The Commissioners for HM Revenue and Customs v The Rank Group Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer,Lord Justice Beatson,Lord Justice Floyd |
| Judgment Date | 30 October 2013 |
| Neutral Citation | [2013] EWCA Civ 1289 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2009/1409 |
| Date | 30 October 2013 |
[2013] EWCA Civ 1289
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Norris
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Rimer
Lord Justice Beatson
and
Lord Justice Floyd
Case No: A3/2009/1409
Mr George Peretz and Ms Laura Elizabeth John (instructed by the Solicitor for Revenue and Customs) for the Appellants
Mr Paul Lasok QC and Ms Valentina Sloane (instructed by Forbes Hall LLP) for the Respondent
Introduction
This appeal is by The Commissioners for Her Majesty's Revenue and Customs ('HMRC'). The respondent is The Rank Group plc ('Rank'). The appeal concerns certain types of slot machine. It raises the issue whether the takings from such machines were or were not entitled to the VAT exemption for gaming activities applicable at the material time, namely 1 October 2002 to 5 December 2005. The critical question, posed by reference to the VAT legislation then in force, is whether 'the element of chance in the game [played on such a machine] is provided by means of the machine' (my emphasis). If, as HMRC claims, it was, the machine's takings were taxable. If, as Rank claims, it was not, they were exempt.
HMRC has described the disputed machines as 'reconfigured machines'. Rank takes exception to that, preferring to call them 'section 16/21 machines', references respectively to section 16 of the Lotteries and Amusements Act 1976 and section 21 of the Gaming Act 1968 under which Rank says the machines were regulated. HMRC in turn objects to that description on the basis that it begs the question at issue: because if they were section 16/21 machines, they would have been entitled to the tax exemption that Rank asserts and HMRC deny. HMRC's position is that the machines were not section 16/21 machines, but are 'Part III machines', that is machines regulated by Part III of the Gaming Act 1968, section 26(2) of which includes the like language I have quoted in paragraph 1. If so, it is said that they were not entitled to the tax exemption that Rank asserts. I shall call the equipment in dispute 'the disputed machines'.
There is no dispute that an amendment to the claimed exemption that came into force on 6 December 2005 ended the distinction between the types of machine that fuelled the issue raised by the appeal, but the point remains important. If Rank is right that the takings from the disputed machines enjoyed the claimed exemption, it is common ground, following a preliminary ruling in these proceedings by the Court of Justice of the European Union ('the CJEU'), that Rank is entitled to invoke the EU principle of fiscal neutrality to assert that the takings on different machines which did fall to be taxed under the domestic VAT provisions ought not to have been taxed, and that it is entitled to reclaim the VAT it paid in respect of such takings. The machines whose takings were so taxed were indisputably Part III machines.
The appeal is, in money terms, potentially significant. Rank's tax reclaim for the period is of the order of £35m. The outcome of the appeal may also govern other outstanding claims by Rank and other operators. HMRC assert that a failure by it on this appeal may cost it more than £1 billion. Rank is sceptical about that but the rival views on that are anyway legally irrelevant. The appeal is against one aspect of an order dated 12 June 2009 made by Norris J.
Outline of the litigation
By decisions released on 15 May and 19 August 2008, the VAT and Duties Tribunal (Theodore Wallace and A.J. Ring CTA, 'the tribunal') allowed appeals by Rank against decisions of HMRC rejecting 'voluntary disclosures' by Rank, being in effect claims for the repayment of tax said by Rank to have been overpaid. The first appeal was the 'Bingo appeal', the second 'the Slots appeal'. Norris J's judgment ( [2009] EWHC 1244 (Ch); [2009] STC 2304) dismissed HMRC's appeals against both decisions.
HMRC sought permission for a second appeal to this court against Norris J's order, which Jacob LJ gave on 11 August 2009. HMRC advanced two grounds of appeal in the Bingo appeal and three in the Slots appeal. On 20 April 2010, with the parties' consent, this court (the Chancellor of the High Court, Etherton and Elias LJJ) made a reference to the CJEU under Article 267 of the Treaty on the Functioning of the European Union ('TFEU'). The CJEU gave its ruling on 10 November 2011.
