R (Federation of Technological Industries) v Commissioners of Customs and Excise (Case C-384/04)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lightman |
| Judgment Date | 18 February 2004 |
| Neutral Citation | [2004] EWHC 254 (Admin) |
| Docket Number | Case No: CO/5240/2003 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 18 February 2004 |
[2004] EWHC 254 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand,
London, WC2A 2LL
The Honourable Mr Justice Lightman
Case No: CO/5240/2003
Ma�tre Denis Waelbroeck (Brussels Bar) and Mr Andrew P Young (instructed by Dass Solicitors, The Old Doctor's Surgery, 50 Newhall Street, Birmingham B3 3QE) for the Claimants
Mr Jonathan Peacock QC and Mr Francis Fitzpatrick (instructed by Solicitor's Office, New King's Beam House, 22 Upper Ground, London SE1 9PJ) for the Defendants
INTRODUCTION
On this application which is dated the 8 th October 2003 53 traders in mobile telephones and computer processing units and their trade body the Federation of Technological Industries ("the Claimants") seek: (1) permission to claim declarations that paragraphs 4(1A) and (2) of Schedule 11 and section 77A of the Value Added Tax Act 1994 ("the 1994 Act") are contrary to Community law and are incompatible with the European Convention on Human Rights ("the Convention"); and (2) a reference of that question to the European Court. The Defendants are the Commissioners of Customs and Excise ("the Commissioners") and the Attorney General, to whom I shall refer together as "the Defendants". The statutory provisions in question were inserted into the 1994 Act respectively by sections 17 ("Section 17") and 18 ("Section 18") of the Finance Act 2003 which was passed on the 14 th July 2003. (I shall refer to Sections 17 and 18 together as "the Sections"). The Sections were passed to counter widespread abuse of the VAT system. The thrust of the Sections is that a taxable person: (1) may be required to provide security for the VAT due from his supplier of goods or services and the person to whom he makes supplies; and (2) may be made jointly and severally liable with them for that VAT in the case of supplies of telephones and computers.
The application was made shortly before the expiration of the three months from the date of the passage of the legislation. The Defendants raised the preliminary objection that the application should be refused on the ground that it was not made promptly. The application, it would appear, could have been made more promptly, but any lack of promptness can have occasioned no prejudice. The Sections are on-going legislative provisions. The issue of the legality of the Sections and their consistency with Community law in the public interest must plainly be determined as a matter of urgency and these proceedings are the appropriate vehicle for this purpose. To refuse this application on that ground would be to promote rather than remove uncertainty and would scarcely accord with the duty of the court (if necessary by its own motion) to consider the compatibility of the Sections with Community law and promote legal certainty. I accordingly decline to accede to this objection on behalf of the Defendants.
THE SECTIONS
Paragraph 4 of Schedule 11 as amended by Section 17 provides that a taxable person may be required as a condition of making or receiving a supply to provide security (as well as for the VAT due from himself which is plainly authorised) for the VAT due from his supplier and the person whom he supplies. It reads (so far as material) as follows:
"(4) [�]
(2) If they think it necessary for the protection of the revenue, the Commissioners may require a taxable person, as a condition of his supplying or being supplied with goods or services under a taxable supply, to give security, or further security, for the payment of any VAT that is or may become due from�
(a) the taxable person, or
(b) any person by or to whom relevant goods or services are supplied,
[�]
(4) Security under sub-paragraph (2) above shall be of such amount, and shall be given in such manner, as the Commissioners may determine.
[�]
(5) In section 72(11) (penalty for supplying goods in contravention of paragraph 4(2) of Schedule 11) after 'supplies' insert 'or is supplied with'.
[�]
(7) In section 84 (further provisions relating to appeals) after subsection (4D insert�
'(4E) Where an appeal is brought against a requirement imposed under paragraph 4(2)(b) of Schedule 11 that a person give security, the tribunal shall allow the appeal unless the Commissioners satisfy the tribunal that�
(a) there has been an evasion of, or an attempt to evade, VAT in relation to goods or services supplied to or by that person, or
(b) it is likely, or without the requirement for security it is likely, that VAT in relation to such goods or services will be evaded.'
