R (Teleos Plc and Others) v Commissioners of Customs and Excise (Case C-409/04)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Moses,MR JUSTICE MOSES,‘MR JUSTICE MOSES’ |
| Judgment Date | 07 May 2004 |
| Neutral Citation | [2004] EWHC 1035 (Admin) |
| Docket Number | Case No: CO/2080/2003 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 07 May 2004 |
[2004] EWHC 1035 (Admin)
The Honourable Mr Justice Moses
Case No: CO/2080/2003
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Nigel Pleming QC, Miss Eleanor Sharpston QC, Mr Michael Conlon QC,
Miss Penny Hamilton, Mr Andrew Young and Miss Katrine Sawyer for the Claimants
Mr Rupert Anderson QC, Miss Rebecca Haynes and Mr Mario Angiolini (instructed by HM Custom and Excise) for the Defendant
These applications for judicial review concern the immobility of mobile phones. The claimants all trade on the wholesale market in mobile phones. Mobile phones have become the pork bellies of the 21 st Century. They are bought and sold as commodities. Prices fluctuate daily.
All the claimants supplied mobile phones in 2002 to Total Telecom Espana SA/Ercosys Mobil SA (“TT”). TT is registered for VAT and is resident in Malaga, Spain. The terms of the contract specified delivery to a destination, usually in France but on one or two occasions to Spain. In nearly every case the terms of the contracts were “ex works”; the claimants were, accordingly, only responsible for delivery to a warehouse where the phones were placed at the disposal of TT. TT was responsible for removing the phones to the other specified Member State.
The freight forwarders, Euro-Cellars Ltd (“Euro-Cellars”) were known to the claimants and owned a secure warehouse where the mobile phones were placed at the disposal of TT. On each transaction the claimants received from TT, a few days after the sale, a stamped and signed CMR note affording evidence that the mobile phones had been received at their specified destination.
This was vital. The supply of goods from one Member State to another is subject to VAT not in the Member State of origin, where the goods are supplied but, usually, in the Member State where the purchaser is registered for VAT, in the instant case, in Spain. Accordingly, the supplier may zero-rate the goods and claim input tax in relation to any VAT it has paid on purchasing the goods.
There were initial visits from customs officials who took no objection to the documents they were shown and, on occasion, allowed some of the claimants’ claims for input tax stemming from the zero-rate of their supply of mobile phones to TT. However, in later investigations the Commissioners discovered that the destination shown on the CMRs was false, the carriers either did not exist or were not involved in transporting mobile phones and the registration numbers, shown on the CMRs, were either for non-existent vehicles or vehicles such as motor scooters unsuited for the transport of even such light weight-items as mobile phones. The mobile phones, say the Commissioners, have never left the United Kingdom.
The Commissioners, in the light of their discovery, have assessed all the claimants to VAT on the basis that the supplies by the claimants should not have been zero-rated since the mobile phones were never removed from the United Kingdom. They have assessed the claimants although they acknowledge that the claimants were in no way involved in any fraud. Nor do they contend that the claimants were aware that the mobile phones had not left the United Kingdom.
Of the fourteen claimants, Fonecomp Ltd is no longer pursuing this application. Five of the claimants, Teleos plc, Unique Distribution Ltd, Phones International Ltd, Bulk GSM Ltd and Rapid Marketing Services Ltd, are sample claimants. That is not to say that this is a test case but, that in relation to those claimants, more detailed evidence as to the course of their trades has been given. I should record that it has been agreed that in relation to the other claimants it is open to either side to make further detailed submissions as to the facts, although, in the view I have taken of this application, that will not be necessary until the European Court of Justice has ruled on the essential issue of interpretation.
The essential issue of interpretation which arises relates to the conditions for exemption for which Article 28 of Council Directive 77/388/EEC of 13 th May 1977 “the Sixth Directive” makes provision (see paragraph 14 for wording). That issue is whether Article 28 requires that the goods be removed from the Member State of supply to the Member State of destination before the supplier may zero-rate the goods.
A further issue, as a matter of domestic public law, arises. The claimants contend that, as traders with no involvement in the events which led to the mobile phones not being removed from the United Kingdom, they were entitled to rely upon the evidence consisting of stamped and signed CMR notes to prove that the mobile phones had been removed from the United Kingdom. The Commissioners were not entitled, as a result of their later detailed investigation, to unravel the transactions and assert that the mobile phones had not been removed.
There are further subsidiary issues in relation to Section 30(10) of the Value Added Tax Act 1994 (“the 1994 Act”), relating to the power of the Commissioners to impose liability on the purchaser and in relation to Section 81(3) relating to the right of the Commissioners to set-off assessed amounts against input tax lawfully due to the claimants. Finally, an issue arises as to the propriety of moving for judicial review, as opposed to adopting the statutory appeal procedure.
Legislation
Introduction
This case concerns circumstances in which a supply of goods in one Member State to another Member State is exempt from VAT, pursuant to Article 28c(A) of the Sixth Directive. The Commissioners contend that the exemption only applies if the goods have been physically removed from the Member State where they were supplied. Absent proof that the goods have been removed a supplier is liable for VAT in the Member State where the supply takes place. If it emerges that the goods have not been removed from that Member State then the supplier is liable to VAT whatever its intentions at the time of supply.
The claimants’ contention is in direct contradiction to that interpretation. They contend that there is no warrant in the legislation for the requirement to prove actual removal of the goods as a condition precedent for the exemption to apply. They contend that the supplier is exempt if it enters into a contract for the dispatch of the goods from one Member State to another with the intention that they should be dispatched. Once that intention is established, the purchaser becomes liable for VAT in the Member State where it is registered. The legislation is concerned with who is accountable for VAT not with the physical location of the goods.
Legislation concerning domestic supply
In order to place the legislative system relating to the supply of goods from one Member State to another in context, it is necessary to outline the system for charging VAT in relation to a purely domestic supply, by which I mean a supply which takes place solely within one Member State.
The broad principles governing the harmonisation of turnover taxes within the Member States are expressed in the First Council Directive of the 11 th April 1967 (67/227/EEC). The preamble to the Directive records the main object of the Treaty to establish a common market within which there is healthy competition with characteristics similar to those of a domestic market (First Recital); it records the necessity to avoid distortion of competition or hindrance to the free movement of goods and services (Second Recital) and the elimination of distortion of conditions of competition (Third Recital). The principle of neutrality is recorded in the Eighth Recital. The principle of neutrality is expressed in Article 2. It involves:-
“The application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.”
The essential feature of the scheme is that the effect on each supply in the chain of paying input tax and charging output tax should be neutral. The effective payer is the ultimate consumer at the end of the chain. It is that ultimate consumer who has the burden of paying the accumulative tranches of VAT levied at each stage of the transaction. By the Sixth VAT Directive:-
“1. “The supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.”
By Article 8.1:-
“The place of supply of goods shall deemed to be;
(a) in the case of goods despatched or transported either by the supplier or by the person to whom they are supplied or by a third person; the place where the goods are at the time when despatch or transport to the person to whom they are supplied begins.
…………………
(b) in the case of goods not despatched or transported; the place where the goods are when the supply takes place;”
By Article 10.1:-
“(a) “chargeable event” shall mean the occurrence by virtue of which the legal conditions necessary for tax to become chargeable are fulfilled.
(b) “tax becomes chargeable” when the tax authority becomes entitled under the law at a given moment to claim the tax from the person liable to pay, notwithstanding that the time of payment may be deferred.
2. The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed.
…….
By way of derogation from the above provisions, Members States may provide that the...
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