Securicor Granley Systems Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 15 February 1990 |
| Date | 15 February 1990 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following case was referred to in the decision:
British United Shoe Machinery Co Ltd VAT(1977) 1 BVC 1062; (1977) VATTR 187
Credit notes - Issued bona fide and not to write off bad debts - What a valid credit note entailed.Supply deemed to be made at time of issue of tax invoice - Deeming provision did not apply where no actual supply made - Purpose of deeming provision to fix time of supply and not to deem supply made when it was not in fact made - Value Added Tax Act 1983 section 5 subsec-or-para (1)Value Added Tax Act 1983, sec. 5(1).
The issue was whether credit notes issued by the appellant were genuine credit notes or were issued to escape accounting for tax on bad debts, which did not qualify for bad debt relief.
The appellant was a wholly-owned subsidiary of Securicor Group plc. It installed in customers' premises and thereafter hired to them various security systems (mainly intruder alarm systems), and also maintained those systems. The appellant had 19 branches and a headquarters. For commercial concerns the contract ran for three years and thereafter might be ended by three months' written notice on either side. Domestic contracts ran for 18 months before they might be ended by notice.
After installation the branch installing the system issued an invoice for installation and also for the first year's hire and maintenance charge. A copy of this invoice went to headquarters whence computer generated invoices for later annual charges were issued automatically.
When a contract ended the branch sent details to headquarters. During the time lapse between the termination date and the details being entered into the computer, invoices were sometimes issued automatically. To correct the accounting position credit notes were issued to cancel the invoice raised in error. Other errors were also corrected by issue of credit notes. All credit notes were authorised by the appellant's managers at its branches. Bad debts were dealt with at headquarters by the credit control section and written off only on the authority of senior managers.
After a control visit some credit notes were disallowed and an assessment raised. The only relevant reason given by the officers making the assessment to the tribunal was that the appellant had issued credit notes as a means of writing off bad debts.
The appellant contended the credit notes had been issued properly.
The commissioners contended that where, as here, the contracts provided for advance payment for the appellant's services, theValue Added Tax Act 1983 section 5 subsec-or-para (1)Value Added Tax Act 1983, sec. 5(1) deemed the supply to have taken place when the tax invoice in respect of those services was issued, and accordingly the tax was chargeable despite the issue of credit notes.
Held, allowing the company's appeal:
1. A credit note might refer to either, or both, the consideration for the supply and the tax thereon, and it was the duty of the tribunal to satisfy itself that if it were to give effect to the credit note the true liability to VAT of the supplier in respect of the transaction in question would be reflected. This was what was meant by the rule that it was the duty of the tribunal to satisfy itself that the credit note had been issued to give a proper credit.
British United Shoe Machinery Co Ltd VAT (1977) 1 BVC 1062; (1977) VATTR 187 followed.
2. Value Added Tax Act 1983 section 5 subsec-or-para (1)Section 5(1) did not lay down that a supply which did not in fact take place was to be deemed, contrary to the actual facts, to have taken place at the time when a tax invoice had been issued. To interpretValue Added Tax Act 1983 section 5 subsec-or-para (1)sec. 5(1) differently would be contrary to the basic charging sections (i.e. Value Added Tax Act 1983 section 1 section 2sec. 1 and 2). Value Added Tax Act 1983 section 5 subsec-or-para (1)Section 5(1) was concerned only to lay down the time when a supply which actually took place was to be deemed to have...
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