R Premier Foods (Holdings) Ltd (Claimant) The Commissioners for HM Revenue and Customs (Defendant) Q Cold Ltd ((in Administration)) (Interested Party)

JurisdictionEngland & Wales
JudgeMr Justice Supperstone
Judgment Date21 May 2015
Neutral Citation[2015] EWHC 1483 (Admin)
Docket NumberCase No: CO/17339/2013
CourtQueen's Bench Division (Administrative Court)
Date21 May 2015

[2015] EWHC 1483 (Admin)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

ADMINISTRATIVE COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

The Honourable Mr Justice Supperstone

Case No: CO/17339/2013

Between:
The Queen on the Application of Premier Foods (Holdings) Ltd
Claimant
and
The Commissioners for Her Majesty's Revenue and Customs
Defendant
and
Q Cold Ltd (In Administration)
Interested Party

Ms Valentina Sloane (instructed by Reynolds Porter Chamberlain) for the Claimant

Mr George Peretz QC (instructed by Solicitor for HMRC) for the Defendant

The Interested Party was not represented

Hearing date: 29 April 2015

Mr Justice Supperstone

Introduction

1

This application for judicial review by Premier Foods (Holdings) Ltd, the Claimant, relates to a decision of the Commissioners for Her Majesty's Revenue and Customs, the Defendant, dated 9 September 2013 in relation to VAT paid by the Claimant to a supplier, Q Cold Ltd (now in administration) ("QCL") who between 1 October 2008 and 31 December 2012 invoiced it in error and who accounted for it to the Defendant. The Defendant does not dispute that the VAT was invoiced to the Claimant in error and that the relevant supplies should have been zero-rated under Group 1 of Schedule 8 to the Value Added Tax Act 1994 (" VATA"). The total sum in issue is just under £4m.

2

QCL collected the tax on behalf of the Defendant and accounted for it to them (see Elida Gibbs [1996] ECR 1–5339 at paras 19–22). The Claimant has no statutory right to claim the VAT back from the Defendant, since the Claimant was incorrectly invoiced the VAT by QCL, which in turn accounted for the VAT to the Defendant. Under the current domestic statutory scheme, only QCL has a right to claim back the VAT from the Defendant ( VATA, s.80). In the ordinary course, a supplier who has mistakenly invoiced VAT to its customer can make a statutory claim to the Defendant for repayment of that undue VAT and then pass the repayment on to the customer who actually bore the burden of the VAT. However, since making a statutory claim for repayment of the unduly invoiced VAT, QCL has gone into administration. Accordingly a civil claim by the Claimant against QCL to recover the sum paid by way of VAT will not provide an effective remedy.

3

The Claimant contends that in order to rectify the situation the Defendant can refuse to make repayment to QCL unless QCL undertakes to reimburse the full amount of the repayment to the Claimant. If QCL refuses to agree to that course of action the Defendant is obliged under EU law to reimburse the Claimant directly. That course would restore fiscal neutrality and render the position VAT-neutral, for all parties.

4

However the Defendant has taken a decision refusing to take that course. Instead the Defendant is proposing to repay the VAT to QCL in administration (which never bore the burden of that VAT and from whom the Claimant will be unable to recover the full amount of VAT unduly invoiced) while at the same time proposing to enforce assessments against the Claimant for the input VAT which it deducted. It is the Claimant's case that the effect will be to inflict serious financial hardship on the Claimant while giving QCL in administration (or, more precisely, its creditors) a windfall. That is contrary to the principle of fiscal neutrality.

5

The Claimant challenges the Defendant's decision and the proposed conduct as irrational, disproportionate and in breach of EU law principles, in particular the principles of fiscal neutrality and effectiveness.

The Legal Framework

(1) UK Law Mechanisms for Correcting Tax Improperly Paid

6

Section 80(1) of VATA provides that:

"Where a person—

(a) has accounted to the Commissioners for VAT for a prescribed accounting period (whenever ended), and

(b) in doing so, has brought into account as output tax an amount that was not output tax due,

the Commissioners shall be liable to credit the person with that amount."

