19869

VAT – Repayments – Capping – Claim for output tax overpaid 1991-6 – Three year cap under FA 1997 disapplied – Fleming [2006] STC 864 applied – Claim not barred under VATA s.80(5) before FA 1997 – Appeal allowed

LONDON TRIBUNAL CENTRE

	SEYMOUR CARAVAN SALES LTD	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	THEODORE WALLACE (Chairman)
						ALEX McLOUGHLIN

Sitting in public in London on 16 October 2006

Eamonn McNicholas, counsel, instructed by Jordan’s VAT Consultancy Ltd, for the Appellant 

Sarabjit Singh, counsel, instructed by the Acting Solicitor for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	This was an appeal against a decision by Customs refusing a repayment claim dated 2 July 2003 for £31,819.49 representing output tax overpaid on caravan site reservation fees for the period 1 February 1991 to 31 October 1996 under the three year capping rule in section 80(4) of the VAT Act 1994 as amended by the Finance Act 1997.

2.	At the outset of the hearing Mr Singh applied to amend Customs’ Statement of Case but accepted that on the basis of the decisions of the Court of Appeal in Fleming (trading Bodycraft) v Customs and Excise Commissioners [2006] STC 864 and Condé Nast Publications Ltd v Customs and Excise Commissioners [2006] STC 1721, which were binding on the Tribunal, the Appellant must succeed, although the House of Lords has given Customs leave to appeal in Fleming.  Mr McNicholas did not oppose the amendment although justifiably complaining of its lateness.

3.	No application was made by Customs for this appeal to be stood over.  Customs wrote to the Appellant on 27 March 2006 seeking agreement to a stand-over.  The Appellant did not agree and Customs did not pursue the matter at a directions hearing on 4 May 2006.

4.	Mr Singh informed the Tribunal that Customs reserved the right to appeal against the Tribunal’s decision in this case if the decision of the Court of Appeal in Fleming is reversed in the House of Lords.

5.	In paragraph 23 of the Amended Statement of Case, which was settled by Mr Singh, he stated that Customs do not accept the proposition that the failure of the Finance Act 1997, which introduced the 3 year cap to provide for a transitional period, prevented the cap from applying to claims arising from past overpayments even after a period equivalent to a reasonable and lawful transitional period has already elapsed.

6.	In paragraph 24 he pleaded that Community law does not prevent Member States introducing limitation periods applying to retrospective VAT periods provided that taxpayers with the right to bring such claims are afforded a reasonable transitional period to exercise such right.

7.	In paragraph 25 he pleaded that Customs have afforded taxpayers such a period by not applying the cap to claims made on or before 30 June 1997 or to claims which would have been made within that time if a transitional period had been provided for in the legislation.  This referred to Business Brief 22/02.  He pleaded that the transitional period required by the Court of Justice in Marks and Spencer does not have to be in the form of legislation.

8.	In the following paragraph he pleaded that the Court of Appeal in Condé Nast was wrong to decide that the cap cannot lawfully be applied to taxable persons who could have made a claim before 30 June 1997 but would not actually have done so if the Act had expressly provided for a transitional period.

9.	In paragraph 28 he pleaded that, if a taxpayer would not have put in a claim even if a transitional period had been put in place, the absence of such period has not infringed his right to repayment or prevented the effective exercise of his Community law rights.

10.	In paragraphs 29 to 32 he pleaded that the Appellant would not have submitted a claim if the 1997 Act had included a transitional period to 30 June 1997.

11.	In paragraph 26 of the original Statement of Case it was stated that Customs “broadly agree with” a statement “that the error was discovered in around 2002”.  This paragraph was deleted from the Amended Statement of Case under which in paragraph 32 the following passage appears,

“According to Mr Seymour’s witness statement, from March 1991 onwards he knew about the error which caused him to overpay VAT, yet he failed to make a claim at any stage before 18 July 1996 when the previous cap under section 80(5) of VATA was still in force.”

