Zipvit Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Henderson,Asplin LJ,Dame Elizabeth Gloster, DBE |
| Judgment Date | 29 June 2018 |
| Neutral Citation | [2018] EWCA Civ 1515 |
| Docket Number | Case No: A3/2017/0184 |
| Court | Court of Appeal (Civil Division) |
| Date | 29 June 2018 |
[2018] EWCA Civ 1515
Lord Justice Henderson
Lady Justice Asplin
and
Dame Elizabeth Gloster, DBE
Case No: A3/2017/0184
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Roger Thomas QC (instructed by Mishcon de Reya LLP) for the Appellant
Mr Sam Grodzinski QC and Ms Eleni Mitrophanous (instructed by the General Counsel and Solicitor to HMRC) for the Respondents
Hearing dates: 28 and 29 November 2017
Further written submissions: 27 April, 16 May and 17 May 2018
Judgment Approved
Introduction
This appeal raises some important questions of principle in the law of value added tax (“VAT”). They arise when supplies of goods or services, which were wrongly assumed by the parties to the relevant transactions and by the Commissioners for Her Majesty's Revenue and Customs (“HMRC”) to be exempt from VAT at the time of supply, are later discovered to have been subject to the standard rate of tax when they were made, following a decision to that effect by the Court of Justice of the European Union (“the CJEU”). Where the recipient of those goods or services was itself a registered trader which made taxable supplies on which it accounted for output tax, the basic question is whether, once the true position has become known, the recipient is in principle entitled to recover as an input tax credit the tax element of the consideration which it paid for the original supplies. If so, does it make any difference if the supplier has failed to pay the tax which should have been paid on the original supplies, and if the recipient is in consequence unable to produce a tax invoice from the supplier showing the amount of the input tax which it seeks to recover?
The matter comes before us on an appeal from Proudman J, sitting alone as a judge of the Tax and Chancery Chamber of the Upper Tribunal, in a lead case which was selected as suitable for obtaining a decision in principle from the Tax Chamber of the First-tier Tribunal (“the FTT”, Judge Mosedale, who also sat alone) on a preliminary issue. The preliminary issue was formulated as follows:
“Whether a taxable person, who has received supplies of services which were at the material time treated by Royal Mail [ the original supplier] as exempt under Value Added Tax Act 1994, but which were properly chargeable to VAT under the Sixth VAT Directive or Principal VAT Directive, is entitled to an input tax credit in respect of those supplies.”
The appellant is a company called Zipvit Limited (“Zipvit”), which carries on the business of supplying vitamins and minerals by mail order. Zipvit is a registered trader for VAT purposes, and its business has at all material times been fully taxable. All of the supplies which it makes to its customers are standard-rated.
On 15 September 2009, Zipvit made a claim under regulation 29 of the VAT Regulations 1995 for input tax which it claimed it had incurred in the period from 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 in respect of 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. Zipvit then appealed from the review decision to the FTT, which heard its appeal in May 2014.
Zipvit used the services of Royal Mail to despatch its mail orders and also to distribute advertisements. The Royal Mail services used by Zipvit included Packetpost, Parcelforce and Mailmedia, but only the Mailmedia supplies were taken as specimen supplies for the purpose of the FTT hearing, because it was common ground that they were all taxable transactions under EU law, and none of them was exempt.
It is common ground that, at the time when Royal Mail supplied the Mailmedia services, those supplies were considered to be exempt from VAT both by Royal Mail and by HMRC. This view was also shared by Zipvit, as the FTT expressly found in paragraph 13 of its decision in principle released on 3 July 2014 (“the FTT Decision”).
This consensus is not surprising, given that the domestic VAT legislation then in force provided exemptions for:
“1. The conveyance of postal packets by the Post Office company.
2. The supply by the Post Office company of any services in connection with the conveyance of postal packets.”
See Group 3 of Schedule 9 to the Value Added Tax Act 1994 (“ VATA 1994”). There is no dispute that Royal Mail was “the Post Office company” within the meaning of those provisions.
