TC03773: Zipvit Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 03 July 2014 |
| Neutral Citation | [2014] UKFTT 649 (TC) |
| Date | 03 July 2014 |
| Court | First-tier Tribunal (Tax Chamber) |
[2014] UKFTT 649 (TC)
Judge Barbara Mosedale
R Thomas QC instructed by DLA Piper UK LLP appeared for the Appellant
S Grodzinski QC and Ms E Mitrophanous, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Value added tax - Supply of individually negotiated postal services treated by all parties as exempt from VAT - Customer seeking to reclaim input VAT on supply from HMRC - Whether services standard rated under Marleasing SA v La Comercial Internacional de Alimentacion SA (Case C-106/89) [1990] ECR I-04135 or Becker v Finanzamt Münster-Innenstadt (Case C-8/81) [1982] ECR 53 - Yes - Whether VAT was "due or paid" - No - Whether HMRC's exercise of discretion to refuse input tax recovery in absence of invoices flawed - Yes but decision would inevitably have been the same if all relevant matters considered - Preliminary issue decided against the appellant - Appeal dismissed.
The First-tier Tribunal (FTT) considered the preliminary, but decisive, issue of whether a taxable person in receipt of supplies of postal services wrongly treated by Royal Mail as exempt was entitled to input tax credit in respect of those supplies. In the opinion of the FTT, it was not. That finding on the preliminary issue was sufficient to resolve the appeal in favour of HMRC.
The appeal was against a decision of HMRC to refuse a claim for input tax credit in respect of VAT alleged by the taxpayer to have been incurred in the period March 2006 to June 2009, in the sum of £383,599.
The taxpayer company carried on the business of supplying vitamins and minerals by mail order. It used the services of Royal Mail to despatch the orders and to distribute advertisements. At the time the postal services were supplied, Royal Mail and HMRC considered that they were exempt from VAT, but the ECJ ruled in 2009 in the case of TNT Post UK LtdECAS (C-357/07) [2009] BVC 389 that the postal exemption was limited and that postal services provided by the UK's universal postal provider (Royal Mail) were not exempt if they were individually negotiated.
The taxpayer's claim was based on the proposition that Royal Mail had wrongly treated its services as exempt when they were properly standard-rated. The extent of "individually negotiated" services was still to be resolved under separate litigation. It was common ground, however, that Royal Mail's "Mailmedia" supplies were standard-rated as a matter of EU law and the tribunal was asked to consider the taxpayer's claim in principle in so far as it related to those services. It was agreed that the tribunal would decide as a preliminary issue whether a taxable person who has received supplies of services which were at the material time treated by Royal Mail as exempt but which were properly chargeable to VAT was entitled to input tax credit in respect of those supplies.
It was accepted by HMRC that, as a matter of EU law, Royal Mail's supplies of Mailmedia services should have been standard-rated. The taxpayer submitted that the supplies were standard-rated as a matter of UK law as well and, accordingly, that it was entitled to recover from HMRC as input tax the output tax which Royal Mail should have accounted to HMRC for but did not. Alternatively, if the taxpayer was wrong on that point, it claimed that it was entitled to rely on the direct effect of the provisions of EC Directive 2006/112 (the 2006 VAT Directive) which made the supply of Mailmedia services-standard and entitled it to recover the VAT which should have been accounted for by Royal Mail. Although the taxpayer was unable to provide a VAT invoice to substantiate its input tax claim, it submitted that HMRC should accept alternative evidence that the supplies took place.
The tribunal found that the principles established in Marleasing SA v La Comercial Internacional de Alimentation SA (C-106/89) [1990] ECR I-4135 required it to adopt a conforming construction of the UK's postal exemption, which meant that the Mailmedia supplies were standard-rated as a matter of UK law. Moreover, on the taxpayer's alternative submission, the tribunal found that the taxpayer could invoke direct effect of the postal exemption against HMRC, so that even if the tribunal had not adopted a conforming interpretation, it would not be open to HMRC to defend the appeal on the grounds that Royal Mail's supplies of Mailmedia services were exempt under UK law.