12.	The Statement of Case concluded by contending that the appeal should be dismissed.

13.	Mr Singh expressly stated in answer to a question by the Tribunal that Customs did not contend that the claim in the present case (which was made in July 2003) would have been barred if the original section 80(5) had been in force. He stated that Customs were not in a position to make such a submission in this case.

14.	We observe that if Customs had sought to keep such a contention open this would have been inconsistent with Mr Singh’s acceptance that on the basis of the Court of Appeal decisions in Fleming and Condé Nast the Appellant must succeed.  Both of those appeals concerned the cap on input tax claims under regulation 29(1A) of the VAT Regulations 1995 as amended in 1997 so that neither involved consideration of section 80 before the amendments by the Finance Act 1997.

15.	In other appeals argued before the Tribunal Customs have contended that, if contrary to their submissions the 3 year cap under the 1997 Act cannot apply to tax overpaid before 18 July 1996, the provisions of the subsections (4) and (5) of section 80 prior to the 1997 Act apply being in effect revived.

16.	If this contention was raised in the present case the decisions of the Court of Appeal in Fleming and Condé Nast would not have been determinative against Customs.  The statement by Mr Singh that Customs are not relying on section 80(5) as it was before the 1997 Act is therefore of crucial importance.

17.	We now turn to the facts in the present case in so far as they are relevant to our decision.

18.	The Appellant sold new and second-hand caravans.  Caravans over 7 metres long or 2.3 metres wide are zero-rated although their removable contents are not.

19.	The Appellant paid reservation fees to the owners of caravan pitches in consideration of the owners of the pitches agreeing to grant 10 year licences to purchasers of the Appellant’s caravans.

20.	Following a visit by Miss McNee, a control officer, on 6 March 1991 the Appellant was instructed by letter dated 12 March 1991 that reservation fees for caravan pitches should be excluded from the selling price of new and used caravans from 1 April 1991 and that the Appellant should account for standard rate VAT on pitch reservation fees.  The Appellant complied with this instruction.

21.	Following visits by him on 5 April 2001, 29 June 2001 and 19 December 2001, in a letter dated 24 January 2002 Ian Chalmers, senior officer, informed the Appellant that the site reservation fee was not a supply by the Appellant but a cost component of the Appellant’s supply which was that of a zero-rated caravan with a standard-rated apportionment for renewable contents. He wrote that he was issuing a VAT assessment capped by law to 3 years for incorrectly declared tax. We note that the word “assessment” was a misnomer since the Appellant had overpaid tax and it was a statement of overdeclared tax. A repayment of £47,964 was made for the periods from 04/98 to 10/01.  Mr Chalmers allowed the repayment to run back three years from his first visit.  On 16 August 2004 after an extended correspondence Customs agreed to pay interest under section 78 on the basis of official error together with an ex gratia payment of £150.

22.	On 2 July 2003 the Appellant’s accountants lodged the claim for repayment for the periods 04/01 to 10/96 which is the subject of this appeal. The accountants asked for an extension of two days because the time limit under Business Brief 27/2002 was 30 June 2003.

23.	On 9 February 2004 Customs wrote that the claim for overpaid output tax was considered to be a misdirection case, but that no misdirection had taken place and no claim was therefore possible.  This appears to have been the first clear response to the claim 9 months earlier.  A letter from the Regional Complaints Unit on 15 June 2004 upheld the decision stating that section 80(4) applied and that the claim could not be accepted as a possible “Marks and Spencer” case.  A further letter on 16 August 2004 from the same unit accepted that there had been official error but stated that there was nothing exceptional to warrant the disapplication of the 3 year cap and that the case did not fall within Business Brief 22/2002.  On 3 December 2004 Miss Val Piper of the Central Region Appeals Team upheld the decision stating that there was nothing to suggest that the announcement of the transitional period in 1996 would have driven the Appellant into action leading to a claim and that the concession in Business Brief 27/02 did not therefore apply.

