Queen Mary University of London v Her Majesty's Revenue & Customs, V 20960

20960

COSTS – Application for Indemnity costs – Appeal conceded at late stage - Whether Customs’ resistance to appeal until very late stage wholly unreasonable – Held not so unreasonable – Direction for costs on standard basis – Trib Rules 1986 r.29(1)

QUEEN MARY UNIVERSITY OF LONDON Appellant

• and –

Tribunal: THEODORE WALLACE (Chairman)

Sitting in public in London on 21 November 2008

Charles Rumbles, of the RCB partnership, for the Appellant

Judith Ayling, counsel, instructed by the Solicitors for Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

1. This decision concerns an application by the Appellant for a direction for indemnity costs following the withdrawal by Customs of a decision refusing a repayment claim of £2,350,974 less than week before the appeal hearing which was listed for 19 and 20 May 2008. Customs accept liability for costs on the standard basis but resist indemnity costs.

2. Mr Rumbles contended that Customs had acted wholly unreasonably in resisting the appeal until 13 May 2008 when the refusal decision was factually incorrect and unsustainable in law.

3. The repayment claim concerned the construction costs incurred in periods 07/03 and 01/04 to 04/06 on the Blizard Building which was part of the medical and dental school. The Blizard Building which houses a large open plan laboratory is used primarily for non-business research.

4. The Appellant had initially sought to obtain zero-rating under Schedule 8, Group 5, Note (10) of the VAT Act 1994, as being used in part for a relevant charitable purpose however this was refused in a letter dated 11 June 2003 on the basis that the business activity planned for the building was more than incidental. Following that decision the VAT incurred was treated as a general expense of the university and included in the partial exemption calculation.

5. At that time Customs took the view that the mechanism resulting from the decision of the Court of Justice in Lennartz v Finanzamt München III (Case C-97/90) [1995] STC 514 was confined to goods and did not apply to construction services.

6. In Seeling v Finanzamt Starnberg (Case C-269/00) [2003] STC 805 the Court of Justice decided that Lennartz does apply to the construction of a building. Following Seeling, sub-paragraph (4A) was inserted into Schedule 4, paragraph 5 to the VAT Act 1994 with effect from 9 April 2003 denying the right to deduct under Lennartz for construction services as being necessary to counter tax avoidance.

7. Following a further decision of the Court of Justice in July 2005 in Charles & Charles-Tijmens v Staatssecretaris van Financien (Case C-434/03) [2006] STC 1429 that Member States could not derogate from Articles 6.2 and 17.2 and 17.6, Business Brief 15/05 was issued providing by concession for businesses to apply Lennartz to certain construction services subject to conditions. The 2003 amendment was repealed by the Finance Act 2007 with effect from 1 September 2007.

8. Meanwhile on 31 August 2006 the Appellant submitted the repayment claim relying on Business Brief 15/05.

9. The claim was refused by a letter dated 21 March 2006 on the grounds that at the time of incurring the input tax the Appellant had not made a decision to use the building wholly for the purpose of its business and could not change its mind so as to come within Business Brief 15/05. The appeal was then lodged.

10. The Statement of Case dated 10 September 2007 stated at paragraph 18 that under Business Brief 15/05, the Respondents by concession allowed taxpayers dissuaded by Business Brief 22/03 from allocating an asset wholly to their business at the time of acquisition to bring such asset wholly into their business and claim input tax within 6 months In paragraph 20 it was pleaded that the 3 year time limit under Regulation 29 of the VAT Regulations 1995 was not applicable to the Appellant’s claim which was instead subject to a 6...