company disputed the Customs' view that output tax should be accounted for on a supply of the vehicles to M.
The company appealed to the High Court against the VAT tribunal's decision that a person who paid off a debt to a finance company must be presumed to have done so as agent of the hirer who was the only person who had the contractual right to buy the goods on paying the settlement figure. The company thus became the owner of the vehicles and was liable to reimburse M for his outlay on the company's behalf. In satisfaction of that debt, the company supplied the vehicles to M. The tribunal held alternatively that an agreement between the company and M could be implied that the company would transfer (i.e. supply) the vehicles to M if M would pay the settlement figure to the finance company.
The company appealed to the High Court contending that the company could not have made a supply to M since the company had never acquired ownership of the vehicles. There was no agency agreement between the company and M and no such agreement could be implied unless it was necessary to give business effect to a transaction which was not the case here. The company further submitted that the company received no consideration in money or otherwise for the transfer of the vehicles to M.
Held, dismissing the company's appeal:
The tribunal had applied the law correctly either on the basis that the payment of a hire-purchase debt by a third party was made as agent for the debtor or on the basis that there was a supply of the vehicles to M under the Value Added Tax Act 1983 schedule 2 subsec-or-para 1Value Added Tax Act 1983, Sch. 2, para. 1. The value of the supply within Value Added Tax Act 1983 section 10 subsec-or-para (2)sec. 10(2), for which consideration was given in money, was the amount paid by M in settlement of the company's debt to the finance companies. Bennett v Griffin Finance (a firm)ELR[1967] 2 QB 46 per Lord Denning MR followed.
Brooke J: This is an appeal by Philip Drakard Trading Ltd ("the company") on a point of law pursuant to the Tribunal and Inquiries (Value Added Tax Tribunals) Order 1972 from a decision of a VAT tribunal given as long ago as 2 July 1990 in which it was concerned with the company's appeal against a decision of the Commissioners of Customs and Excise on 1 December 1989 when they reduced the net amount of VAT repayable for the three months ending on 31 August 1989 from a figure of about £76,000 to a figure of just over £35,000.
The tribunal was concerned with three issues. The appeal before me is limited to one issue which is concerned with the question whether the company should have accounted for VAT on its disposal of two Volvo vehicles in May and June 1989. The company contends that on neither occasion was there any taxable supply of the vehicles. So far as the facts are concerned, the tribunal found that the company's business was concerned with road transport and haulage to various parts of Europe. It owned 16 transport haulage vehicles and bought and sold commercial vehicles and property. It had an annual turnover about £1.5m a year until it was affected by the recession in March and April 1989. It was then compelled to sell its assets and to dismiss two-thirds of its lorry drivers. It had an overdraft facility with its bankers of £200,000 which was usually wholly utilised.
The appeal is concerned with two Volvo tractor unit vehicles, B 781 RAH (which I will...
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