West Devon District Council v Commissioners of Customs and Excise
| Jurisdiction | UK Non-devolved |
| Judgment Date | 31 July 2001 |
| Date | 31 July 2001 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
Input tax - Whether attributable to exempt supply - The appellant council received a grant of 336,667 from the European Regional Development Fund to assist with refurbishing and improving a site in Tavistock known as the wharf complex - The work of transforming the building from a shell was carried out at a cost of 830,000 - The appellant received a payment of 130,000 from the Wharf Community Arts Centre and shortly afterwards an agreement for an underlease was made between the appellant and the Arts Centre by which the wharf was leased to the Arts Centre for 35 years at a peppercorn rent - The appellant contended that owing to an oversight, it had failed to charge VAT on the sum received and it was only six months later that an invoice was issued and output tax accounted for in the sum of 19,362 - However, input tax of 89,911 attributable to the building work was disallowed by the commissioners, who claimed that the 130,000 payment was consideration for the grant of an exempt interest in land and, consequently, that the attributable input tax, was non-deductible - The appellant argued that the work in question was not carried out in the course of its business and that the input tax should, therefore, be deductible under Value Added Tax Act 1994 section 33s. 33 of the Value Added Tax Act 1994 - Held, that there was no doubt that the builder's services were supplied to the appellant, but the payment made to the appellant by the Arts Centre was nothing more than a premium paid for the exempt underlease of the property - The commerciality of the lease made it a business transaction so that it could not fall within s. 33 - The appellant's claims that the assessment was incorrectly made and not in the commissioners' best judgment were rejected - Appeal dismissed.
Chancery Division.
Patten J.
Hugh McKay (instructed by Dario Garcia) for the council.
K Beal (instructed by the Solicitor of Customs and Excise) for Customs.
The following cases were referred to in the judgment:
C & E Commrs v Lord Fisher VAT(1981) 1 BVC 392
C & E Commrs v Morrison's Academy Boarding Houses Association VAT(1977) 1 BVC 108
Finanzamt Augsburg-Stadt v Marktgemeinde Welden VAT(Case C-247/95) [1997] BVC 415; [1997] ECR I-779
Football Association Ltd VAT(1985) VATTR 106; (1985) 2 BVC 205,246
National Water Council v C & E Commrs VAT(1978) 1 BVC 199
The City Council of Norwich VATNo. 11,822; [1995] BVC 712
Town Investments Ltd v Department of the EnvironmentELR[1978] AC 359
Ufficio Distrettuale delle Imposte Dirette di Fiorenzuala d'Arda v Comune di Carpaneto Piacentino VAT(Joined Cases 231/87 and 129/88) [1991] BVC 70; [1989] ECR 3233
Value added tax - Input tax - Exempt supply - Local authority - Refund - Assessment - Council granted lease of refurbished arts centre - Council deducted input tax paid to building contractors - Customs issued assessment on basis that input tax attributable to exempt supply of underlease not deductible - Whether grant of underlease was activity undertaken in course of business by council - Whether assessment properly made in respect of single period rather than council's prescribed monthly accounting periods - Value Added Tax Act 1994, s. 33, 73.
This was an appeal by the council from a decision of the VAT and Duties Tribunal (No. 17,107; [2001] BVC 4108)confirming a VAT assessment relating to tax undeclared as a result of various deductions made by the council in respect of input tax charged by a firm of building contractors on invoices for work carried out to premises as part of their conversion into an arts centre.
In 1993 the council applied for and received a grant of £336,677 from the European Development Fund to assist in the refurbishment of a site known as the Wharf as an arts centre. A non-profit making company was formed and in 1994 the council entered into a contract with building contractors for the renovation of the Wharf at a cost of £830,000. The council provided a guarantee of the company's borrowings up to the sum of £130,000. The council and company entered into an agreement for the grant of an underlease. In consideration of the payment of £130,000 by the company, the council agreed to carry out the works of refurbishment and the company agreed to take an underlease for a term of 35 years at a peppercorn rent but on a full repairing basis within 14 days of practical completion of the works. The company paid the council £130,000 and the lease was executed.
