Redcats (Brands) Limited v Her Majesty's Revenue & Customs, V 19648
| Jurisdiction | UK Non-devolved |
| Judge | David DEMACK |
| Judgment Date | 26 May 2006 |
| Respondent | Her Majesty's Revenue & Customs |
| Appellant | Redcats (Brands) Limited |
| Reference | V 19648 |
| Court | First-tier Tribunal (Tax Chamber) |
19648
VAT — mail order companies — whether change in terms of trading conditions resulted in their continuing to make gifts of catalogues either at common law — yes — if not, did ownership pass when sent out pursuant to contract — yes — if not, did ownership of the catalogues pass when sent out pursuant to reg 24 Consumer Protection (Discount Selling) Regs 2000 — yes — was catalogue charging clause ineffective as not forming part of contract for goods — yes — was sale of catalogue prevented from being a supply — yes — does principle laid down in Card Protection Plan apply — no — does doctrine of abusive practice apply — yes — appeal dismissed
MANCHESTER TRIBUNAL CENTRE
REDCATS (BRANDS) LIMITED Appellant
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Tribunal: David Demack (Chairman)
Brian Strangward
Sitting in public in Manchester on 18 – 20 April 2005 and 21 – 25 November 2005
Christopher Vajda QC and Ian Hutton, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents
© CROWN COPYRIGHT 2006
DECISION
Introduction-
The appellant company, Redcats (Brands) Ltd (“Redcats”), carries on the business of selling clothing and household goods by mail order, and providing financial services to purchasers of those products. It advertises its wares in bi-annual catalogues. Until 2000 it supplied the catalogues to its customers (other than to internet customers) free of charge. It then planned and put into operation a scheme (“the scheme”) whereby it amended its trading conditions by purporting to introduce a zero rated charge for each catalogue, and to make a commensurate reduction in the price of the mainly standard rated goods ordered from it. Redcats acknowledges that the sole purpose of the scheme was to reduce the output tax on its sales of catalogue goods.
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HMRC for Her Majesty’s Revenue and Customs (“HMRC”) did not accept that, following the introduction of the scheme, Redcats supplied each catalogue for consideration, and maintained that it continued to make a gift of it. Consequently, to recover output tax they considered it had underdeclared, on 15 March 2002 they assessed it to VAT of £1,144,273 in respect of periods 03/00 to 12/00 inclusive, and on 12 September 2002 to VAT of £1,211,040 in respect of periods 03/01 to 12/01 inclusive. It is against those assessments that Redcats now appeals. (We note that part of the assessment of 12 September 2002 may be out of time, but as it was a point neither party raised before us, we proceed on the basis that it is not something with which the parties require us to deal).
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In its Notice of Appeal, given on 30 April 2002, Redcats gave its reason for appealing as:
“HMRC contend that Redcats (Brands) Ltd, and, other companies within its VAT group make no separate supplies of catalogues to their customers. The company rejects this contention and considers that supplies of catalogues have been made which have been correctly treated as zero-rated under Schedule 8, Group 3 of the VAT Act 1994.”
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In contrast, HMRC made four claims in the re-amended statement of case:
“a. There is no contract as a matter of domestic law for the supply of a catalogue as claimed by the Appellant:
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there is no contract for the supply of the catalogue;
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the catalogues are unsolicited;
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The catalogues are not supplied for consideration
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Alternatively, if there is a supply of the catalogue, that supply is ancillary to the supply of the goods;
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Alternatively, the tax advantage sought under the arrangement falls to be disallowed under the Abuse of Rights principle: Case C-110/99, Emsland-Starke, 2000 ECR I-11569.”
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The ‘principle of preventing abusive practices’ was the subject of part of the judgment of the Court of Justice of the European Communities (“the ECJ”) in Halifax plc and others v Commissioners of Customs and Excise (Case C-255/02) [2006] STC 919 which judgment was delivered after the hearing of the present appeal had ended. As the principle is of considerable importance in relation to one particular question before us, the parties agreed to make written submissions on it which we must take into account in reaching our decision.
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Most of our findings of fact are set out at paragraphs [8] to [55] of our decision and are followed at paragraphs [61] to [242] by the submissions of the parties and our conclusions on the seven questions before us. Those questions are as follows:
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Did ownership of the catalogues pass when they were sent out by Redcats by way of an unconditional gift?
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If not, did ownership of the catalogues pass when they were sent out, pursuant to a contract with the recipients?
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If not, did ownership of the catalogues pass when they were sent out, pursuant to regulation 24 of the Consumer Protection (Discount Selling) Regulations 2000 (“the DS Regulations”)?
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Was the catalogue charging clause ineffective because it did not form part of the contract which Redcats and the customer entered into when the customer ordered goods from the catalogue?
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Was the sale of the catalogue prevented from being a supply for VAT purposes?
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Does the principle laid down in the case of Card Protection Plan Limited v Commissioners of Customs and Excise [1999] STC 270 (“CPP”) apply?
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Does the doctrine of abusive practice apply?
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Questions 1 – 4 relate to domestic law issues; 5, 6 and 7 are issues concerned with the VAT analysis of the supply of catalogues.
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The case for Redcats was presented by Kevin Prosser QC leading Andrew Hitchmough, and that for HMRC by Christopher Vajda QC leading Ian Hutton. We were presented with seven agreed bundles of copy documents and took oral evidence from:
(a) Mrs Marion McKenzie-Green, group finance director of Redcats UK plc;
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Mr Robert Mitchell, group finance director of Littlewoods (another mail order trader);
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Mr Frederick William Oakes, solicitor and company secretary of both Redcats UK plc and Redcats; and
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Mr Iain Campbell, an officer of HMRC.
From that evidence, we make the following findings of fact.
The Facts-
Redcats is a wholly owned subsidiary of Redcats UK plc, itself a wholly owned subsidiary of the French company Redcats (SA), in turn a wholly owned subsidiary of Pinault Printemps Redoute, a multi-national company. Redcats is the representative member of a VAT group, the members of which, as mentioned above, carry on business as mail order retailers and providers of financial services. Its main method of advertising the products it has for sale and obtaining orders for them is by means of bi-annual (Spring/Summer and Autumn/Winter) catalogues. In all, the group produces seven catalogues, namely Empire, The Store, La Redoute Verbaudet, Daxon, Igloo and Chadwick. Redcats itself, which until 2000 was called Empire Stores Limited, sells goods through the Empire and The Store catalogues. For convenience we shall throughout our decision refer to Redcats and to the Empire catalogue, any differences with other group members and other catalogues, including on-line catalogues, being noted where relevant. Redcats also has an internet catalogue through which it sells goods on-line. Currently some 15 per cent of Empire sales are on-line; other Redcats brands make lower percentages of on-line sales. Catalogues have a life of some six months, becoming obsolete at the end of the season for...
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