Wyvern Shipping Company Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 15 June 1978 |
| Date | 15 June 1978 |
| Court | Queen's Bench Division |
Queen's Bench Division.
Mr. A. Urquhart (instructed by Messrs. Giffen Couch and Archer, Leighton Buzzard) for the company.
Mr. D. Friedman (instructed by the Solicitor for Customs & Excise) for the Crown.
Before: Neill J.
Value added tax - Second-hand goods - Taxpayer purchasing bare hull of boat and fitting out and commissioning it for use in its business - Whether cost of acquisition included such fitting out and commissioning costs - Subsequent sale of boat - Value Added Tax (Boats and Outboards Motors) Order 1975, eu-directive notrep article 3(1)(b) article 3(1)4art. 3(1)(b) and 4 (now Value Added Tax (Special Provisions) Order 1981, eu-directive notrep article 4art. 4).
This was an appeal by Wyvern Shipping Co. Ltd. ("the company") against part of a decision of the London Value Added Tax Tribunal which dismissed its appeal against a decision of the Commissioners that the acquisition costs of a second-hand boat did not include fitting out and commissioning charges.
The company carried on the business of building boats and hiring them out for pleasure. Between 1964 and 1967 the company puchased the hulls of three old ships and then fitted out and commissioned those hulls as boats for use in its hiring business. It also purchased one new purpose built hull which was similarly fitted out and commissioned. All four boats were sold by the company between 1975 and 1977: The Commissioners claimed VAT from the company in respect of the sales on the grounds that tax was payable on the excess of the sale price of the boats over the cost of acquiring the bare hulls. The company appealed contending that tax was payable only on the excess of the sale price over the aggregate of the cost of acquiring the hull and fitting out and commissioning the boat. The "acquisition" of and "supply" to the company of each boat only took place when the boat was completed and ready for use and therefore the consideration for which each boat was acquired included fitting out and commissioning costs. The VAT Tribunal rejected this argument and the company appealed.
Held, dismissing the taxpayer's appeal:
For the purposes of the Value Added Tax (Boats & Outboard Motors) Order 1975, eu-directive notrep article 3(1)(a)art. 3(1)(a) the "supply" and "acquisition" of each boat was complete when the original hull was purchased. The process of acquisition could not be said to continue until each boat was fitted out. It followed that the original hull only was the "boat" for the purpose of calculating the margin between the cost of acquiring the boat and the cost of its sale by the company.
Neill J.: This is an appeal by the Wyvern Shipping Company Limited ("the Company") against part of the decision of the VAT Tribunal sitting at the London Tribunal Centre which was notified to the Company by a notice dated 12 December 1977. The appeal to the Tribunal was brought under sec. 40(1)(c) of the Finance Act 1972.
The Company carry on business near Leighton Buzzard. Their business includes both the building of boats and the hiring of boats for pleasure purposes on canals. I understand that it is the general practice of the Company, in order no doubt to keep the fleet of boats for hire up to date, to purchase two boats every year and to dispose of two boats which need replacing.
I am concerned in this appeal with four boats in that fleet which were sold by the Company between 1975 and 1977. The matter in dispute between the Company and the Customs and Excise is the amount of VAT payable by the Company on those sales.
The controversy between the parties has arisen in the following way. At the time relevant to this appeal, there was in force a statutory instrument, the Value Added Tax (Boats and Outboard Motors) Order 1975 (S.I. No. 745 of that year, which has been replaced by a new Order No. 1796 of 1977) whereby it was provided, putting the matter in general terms, that in certain circumstances on the sale of a second-hand boat, the VAT was chargeable not on the price received from sale but on the excess, if any, of that price over the consideration given when the boat was acquired. The dispute in respect of each of the four boats is as to what was the consideration on acquisition and therefore what was the margin between that consideration and the sum received when the boat was sold.
The Company say that they were entitled to include in the consideration for the acquisition the cost of commissioning the boats and putting them into a state in which they could be used for their business. It will be necessary to consider this submission in further detail but, in essence, the case for the Company in respect of each of the boats is this:
We bought a bare hull; it was not then in any real sense a boat and it only became a boat when we had done a lot of work on it and put it in a proper state of repair.
They therefore claim that tax is payable only on the amount by which the sale price of the boats exceeded the aggregate cost of the hulls and the cost of fitting out and commissioning the boats so as to be fit for use.
The Tribunal decided inter alia that tax was payable not on this sum but on the larger margin between the sale price and the cost of the hulls. It is against this part of the decision that the instant appeal is brought.
In these circumstances, I think I should start by stating the basic facts relating to the four boats as they appear from the decision of the Tribunal. The boats were named respectively "Olive", "Hesperus", "Theophilus" and "Miranda".
"Olive" was bought in 1964 at a hull cost of £875. It was 55 feet in length, its hull was made partly of wood and partly of steel. In the hull there was an obsolete engine and a boatman's cabin but these were removed by the...
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