The exemptions which I have quoted gave effect to Article 132 of the Principal VAT Directive 2006/112/EC (“the Principal Directive”), and its precursor in the Sixth VAT Directive, which provided that:
“1. Member States shall exempt the following transactions:
(a) the supply by the public postal services of services other than passenger transport and telecommunications services, and the supply of goods incidental thereto.”
This common understanding of the law was, however, shown to be wrong by the decision of the CJEU in 2009 in Case C-357/07, R (on the application of TNT Post UK Limited) v Revenue and Customs Commissioners [2009] ECR I-3025, [2009] STC 1438, which held (in short) that postal services provided by the universal postal provider (i.e. Royal Mail in the UK) were not exempt if they were “individually negotiated”: see the judgment of the Court at paragraphs 41 to 49. The principle of fiscal neutrality required that the scope of the exemption should be confined to services provided by the universal service provider in its capacity as such, and did not include “specific services dissociable from the service of public interest, including services which meet special needs of economic operators” (see paragraph 46).
As the FTT explained at [6] of the FTT Decision, Zipvit's claim to recover input tax was made on the basis that Royal Mail had wrongly treated supplies it made to Zipvit as exempt when they were in law standard rated. There was an outstanding dispute between the parties about the extent of the CJEU's ruling in the TNT case, and precisely which services supplied by Royal Mail to Zipvit were “individually negotiated” and therefore not exempt. The FTT had not been asked to rule on that dispute, as the tax status of the various supplies made by Royal Mail was already before the High Court in different proceedings. It was agreed, however, that the Mailmedia supplies were all standard rated as a matter of EU law. Hence the decision to concentrate on those supplies for the purpose of the FTT hearing, leaving issues of quantum for subsequent determination if they could not be agreed.
It is convenient to note at this point that Judge Mosedale went on to hold that the Mailmedia supplies to Zipvit were also to be treated as standard rated under domestic UK law, on two alternative grounds. First, as a matter of conforming interpretation under the Marleasing principle, the exemption in Group 3 of Schedule 9 to VATA 1994 should be construed in accordance with the CJEU's judgment in TNT. Secondly, even if such a conforming construction were not possible, it would be open to Zipvit to invoke the direct effect of the postal exemption against HMRC, who were refusing Zipvit's claim for input tax. No appeal was brought by HMRC against either of those conclusions, so the case has proceeded before the Upper Tribunal and before us on the footing that the Mailmedia supplies to Zipvit were standard rated under both EU and UK domestic law.
The basic entitlement of a taxable person to deduct input tax from the output tax for which he is liable to account to HMRC is conferred by Articles 167 and 168 of the Principal Directive, which provide as follows:
“ Article 167
A right of deduction shall arise at the time the deductible tax becomes chargeable.
Article 168
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
…”
The FTT dismissed Zipvit's appeal, holding that the words “the VAT due or paid” in Article 168(a) referred to the payment of the relevant VAT by Royal Mail to HMRC, and that this condition had not been satisfied, for reasons given in the FTT Decision at [134] to [148]. This conclusion, if correct, was alone enough to determine the appeal in HMRC's favour, but the FTT went on to consider the absence of a VAT invoice from Royal Mail to Zipvit, finding that HMRC were entitled to exercise their discretion under regulation 29 of the VAT Regulations 1995 to reject the alternative evidence provided by Zipvit of its having received taxable supplies for the purposes of its trade. The FTT accepted that HMRC's approach to the exercise of their discretion had been flawed, but decided that, even if they were to remake the decision, their conclusion would inevitably have been the same, essentially because Zipvit “never suffered the economic burden of VAT on the supply to it of Mailmedia services by Royal Mail”: see the FTT Decision at [198].
The neutral citation of the FTT Decision is [2014] UKFTT 649 (TC), and it is reported at [2014] SFTD 1309.
Zipvit's appeal to the Upper Tribunal was heard by Proudman J, over three days in March 2016. By her decision (“the UT Decision”) released on 27 June 2016, she dismissed the appeal. On the “due or paid” issue, it was common ground, and Proudman J...
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