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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Customs and Excise, Re Decision of the Edinburgh VAT and Duties Tribunal [2003] ScotCS 280 (07 November 2003) URL: http://www.bailii.org/scot/cases/ScotCS/2003/280.html Cite as: [2003] STC 201, [2003] ScotCS 280 |
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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION XA155/02 |
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Lord Marnoch Lord Osborne Lord Wheatley
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OPINION OF THE COURT delivered by LORD OSBORNE in Appeal to the Court of Session under section 11 of The Tribunals and Inquiries Act 1992 by THE COMMISSIONERS OF CUSTOMS & EXCISE Appellants; against A Decision of the Edinburgh VAT and Duties Tribunal, dated 17 October 2002 and communicated to the appellants on 18 October 2002.
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Act: A. R. W. Young, Esq., Adv.
Alt: (No appearance)
7 November 2003
Background
[1] The appellants in this appeal, the Commissioners of Customs & Excise, appeal to this Court against a decision of the Edinburgh VAT and Duties Tribunal, hereinafter referred to as "the tribunal", dated 17 October 2002. That decision was concerned with the issue of the recoverability of input tax amounting to £5,372.00 paid when the taxpayer, Charles Henry Skellett, trading as Vidcom Computer Services, purchased, by hire purchase, a Mitsubishi Shogun motor vehicle. There is no dispute but that the taxpayer intended to use the vehicle for the purposes of his business, which consisted in the supply, repair and maintenance of bespoke hand-built personal computers, networked computer servers and related equipment.[2] The matter arose in this way. Following upon the purchase of the motor vehicle mentioned, the taxpayer sought to deduct the input tax incurred in consequence of the purchase. The appellants denied his entitlement to make the deduction, as a result of which the taxpayer appealed to the tribunal. That appeal involved questions of interpretation of the provisions of the Value Added Tax (Input Tax) Order 1992, (S.I. 1992 No. 3222), and, in particular, Article 7(2G)(b) and their application to the circumstances of the transaction. The taxpayer was successful in his appeal to the tribunal, which held that, had the present appellants properly considered all the material before them, they would have been bound to conclude that the relevant condition for recoverability had been satisfied and that the taxpayer was accordingly entitled to deduct in his return the value added tax incurred on the acquisition of the motor vehicle. By failing so to conclude, the tribunal held that the present appellants had fallen into error, an error that they were not entitled to make. The tribunal accordingly concluded that the assessment in the sum of £5,372.00 plus interest was not made to best judgement, although it was recognised that the taxpayer's claim to deduct input tax on the acquisition was excessive to the extent of £282.98.
Submissions
[3] In the appeal before us, the taxpayer was not represented. Counsel for the appellants, in introducing the appeal, explained that the appellants saw the decision of the tribunal as important, since it had not followed the decision of the Court of Appeal in England in Commissioners of Customs & Excise v Upton [2002] STC 640. It was explained that, prior to the decision in that case, there had been a divergence of approach on the part of different tribunals in relation to the legislation in question. It had been thought that the decision of the Court of Appeal had clarified and settled the proper approach. While that decision was binding upon tribunals in England, in Scotland it was simply highly persuasive; yet in the decision now challenged, the Scottish tribunal had not followed it. It was explained that the different approaches could be described as, first, the subjective approach, which focused solely upon the intention of the individual taxpayer, and second, the objective approach which concentrated more upon the factual circumstances of the transaction. In the Commissioners of Customs & Excise v Upton the latter approach had been favoured.[4] Outlining the statutory background, counsel for the appellants explained that since 1973 legislation had been in force in the United Kingdom which had had the effect of restricting the recoverability of input tax incurred on the purchase of motor cars. This legislation took the form of what were referred to as "blocking orders". Their existence reflected a policy adopted to deal with the problem of the ambiguous position of a motor car purchased by a taxpayer, which might be used for both private and business purposes. These blocking orders were related to the state of matters set forth in the E.C. Sixth Council Directive (77/388/EEC) Article 17, paragraph 6, which provides as follows:
"Before a period of four years at the latest has elapsed from the date of entry into force of this Directive, the Council, acting unanimously on a proposal from the Commission, shall decide what expenditure shall not be eligible for a deduction of value added tax. Value added tax shall in no circumstances be deductible on expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment. Until the above rules come into force, Member States may retain all the exclusions provided for under their national laws when this Directive comes into force."
Thus, that part of that Directive provided for what might be described as a standstill provision.
[5] The United Kingdom car blocking orders had been considered in Royscot Leasing Limited & others v Customs & Excise Commissioners [1999] STC 998, a decision of the Court of Justice of the European Communities. In that case it was held that Article 17(6) of the Sixth Directive authorised Member States to retain national rules which denied taxable persons the right to deduct, not only value added tax on means of transport which constituted the very tools of their trade, but also value added tax relating to the motor vehicles which were not, in any particular case, capable of being used privately. The Court further held, on the basis of provisions of the Second Directive, that there was a clear intention not to limit the authorised exclusions to expenditure for goods and services capable of being used for private purposes. In excluding from the right of deduction certain goods such as motor cars, the United Kingdom had not impaired the general system of the right of deduction, but had made use of an authorisation derived from the Second Directive. The Court also pointed out that cars were goods which, by their very nature, were capable of being used exclusively or partially for the private needs of a taxable person. In the same connection reference was made to E.C. Commission v French Republic [2003] STC 372 and also to Metropol Treuhand Wirtschaftstreuhand gmbH v Finamzlandesdiretion für Steiermark, etc. (unreported) 8 January 2002, decisions of the Court of Justice of the European Communities. In the latter case the Court clarified the effect of Article 17(6) of the Sixth Directive, holding that a Member State was precluded from excluding, after the entry into force of the Sixth Directive, expenditure relating to certain motor vehicles from the right to deduct value added tax where, at the date of entry into force of that Directive, that expenditure gave rise to the right to deduct value added tax in accordance with a consistent practice of the public authorities of that state on the basis of a ministerial circular. In short, it was explained that this case showed that the scope of blocking might not be extended, but could be relaxed.[6] Turning to the particular blocking order involved in this case, counsel for the appellants drew our attention to the Value Added Tax (Input Tax) Order 1992 (S.I. 1992 No. 3222). In article 2 of this Order, there was a definition of "motor car", which plainly applied to the vehicle involved here. Article 7(1) of the Order was the operative provision, which the appellants contended excluded recoverability in the present case. It provides that:
"Subject to paragraph (2) to (2H) below tax charged on - (a) the supply (including a letting on hire) to a taxable person; .... of a motor car shall be excluded from any credit under Section 25 of the Act."