The difficulty for the tribunal was that eu-directive 2006/112art. 168 of the 2006 VAT Directive entitles a taxable person to deduct from the VAT he has to pay "the VAT due or paid" in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person. So the right to deduct arose even if the customer had not paid any part of the contract price, so long as the VAT was "due or paid" by the supplier. It was agreed that VAT had not been paid to HMRC by Royal Mail on supplies of Mailmedia services, so the question was whether the VAT was "due" at the time of the taxpayer's voluntary disclosure.
The tribunal found the authority of Société Véléclair v. Ministre du budget, des comptes publics et de la réforme de l'État (C-414/10) [2012] ECR I-0000 to be highly relevant and decisive. The ECJ in that case held that there must be an "enforceable tax claim". It was not enough, therefore, to show that the supply was subject to VAT. There was no enforceable tax claim against Royal Mail. In the judgment of the tribunal, the taxpayer was not entitled to input tax credit in respect of the supplies because VAT was not "due or paid". In any event, the taxpayer did not hold a VAT invoice and HMRC's decision not to accept alternative evidence could not be impugned. The appeal was dismissed.
As the lead case in the long-running "postal services" dispute, this decision will affect many taxpayers who have made similar claims or who are waiting to claim. Since VAT of up to £1bn rests on the outcome of this appeal it is inevitable that the decision of the FTT will be appealed to a higher court before the matter is resolved.
[1]The appellant made a claim on 15 September 2009 under regulation 29 of the VAT Regulations 1995 for input tax which it claimed it had incurred in the period 31 March 2006 to 30 June 2009 in the sum of £383,599. It made a further claim on 8 April 2010 for £31,164 for the next two accounting periods. HMRC rejected the claims on 7 May 2010 and upheld this decision in a review letter dated 2 July 2010. That review decision is now under appeal.
[2]The appellant carried on a fully taxable business of supplying vitamins and minerals to its customers by mail order. It used the services of Royal Mail to despatch its mail orders and also to distribute advertisements. It is accepted that Royal Mail and HMRC at the time Royal Mail made these supplies to Zipvit considered that the supplies were exempt from VAT.
[3]However, the CJEU ruled in 2009 in the case of R (on the application of TNT Post UK Ltd) v R & C CommrsECAS (Case C-357/07) [2009] BVC 389 that the postal exemption was limited. The Court said:
[42]… under [the Directive], the supply of services by the public postal services and supply of goods incidental thereto are exempted from VAT. Only passenger transport and telecommunications services are expressly excluded from the scope of that provision.
[43]However, … it may not be inferred from that provision that all the supplies of services by the public postal services and supplies of goods incidental thereto which are not expressly excluded from the scope of that provision are exempted, regardless of their intrinsic nature.
[44]It follows from the requirements referred to in paragraph 31 of this judgment that the exemption … must be both strictly interpreted and interpreted consistently with the objectives of that provision, that the supplies of services and of goods incidental thereto must be interpreted as being those that the public postal services carry out as such, that is, by virtue of their status as public postal services.
…
[46]…it follows… in particular, from the nature of the objective pursued by article 13A(1)(a), which is to encourage an activity in the public interest, that the exemption is not to apply to specific services dissociable from the service of public interest, including services which meet special needs of economic operators …
[47]…services supplied by the public postal services for which the terms have been individually negotiated cannot be regarded as exempted… By their very nature, those services meet the special needs of the users concerned.
[48]That interpretation is, moreover, confirmed by recital 15 in the preamble to Directive 97/67, from which it is apparent that the option to negotiate contracts with customers individually does not correspond, in principle, with the concept of universal service provision.
[4]The ruling at paragraph 49 was:
Consequently, …the exemption provided for in article 13A(1)(a) of the Sixth Directive applies to the supply by the public postal services acting as such that is, in their capacity as an operator who undertakes to provide all or part of the universal postal service in a Member State of services other than passenger transport and telecommunications services, and the supply of goods incidental thereto. It does not apply to supplies of services or of goods incidental thereto for which the terms have been individually negotiated. (my emphasis)
[5]In brief, the effect of the CJEU's ruling in TNT was that postal services provided by the universal postal provider (the Royal Mail in the UK) were not exempt if they were "individually negotiated".
[6]The appellant's claim was made on the basis that Royal Mail had wrongly treated supplies it made to Zipvit as exempt when the services were in law standard rated....
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