Credit note tax

F supplied cars to the taxpayer under a supply agreement. The taxpayer went into administration and the agreement was terminated.

Under the agreement the property in the cars supplied but not yet paid for reverted to F so F repossessed the cars and issued credit notes to the taxpayer. F obtained a repayment of output tax that it had paid in respect of the sale of the vehicles to the taxpayer. The receivers then bought the cars as they intended to run the business.

As a result the taxpayer paid the output tax without deducting the VAT cost of the acquisition of the vehicles as input tax. It therefore claimed the VAT paid pursuant to the credit notes. The VAT tribunal dismissed the claim so the taxpayer appealed.

The issue before the High Court was whether the tribunal's decision that the credit notes were...