Can a furniture company put its feet up after a victory in R (on the application of DFS Furniture Co Ltd) v Commissioners of Customs and Excise?
WHERE A TAXPAYER and Customs between them agree the terms under which an appeal is to be settled, this is treated as if it were a judicial determination.
Background
Can a furniture company put its feet up after a victory in R (on the application of DFS Furniture Co Ltd) v Commissioners of Customs and Excise?
WHERE A TAXPAYER and Customs between them agree the terms under which an appeal is to be settled, this is treated as if it were a judicial determination.
Background
DFS Furniture Co plc sold furniture and could arrange interest-free credit for its customers. Originally, DFS paid VAT on the full invoice price, but changed its practice following the Court of Appeal's judgment in Primback Ltd v Commissioners of Customs and Excise [1996] STC 757 in April 1996. This case decided that VAT should be charged on the net amount received from the finance house, the balance of the consideration relating to the exempt supply of the arrangement of credit. Events then moved rapidly on, as follows.
- July 1996. DFS made a voluntary disclosure to Customs of an overdeclaration of VAT of £6.2 million.
- September 1996. DFS claimed VAT overpaid for the period June 1990 to March 1993.
- October 1996. Customs, having refused the claim, wrote to DFS to say that they were deferring the voluntary disclosure pending the introduction of the three-year cap.
- 29 October 1996. The tribunal in Royal College of Obstetricians and Gynaecologists (14558) ruled that Customs could not delay repayments under section 80A, VAT Act 1994 (reimbursement arrangements).
- 30 October 1996. DFS made a claim to immediate repayment and lodged appeal under section 83(t), VAT Act 1994 against the decision not to repay VAT claimed under section 80, VAT Act 1994 (recovery of overpaid VAT).
- 11 November. DFS wrote to Customs, referred to the tribunal's decision above and said that it would apply for an extension of the time limit to serve documents in the case of its own appeal on the basis that there was no benefit in either side incurring further costs as Customs should act in accordance with the previous decision. The DFS letter said that 'We will ... only withdraw the appeal once we have received repayment in full'.
- 22 November. DFS's solicitors telephoned Customs, which confirmed that repayment had been authorised.
- 25 November. DFS wrote to Customs, referring to the telephone conversation and requesting written confirmation.
- 26 November. Customs confirmed, but warned that if Parliament approved a three-year cap, DFS would have to repay the overpayment.
- 4 December. Parliament approved the three-year cap.
- 9 December. DFS received repayment.
- 28 January 1997. DFS wrote to the tribunal and Customs withdrawing its appeal on the basis that Customs had settled in full.
- 21 February 1997. Customs acknowledged the DFS letter.
- April 1997. Customs raised an assessment under section 80(4A), VAT Act 1994 to recover the VAT relating to the repayment over three years old.
- June 1997. DFS paid the VAT under that assessment.
The trigger
Nothing further appears to have happened until October 2000, when the Court of Appeal, in R v Commissioners of Customs and Excise, ex parte Building Societies Ombudsman Co Limited [2000] STC 892, decided that section 80(4A) did not allow Customs to recover a repayment that a judicial decision had determined that it should make.
DFS then applied to Customs for repayment of the tax it had paid under the April 1997 assessment on the basis that, under section 85(1), VAT Act 1994, an agreement of an appeal between Customs and an appellant, before it came to a tribunal hearing, was to be treated as if the tribunal had determined the appeal. Customs refused and DFS applied for judicial review of that decision.
The contentions
DFS contended that Customs could not rely on the provisions of section 80(4A), VAT Act 1994 to recover the repayment relating to over three years because, before this was introduced, an agreement had been reached. Consequently, section 85(1), VAT Act 1994 came into play so that 'the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, a tribunal had determined the appeal ...'.
Customs contended that there had not been an agreement under section 85; they had simply paid the amount which they had previously (and unlawfully) deferred. They were thus making payment in accordance with their legal obligations, not in settlement of an appeal; instead DFS had unilaterally withdrawn its appeal.
(R Cordara QC and D Scorey for the company; P Mantle for Customs.)
The High Court, Queen's Bench division judgment
Mr Justice Moses considered that the appropriate test was that of the House of Lords in Scorer v Olin Energy Systems Ltd [1985] STC 218, which referred to settlements under section 54, Taxes Management Act 1970.
'The situation must be viewed objectively, from the point of view of whether the Inspector's agreement to the relevant computation, having regard to the surrounding circumstances including all the material known to be in his possession, was such as to lead a reasonable man to the conclusion that he had decided to admit the claim which had been made.'
So would a 'reasonable man' have assumed that an agreement had been reached? Mr Justice Moses considered that he would. The letter of 11 November contained an offer, which was accepted orally by Customs. Although Customs in their letter of 26 November warned that they would seek recovery of tax overpaid in the event of the introduction of a three-year cap, this did not amount to a counter offer, as DFS were not being asked to agree to anything. The claim by DFS for repayment could not be distinguished from its appeal, which sought that repayment - the two were 'identical and indivisible'. The appeal was settled by DFS withdrawing it in return for repayment being made. Was section 85(3), VAT Act 1994, which required that the agreement be confirmed in writing (either by Customs to the appellant or vice versa), complied with? Mr Justice Moses again considered that it was and it was accepted that such an agreement need not be contained in one document. In his view, the letter of 28 January 1997, acknowledged by Customs on 21 February 1997, notified both the terms of the agreement and that agreement had been reached. Customs could not therefore use section 80(4A) to clawback that settlement.
Decision for the taxpayer
Commentary by Richard Curtis
Some additional points of interest arose from the judgment.
First, it was noted that counsel for DFS argued that discussion of section 85(3) was irrelevant, as an agreement had been reached in common law. This should be sufficient and section 85(3) merely supplemented this. Mr Justice Moses opined that he did not need to consider this point.
Secondly, although Mr Justice Moses admitted that he did not fully understand why DFS had paid the assessment in the first place, Customs 'had the use of money to which they were not entitled and DFS were deprived of that use. It does not seem to me therefore right that that advantage should be maintained'. Interest was awarded from 23 June 1997.
Thirdly, Mr Justice Moses noted that:
'This case has added piquancy because the Court of Justice of the European Communities in Commissioners of Customs and Excise v Primback Ltd [2001] STC 803 decided that the VAT payable on the sale of the furniture was in the circumstances of that case the full amount paid by the purchaser and not the net purchase price received by the seller from the finance house. Thus the Commissioners assert that there never was an overpayment of VAT by DFS. This is disputed by DFS, but it is not necessary either to explain the nature of the dispute, still less to resolve it.'
However, this overturning of the Court of Appeal's decision was not considered further in this case and we await further developments when Customs' appeal in this case is heard by the Court of Appeal.