24.	On 30 December 2004 (misdated 30.01.2004) in a letter to Mr Jordan, Miss Piper maintained the same stance.  Following this letter the Appellant appealed to the Tribunal.

25.	Because Customs reserved the right to appeal while accepting that the Tribunal was bound by Fleming and Condé Nast, Mr McNicholas called Guy Seymour, managing director of the Appellant, to give evidence.  Mr Singh objected to Mr Seymour being called given that Customs accepted that the appeal must be allowed as the law stood.  The Tribunal decided to hear Mr Seymour’s evidence.

26.	Mr Seymour confirmed that his six page statement of 12 May 2006 was correct.  He told the Tribunal that he had shown Miss McNee all the documents which she asked for and had not refused to answer any questions.  She had broached the problem of site reservation fees at her visit but he did not understand her reasons.

27.	He said that the average sale price to customers was £10,000 of which between 2 and 4 per cent was for contents.  The Appellant paid an average site fee of £1000 plus £150 VAT to the site owner.  No separate charge was made to customers.  The £150 was deducted as input tax.  The profit on a sale was only around £200 per caravan before Miss McNee’s ruling.  The requirement to treat part of the £10,000 paid by customers as a taxable site fee reduced the profit to only around £50 per caravan.  Because of competition it was not possible to increase prices.  Before the ruling the Appellant was selling 250 caravans a year.  After the ruling sales fell to 200.

28.	Mr Singh stated that he had no cross-examination.  He was not questioning Mr Seymour as to whether the Appellant would have submitted a claim if the 1997 Act had included a transitional period to 30 June 1997 (see paragraphs 29 to 32 of the Amended Statement of Claim) because of the decisions of the Court of Appeal.  He said that if the decision in Fleming is reversed in the House of Lords and the High Court thereafter allows an appeal in this case, Customs might apply for the matter to be remitted for further findings by the Tribunal; that would depend on the test laid down by the House of Lords.  He submitted that the Tribunal should not make findings on the “would have” issue because the Court of Appeal had held that it was not relevant.

29.	Mr McNicholas asked the Tribunal to record his objection to that course of action.

30.	Mr McNicholas asked for the appeal to be allowed with costs on an indemnity basis because of the late amendment to the Statement of Case.  He relied on his skeleton argument.  He also applied for interest under section 84(8).

31.	In paragraph 6 he stated that the first and preferred ground was that the Appellant had accrued European law rights to claim back from 1991 to 1996 and accordingly section 80(5) applied as before the 1997 Act.  The error, which was that of Customs and only admitted by them in 2002, was not discovered until or around 2002 nor could it have been discovered despite the Appellant using its best endeavours.  The alternative ground applied if the Business Briefs have legislative effect.  Since it is clear that they do not have legislative and this is not suggested by Mr Singh we do not record that submission further.

Conclusions

32.	Since the Tribunal is bound by the decisions of the Court of Appeal in Fleming and Condé Nast that the retroactive 3 year cap falls to be disapplied, with which we respectfully agree in any event, and since Customs have expressly refrained from contending that the Appellant would have been barred under the old section 80(5), the appeal is allowed.  The reason why this decision is not shorter is because of the requirement under Rule 30(1) to give findings of fact and reasons and to assist the High Court in the event of an appeal.

33.	In view of the history of this matter and the comparatively small sum involved, we express the hope that if the decision in Fleming if reversed in the House of Lords careful consideration is given as to whether it is appropriate to pursue an appeal in this case.

34.	We do not however consider that this is an appropriate case for indemnity costs.  We direct the Appellant to serve a schedule of costs claimed, excluding costs on the section 84(8) interest claimed which will be covered separately, within 28 days of release of this decision and that Customs respond with any objections within 42 days of receiving the same.

35.	We also direct the Appellant within 28 days to specify the interest claimed under section 84(8) with particulars.

THEODORE WALLACE
CHAIRMAN

RELEASED: 8 November 2006

LON/05/158