Following that ruling, HMRC pursued neither the Bingo appeal, nor ground 3 of the Slots appeal. Rank accepted that the ruling also decided ground 2 of the Slots appeal in HMRC's favour and so we are not concerned with that either. All that remains for decision is ground 1 of the Slots appeal. That is whether the takings on the disputed machines were or were not at the relevant time exempt from VAT under the United Kingdom's domestic legislation. In fact, HMRC accepted at the time that they were exempt, but they have since changed their mind about that. No-one suggests they were not entitled to.
The tribunal's 2008 decision on the slot machine issue was not its last word on the topic. There was a further hearing before the tribunal (by then the First-tier Tribunal) in October 2009, following which the tribunal released its decision on 11 December 2009: [2009] UKFTT 363 (TC). I shall refer to this decision as 'Slots 2' and to the earlier tribunal decision on slot machines as 'Slots 1'. I shall explain later what was in issue at the Slots 2 hearing.
The question of law raised by the appeal falls to be considered against a backdrop of two streams of legislation, referred to in argument as the 'social stream', the main element of which is the Gaming Act 1968, and the 'fiscal stream', the VAT legislation.
The Gaming Act 1968
The Gaming Act 1968 was, until its repeal by the Gambling Act 2005, the principal legislation regulating the gaming industry. It was heavily amended over the years, but we were referred to it as originally enacted. It introduced different regulatory regimes in relation to 'gaming', defined in section 52 as '… the playing of a game of chance for winnings in money or money's worth, whether any person playing the game is at risk of losing any money or money's worth or not'.
Part 1 is concerned with regulating 'Gaming elsewhere than on premises licensed or registered under Part II' of the Act. Section 1(2), however, excludes the application of Part 1 to (a) 'gaming by means of any machine to which Part III … applies', (b) gaming to which section 41 (in Part IV) applies, and (c) gaming which constitutes the provision of amusement with prizes in the circumstances specified in sections 48 and 49 of the Betting, Gaming and Lotteries Act 1963. Section 2 shows that no gaming to which Part I applies shall take place where one or more prescribed conditions are fulfilled, the essential effect of which is that commercial gaming is prohibited.
Part II applies to 'Gaming on premises licensed or registered under [Part II]'. It applies, by section 9, to all such gaming 'which is not gaming by means of a machine to which [Part III] applies'. Section 10 established the Gaming Board for Great Britain, whose duty was to keep under review the extent, character and location of gaming facilities provided on premises licensed or registered under Parts II or III. Section 21 contains special provisions as to 'gaming for prizes' and is the provision under which gaming machines not falling with Part III were regulated. Such machines were known as 'section 21 machines'.
Part III applies to 'Gaming by Means of Machines'. Section 52 defines a 'machine' as including 'any apparatus'. Section 26 provides, so far as material:
'26. – (1) This part of this Act applies to any machine which –
(a) is constructed or adapted for playing a game of chance by means of the machine, and
(b) has a slot or other aperture for the insertion of money or money's worth in the form of cash or tokens.
(2) In the preceding subsection the reference to playing a game of chance by means of a machine includes playing a game of chance partly by means of a machine and partly by other means if (but only if) the element of chance in the game is provided by means of the machine.'
The machine had, therefore, to be a slot machine and the game played on it had to be a 'game of chance', which section 52 defined as not including 'any athletic game or sport, but, with that exception, and subject to sub-section (6) of this section, [including] a game of chance and skill combined and a pretended game of chance and skill combined'. The crucial words for present purposes are those in section 26(2) that confine the application of subsection (1) to a machine in respect of which 'the element of chance in the game is provided by means of the machine'. As I indicated in paragraph 1, like words were later incorporated into the relevant VAT legislation.
The main regulatory provisions in Part III relating to machines to which it applied are in sections 31 to 39. I shall refer to these provisions more fully when I come to the arguments. Such machines were known as 'section 31/34 machines' or, more generally, simply as 'Part III machines'.
The VAT treatment of slot machines
The position from 1973 to 1975
The domestic legislation relating to the VAT treatment of slot machines has changed over time. The original legislation was in the Finance Act 1972, which introduced VAT to the United Kingdom. Schedule 5...
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