Tremerton Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 14 October 1999 |
| Date | 14 October 1999 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Carnwath J.
Greg Sinfield, Solicitor with Lovell White Durrant for the taxpayer.
Melanie Hall (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgment:
Belgian State v Ghent Coal Terminal NV VAT(Case C-37/95) [1998] BVC 139
Edwards (HMIT) v Bairstow ELR[1956] AC 14
Intercommunale voor Zeewaterontzilting (INZO) v Belgian StateVAT(Case C-110/94) [1996] BVC 326; [1996] ECR I-857
Lennartz v Finanzamt München III VAT(Case C-97/90) [1993] BVC 202; [1991] ECR I-3795
Royal and Sun Alliance Insurance Group plc VATNo. 16,148; [2000] BVC 2003
Verbond van Nederlandse Ondernemingen v Inspecteur der Invoerrechten en Accijnzen (Case 51/76) [1977] ECR 113
Webb v EMO Air Cargo (UK) Ltd WLR[1993] 1 WLR 49
Value added tax - Input tax - Re-attribution of input tax from taxable supply to exempt supply - Development project assigned by exempt transaction to a purchaser after input tax was credited on professional fees - Whether input tax attributable to exempt supply - Whether adjustment should be made - Sixth Council directive (Directive 77/388) of 17 May 1977,eu-directive 77/388 article 17 article 20(1)art. 17, 20(1) (OJ 1977 L145/1); Value Added Tax Regulations 1995 (SI 1995/2518), SI 1995/2518 section 101 section 108regs. 101, 108.
This was an appeal by the taxpayer against a decision of the VAT and duties tribunal No. 15,590; [1998] BVC 4127 that adjustment under SI 1995/2518reg. 108 of the Value Added Tax Regulations 1995 (SI 1995/2518) was to be made where input tax had been recovered in respect of VAT paid on professional fees intended to be used in making taxable supplies, but which in fact were used in making an exempt supply.
The taxpayer was a property developer which, in January 1995, entered into an agreement with the Secretary of State for Health to acquire part of the former Royal Brompton Hospital for redevelopment. The intention was to demolish the existing building and construct residential apartments on the site, and in that connection the taxpayer engaged the services of planning consultants, structural engineers, surveyors, architects and solicitors. Since the intended residential development was within the zero-rating provisions, input tax was recovered.
In the event the taxpayer was unable to raise the finance to carry out the development, but found an investor, Victoria Trading, to take over the project. The taxpayer assigned its interest in the site to Victoria Trading with the benefit of the consents obtained.
Customs sought to recover the tax refunded on the basis that it was attributable to the assignment of the project to Victoria Trading which, it was accepted, was an exempt supply. The input tax had been properly deducted under eu-directive 77/388 article 17art. 17of the sixth Council directive (Directive 77/388) and the Value Added Tax Regulations 1995, SI 1995/2518 section 101reg. 101 when the taxpayer had intended to use the supplies for the zero-rated residential development. But once that intention was changed, the deduction ceased to be allowable because the supplies on which tax had been paid were used for the exempt supply to Victoria Trading. Accordingly, there should be an adjustment pursuant to under eu-directive 77/388 article 20(1)art. 20(1)(b)of the sixth directive and reg. 108 of the 1995 regulations.
On appeal to the High Court the taxpayer contended that a decision of the European Court of Justice, where a taxpayer had retained the right to deduction when a taxable project was abandoned, was indistinguishable from the present case and should be treated as overriding SI 1995/2518 section 108reg. 108. Alternatively, member states were permitted only to provide for adjustments in the particular circumstances set out in eu-directive 77/388 article 20(3)art. 20(3) of the sixth directive, which dealt with "capital goods". There was no provision for adjustment in relation to eu-directive 77/388 article 20(1)art. 20(1)(b).
Held, dismissing the taxpayer's appeal:
1. The case decided by the ECJ was not binding in consideringeu-directive 77/388 article 20(1)art. 20(1)(b) of the sixth directive, which was not before the ECJ and there was no decision on it. That case was decided in relation to "investment goods" undereu-directive 77/388 article 20(3)art. 20(3). It could not be inferred that the supplies in issue before the ECJ were used for an exempt supply, or were used at all. The project was simply abandoned and there was no finding as to the subsequent use of the site. In this case the result of the exempt supply was that Victoria Trading took over the development of the site with the benefit of the planning permission obtained by the taxpayer (Belgian State v Ghent Coal Terminal NVVAT(Case C-37/95) [1998] BVC 139distinguished).
2. It was not contrary to the VAT regime for member states to provide for adjustments consequent on eu-directive 77/388 article 20(1)art. 20(1)(b). The mere fact thateu-directive 77/388 article 20(2) article 20(3)art. 20(2) and (3) contained specific circumstances in which adjustment could be made did not mean that a change of use was irrelevant toeu-directive 77/388 article 20(1)art. 20(1)(b) which directed attention to change factors, one of which was the extent to which any inputs used for taxable or exempt supplies might result in adjustment.
3. Adjustment was to be made under SI 1995/2518 section 108reg. 108 of the regulations. The supplies in respect of which input tax had been recovered were to be attributed to the exempt supply to Victoria Trading. The scheme of the legislation is clearly that tax on inputs used in making exempt supplies should not give rise to a right to deduction. That is so, regardless of the tax position of the recipient of the exempt supply.
Carnwath J: This is an appeal by Tremerton Ltd ("the appellant") against a decision of the VAT and duties tribunal of 30 July 1998, that the appellant be required to repay to Customs input tax which it had recovered.
The background facts are set out in the decision. The main points can be summarised briefly. The appellant was, in January 1995, involved in a project for the development of part of the Old Royal Brompton hospital site in Fulham Road. It entered into an agreement to purchase the site for development as a residential property. The appellant was registered for VAT on the basis of its intention to make taxable supplies, namely the sale of zero-rated residential properties.
It incurred some £111,000-odd on the services of planning consultants, structural engineers, surveyors, quantity surveyors, architects, solicitors and other professional people in relation to the proposed development. It is common ground that the appellant were entitled, provisionally, to deduct the input tax incurred in respect of those services, because they were intended for a taxable supply.
However, as matters proceeded the appellant were unable to raise the necessary finance and were forced to abandon their own plans for developing the site. They were, however, successful in finding an investor to take over the project, referred to in the decision as Victoria Trading. A new site purchase agreement was entered into, and Victoria Trading paid the appellant a purchase price, and a further price to the Secretary of State for Health, who owned the site. As a result of that agreement, the appellant assigned to Victoria Trading the benefit of the site purchase agreement and the benefit of the site soil geotechnical and environmental surveys, which had been carried out and commissioned by the appellant in connection with the site. There was also a profit sharing arrangement between the appellant and Victoria Trading, relating to the share of the profits of the development.
Customs sought to recover the input tax, which had been provisionally deducted, on the basis that the services were now attributable to an exempt supply, that is the sale to Victoria Trading. The appellant appealed, but the tribunal, by its decision, held that under the wording of eu-directive 77/388 article 20(1)art. 20(1)(b) of the sixth Council directive (Directive 77/388), and SI 1995/2518 section 108 subsec-or-para (1)reg. 108(1) of theValue Added Tax Regulations 1995 (SI 1995/2518), the commissioners had been entitled to reattribute the input tax from the appellant's intended taxable supply to the actual exempt supply.
The relevant legislation is found in the directive and in the UK legislation. eu-directive 77/388 article...
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