[�]"
Section 77A of the 1994 Act inserted by Section 18 provides that a taxable person may be made jointly or severally liable for the VAT due from the person whom he receives or to whom he makes supplies of telephones and computers, the principal goods in respect of which the current frauds are perpetrated. It reads (so far as material) as follows:
"(1) This section applies to goods of any of the following descriptions�
(a) telephones and any other equipment, including parts and accessories, made or adapted for use in connection with telephones or telecommunication;
(b) computers and any other equipment, including parts, accessories and software, made or adapted for use in connection with computers or computer systems.
(2) Where�
(a) a taxable supply of goods [or services; see below ss 10(a)] to which this section applies has been made to a taxable person, and
(b) at the time of the supply the person knew or had reasonable grounds to suspect that some or all of the VAT payable in respect of that supply, or on any previous or subsequent supply of those goods, would go unpaid,
the Commissioners may serve on him a notice specifying the amount of the VAT so payable that is unpaid, and stating the effect of the notice.
(3) The effect of a notice under this section is that�
(a) the person served with the notice, and
(b) the person liable, apart from this section, for the amount specified in the notice, are jointly and severally liable to the Commissioners for that amount.
[�]
(6) For the purposes of subsection (2) above, a person shall be presumed to have reasonable grounds for suspecting matters to be as mentioned in paragraph (b) of that subsection if the price payable by him for the goods in question�
(a) was less than the lowest price that might reasonably be expected to be payable for them on the open market, or
(b) was less than the price payable on any previous supply of those goods.
(7) The presumption provided for by subsection (6) above is rebuttable on proof that the low price payable for the goods was due to circumstances unconnected with failure to pay VAT.
(8) Subsection (6) above is without prejudice to any other way of establishing reasonable grounds for suspicion.
[�]
(10) For the purposes of this section�
(a) 'goods' includes services;
[�]"
The Commissioners have issued Guidance Notices in respect of the Sections, namely Notice 700/52 in respect of Section 17 and the requirement of security and Notice 726 in respect of Section 18 and joint and several liability. Notice 700/52 requires taxable persons to take reasonable steps to avoid dealing with high risk businesses and provides that a warning letter shall be sent before a notice is served requiring the provision of security. Notice 276 requires the taxable person to exercise reasonable and ordinary prudence in respect of the supply chain of which he is part and in particular to ask sensible and prudent questions of his customers and suppliers. Both Notices give the assurance that the Commissioners will not trigger the provisions if the taxable person does all that is reasonably required of him to maintain the integrity of the chain of supply.
THE ISSUES
The Claimants maintain that the duties expected of them are expensive and indeed impracticable to perform and that the threat of sanctions has a most serious effect on the conduct and financing of their businesses. Indeed the adverse effect on trade is said to be such that many have all but ceased trading. This is challenged by the Defendants. The Defendants maintain that the duties and sanctions are of critical importance, if not vital, to safeguard the VAT system and counter the current fraud which costs the economy in excess of �1.5 billion each year, and that the obligations require only the taking of reasonable and sensible precautions and the making of reasonable inquiries.
The challenge to the Sections is made on three grounds: (1) lack of vires or power under Community law; (2) contravention of principles of Community law; (3) incompatibility with the European Convention on Human Rights ("the Convention") incorporated within Community law.
APPROACH TO APPLICATION FOR PERMISSION AND A REFERENCE
The orthodox approach is to give permission to apply for judicial review if the claimant shows an arguable case. But the court in the exercise of its discretion whether to give permission may impose a higher hurdle if the circumstances require this. Factors of substantial importance in this context may include the nature of the issue, the urgency of resolution of the dispute and how detailed and complete is the argument before the court on the application for permission.
Turning to the last of these considerations the fuller the argument the easier it is for the court to form a judgment of the prospects of success. The hurdle may range from requiring likely success at the substantive hearing to merely establishing an arguable...
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RAISING THE BAR
...County Council, ex parte Woods[1998] Env LR 277 at 281. 38 R v Derbyshire County Council, ex parte Woods[1998] Env LR 277 at 280–281. 39 [2004] EWHC 254. 40 R (Federation of Technological Industries) v Commissioners of Customs and Excise [2004] EWHC 254 at [9]. 41 R (Federation of Technolog......