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Tax Cases

29 August 2001
Issue: 3822 / Categories:

Accepted historically

The defendant was an educational establishment registered for VAT, which made both taxable and exempt supplies. The college regularly produced and delivered numerous free prospectuses to households, offices, libraries, schools, career centres and community centres.

Accepted historically

The defendant was an educational establishment registered for VAT, which made both taxable and exempt supplies. The college regularly produced and delivered numerous free prospectuses to households, offices, libraries, schools, career centres and community centres.

Customs and Excise treated the expenditure on the prospectuses as relating to both taxable and exempt supplies. The college recovered a proportion of its input tax under Regulation 101 of the Value Added Tax Regulations 1995 (Statutory Instrument No 2518 of 1995).

The college then sought to recover the whole of the input tax in relation to the prospectuses. The VAT tribunal decided in its favour, and held that the whole of the input tax fell within paragraph 5(1) of Schedule 4 to the VAT Act 1994. This was on the basis that the prospectuses were goods forming part of the assets of a business which were transferred or disposed of so as no longer to form part of those assets and were therefore a taxable supply.

Paragraph 5(2) did not disapply paragraph 5(1) and paragraph 5(5) provided that paragraph 5(1) did not require anything done otherwise than for a consideration in relation to any goods to be treated as a supply except where the taxable person was entitled to input tax credit. This subparagraph therefore did not prevent the application of paragraph 5(1), since the college was entitled to proportionate input tax credit by virtue of Regulation 101.

Customs and Excise appealed to the High Court, contending that paragraph 5(5) did not apply, and that the prospectuses were not goods forming part of the assets of the business of the college but goods used in making exempt supplies of education.

In the High Court Mr Justice Hart held that since Customs had accepted historically the right of the college to deduct part of the input tax in respect of the supplies, it was not open for them to argue that the pre-existing right to input tax credit did not exist. The college was entitled to deduct part of the input tax, and on that footing paragraph 5(5) did not prevent paragraph 5(1) applying.

Since it was not open to the Court to hold that the prospectuses were not at any stage goods, there was no escape from the finding that property in those goods was disposed of by the college on their receipt by the ultimate recipient. Prima facie therefore, paragraph 5(1) applied. There was nothing in the language of the statute, which permitted a working distinction to be drawn between goods such as the prospectuses and goods such as free pens, which might be distributed to promote the college. Accordingly, Customs' appeal was dismissed.

(Commissioners of Customs and Excise v West Herts College, Chancery Division, 20 December 2000.)

Issue: 3822 / Categories:
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