7

The Defendant has a statutory defence of unjust enrichment to a claim for repayment under section 80(1) of VATA. Section 80(3) provides:

"It shall be a defence, in relation to a claim under this section by virtue of sub-section ( 1) or (1A) above that the crediting of an amount would unjustly enrich the claimant."

8

In Baines & Ernst v Customs and Excise Commissioners [2006] STC 1632, Lloyd LJ explained the unjust enrichment defence at paragraphs 6–7:

"6. Most VAT law is derived from one or more European Directives, but that is not true of the unjust enrichment defence. Nor, on the other hand, is it a purely domestic law concept. It is sanctioned by decisions of the Court of Justice of the European Communities (the Court of Justice) albeit that these decisions have not, for the most part, involved VAT itself. Thus in one of the earliest cases, Amministrazione delle Finanze dello Stato v SpA San Giorgio ( Case 199/82) [1983] ECR 3595 ( San Giorgio), the plaintiff was required to pay health inspection charges which were levied, contrary to Community law on the import of dairy products from other Member States. The Court of Justice reviewed earlier decisions, and said this:

'13. However, as the Court has also recognised in previous decisions… Community law does not prevent a national legal system from disallowing the repayment of charges which have been unduly levied where to do so would entail unjust enrichment of the recipients. There is nothing in Community law therefore to prevent courts from taking account, under their national law, of the fact that the unduly levied charges have been incorporated in the price of the goods and thus passed on to the purchasers. Thus national legislative provisions which prevent the reimbursement of taxes, charges and duties levied in breach of Community law cannot be regarded as contrary to Community law where it is established that the person required to pay such charges has actually passed them on to other persons.'

7. If the charges wrongly levied 'have been incorporated in the price of the goods and thus passed on to the purchasers', then it could unjustly enrich the undertaking which paid the charges to be reimbursed for their amount, on the assumption that the benefit of the repayment would not be passed on to the customers who bore their burden in the price paid. That is the basis for the defence. VAT is a tax whose burden is designed to be passed on, so as to be borne by the end user of the goods or services. It can readily be regarded as passed on to users who are registered for VAT and entitled to recover input tax on purchases, usually by way of set-off against the output tax for which they are accountable on their sales. The application of the concept of passing on in other cases requires careful consideration in relation to such a tax."

9

In Lady and Kid A/S and others v Skatteministeriet [2012] STC 854 the ECJ provides a succinct statement of the unjust enrichment statutory defence. The Court of Justice stated:

"18. … by way of exception to the principle of reimbursement of taxes incompatible with European Union law, repayment of a tax wrongly paid can be refused where it would entail unjust enrichment of the persons concerned. The protection of the rights so guaranteed by the legal order of the European Union does not require repayment of taxes, charges and duties levied in breach of European Union law where it is established that the person required to pay such charges has actually passed them on to other persons…

19. In such circumstances, the burden of the charge levied but not due has been borne not by the trader, but by the purchaser to whom the cost has been passed on. Therefore, to repay the trader the amount of the charge already received from the purchaser would be tantamount to paying him twice over, which may be described as unjust enrichment, whilst in no way remedying the consequences for the purchaser of the illegality of the charge…"

10

VATA section 73 gives the Defendant a limited discretion in relation to the assessment of the amount of VAT due from a person. It provides:

" 73. Failure to make returns etc.

(1) Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.

(2) In any case where, for any prescribed accounting period, there has been paid or credited to any person—

(a) as being a repayment or refund of VAT, or

(b) as being due to him as a VAT credit,

an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly."

(2) EU Law

11

The Court of Justice in Reemtsma Cigarettenfabriken GmbH v Ministero delle Finanze [2008] STC 3448 was concerned with a customer who was a taxable person who had mistakenly paid his supplier a sum by way of VAT. The supplier had...

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