The council deducted input tax charged by the building contractors in their monthly invoices. The commissioners disallowed the deductions of input tax on the ground that they were not attributable to a taxable supply of services, the only relevant supply being the grant of the underlease which was exempt. The council appealed to the VAT tribunal arguing that the grant of the underlease was not an activity undertaken in the course of a business and that the input tax was accordingly recoverable under Value Added Tax Act 1994s. 33 of the Value Added Tax Act 1994; that there was a supply of building services by the council to the company so that input tax could be credited underValue Added Tax Act 1994ss. 25 and 26 of the Value Added Tax Act 1994; and that the assessment was void underValue Added Tax Act 1994s. 73 because it related to the whole period from April 1994 to March 1995 instead of each calendar month.
The tribunal decided that the sum of £130,000 had been paid as a premium for the grant of the underlease and that the council did not supply building services to the company. The only supply was the grant of an interest in land which was exempt. The supply comprised in the grant of the underlease was not within Value Added Tax Act 1994s. 33(1)(b) so as to entitle the council to recover the input tax as not attributable to any business. The tribunal rejected the challenge to the assessment under Value Added Tax Act 1994s. 73. The council appealed to the High Court on two grounds alone:
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(i) that the tribunal was wrong to conclude that the Value Added Tax Act 1994s. 33 exemption was unavailable; and
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(ii) that the assessment failed to comply with Value Added Tax Act 1994s. 73(2).
Held, dismissing the appeal:
1. In order to rely on Value Added Tax Act 1994s. 33 the council had to demonstrate that the input tax related to an inward supply of services which was not made for the purpose of any business carried on by it. The Value Added Tax Act 1994s. 33 refund provisions were primarily designed to relieve local authorities of the burden of VAT in relation to supplies made to assist in the carrying out of activities which were not themselves taxable because they fell outside the scope of what could properly be regarded as business; not because a supply was itself an exempt supply.
2. The relevant supply in this case was the grant of the underlease. The letting of property (albeit an exempt supply) could obviously constitute a business, having all the characteristics of a business activity. Profitability was not essential. (C & E Commrs v Morrison's Academy Boarding Houses Association (1977) 1 BVC 108 applied.)
3. The tribunal was right to conclude that the lease was a business transaction which created a business relationship between the parties. It could not be said that the tribunal failed to give adequate weight to the social purpose and context of the arrangements undereu-directive 77/388 article 4(5)art. 4(5) of the sixth Council directive (Directive 77/388) and the council did not act under any special legal regime applicable to its activity as a public authority. Accordingly the Value Added Tax Act 1994 section 33s. 33 ground of appeal failed.
4. If the assessment was made under the power contained inValue Added Tax Act 1994 section 73 subsec-or-para (2)s. 73(2) then it was incorrect. But the procedure in Value Added Tax Act 1994 section 73 subsec-or-para (2)s. 73(2) was not mandatory and the commissioners could, if they wished, exercise the power contained in Value Added Tax Act 1994 section 73 subsec-or-para (1)s. 73(1) on the basis that the returns that had been made were incomplete or incorrect. An assessment made under that power was not limited to any one accounting period. The two provisions were not mutually exclusive and if the assessment could be upheld under either part of Value Added Tax Act 1994 section 73s. 73 it would be upheld. The s. 73 ground of appeal also failed.
Patten J: Introduction and summary of issues
1. This is an appeal by the West Devon District Council ("the council") from the decision of the VAT and DutiesTribunal (chairman, Mr Paul Heim CMG) released on 20 February 2001. It concerns the validity of an assessment for VAT in the sum of £89,911 with interest made on 13 December 1996 in respect of the period from 1 April 1995 to 28 April 1995. The assessment relates to tax undeclared as a result of various deductions made by the council in respect of input tax charged by a firm of building contractors, Hayman Building Contractors ("the contractors"), on invoices for work carried out to premises known as the Wharf in Tavistock as part of its conversion into an arts centre. The total cost of this work was some £830,000 of which £720,000 was provided by the council out of its own funds with the benefit of a grant of £336,667 from the European Development Fund. An additional £130,000 was provided by The Wharf Community Arts Centre Ltd ("the company") under an agreement of 14 November 1994 by which the council undertook to carry out the works of conversion as specified in the building contract with the contractors in consideration of the payment of that sum and the company agreed to enter into an underlease of the Wharf 14 days after practical completion of the works. The underlease was for a term of 35 years at a peppercorn rent but with full...
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