Article 7(2) of the Order provides as follows:
"Paragraph (1) above does not apply where - (a) the motor car is (i) a qualifying motor car; ... and (iii) the relevant consideration is satisfied; ...".
Paragraph (2A) contains a definition of a "qualifying motor car" for the purposes of paragraph 7(2)(a). The "relevant condition" mentioned in Article 7(2)(a)(iii) is to be found in paragraphs (2E) and (2G) of the Article. Paragraph (2E) provides as follows:
"For the purposes of paragraph (2)(a) above the relevant condition is that the letting on hire, supply, acquisition or importation (as the case may be) is to a taxable person who intends to use the motor car either (a) exclusively for the purposes of a business carried on by him, but this is subject to paragraph (2G) below; ..."
Paragraph (2G) of the article is in the following terms:
"A taxable person shall not be taken to intend to use a motor car exclusively for the purposes of a business carried on by him if he intends to - ... (b) make it available (otherwise than by letting it on hire) to any person (including, where the taxable person is an individual, himself, or where the taxable person is a partnership, a partner) for private use, whether or not for a consideration."
[8] At this point in his submissions, counsel for the appellants proceeded to consider Customs & Excise Commissioners v Upton (trading as Fagomatic) [2001] S.T.C. 912. It was there held by Sir Andrew Morritt, V-C, that the test prescribed in both paragraphs (2E)(a) and (2G)(b) was one of intention as to the future use of the car. The test had to be applied at the time of the supply of the car. Where the taxable person was an individual or a partnership the range of possible personal users included the taxable person himself. It was still necessary to consider whether, given that the car was available for private use, the taxable person intended to make it so. In that case, the taxpayer had not made or intended to make any arrangements either to allow or to exclude his personal use of the motor car. However, the concept of a taxpayer taking any positive action to make his own property available for his own private use was unreal. The article was unworkable if, in the case of a personal use by the taxable person, it was necessary to show that he intended to take any positive action to make his own property available for private use by himself. Accordingly, the consequence of his acquisition of the car would be to make it available for his private use, unless he took positive steps to render it unavailable. Thus the requirement of paragraph (2G)(b) that the taxable person intended to make the car available for his own private use, would be satisfied if, on the acquisition of the car, the taxable person intended not to take any step to exclude the necessary consequence of his ownership. In other words, a car might be "made available" if it was available in fact and the owner did nothing to prevent its private use by himself. In the circumstances of the case, the test prescribed by Article 7(2G) had not been satisfied. Our attention was drawn to the observations of the Vice-Chancellor at pages 914-917. It was an underlying feature of the judgment that a person was to be held to intend the natural consequences of his own actions.
[9] Following the decision at first instance just referred to, the taxpayer appealed to the Court of Appeal. The appeal is reported at [2002] STC 640. The Court of Appeal had held that the tribunal had treated the test of paragraph (2G)(b) as being in effect the same as that of paragraph (2E), so that if the taxable person intended to use the car exclusively for the purposes of a business carried on by him, he could not intend to make it available to himself for private use. However, the intention specified in paragraph (2E)(a), viz to use, was not synonymous with the intention specified in paragraph (2G)(b), viz to make available for use, nor did an intention to use a car exclusively for business purposes exclude the possibility of an intention to make the car available for private use. The tribunal had not recognised that the taxpayer's deliberate action in acquiring the car and obtaining insurance permitting private use was to make the car available to himself for private use and that he must be taken to have intended that result in the absence of evidence to the contrary, even if he did not intend to use the car privately. Accordingly, the tribunal had erred in law in their approach to, and application of, the disqualifying condition of paragraph (2G)(b) and the Vice-Chancellor had reached the correct conclusion in allowing the Commissioners' appeal. Accordingly, the taxpayer's appeal was dismissed. Reference was made particularly to pages 646-650.
[10] Counsel for the appellants then turned to consider the decision of the tribunal in the present case. The background of fact was set forth between pages 5 to 7 of the decision. The tribunal had concluded that, when the taxpayer entered into the hire purchase contract for the car in question, he intended to use it exclusively for the purposes of his business. He had no intention of using it for social or domestic or private purposes. When he entered into the hire purchase contract, he did not intend to make it available to any person including himself for private or personal use. His intention was not to make it so available. It was recognised by the appellants that this was a strong finding regarding the subjective intention of the taxpayer as regards the acquisition of the vehicle. It was submitted that at pages 12-13 of the decision, the tribunal had commenced correctly by looking at the requirements of Article 7(2E) and the effect of Article 7(2G) separately. However, at a later stage in the decision, at pages 17-18 the tribunal had fallen into error by conflating these two separate statutory provisions. In effect, the tribunal had said that there was no difference between the scope of the two provisions. That position was erroneous, as appeared from the decision in the Commissioners of Customs & Excise v Upton, which the tribunal here had declined to follow. Further, at page 18 of the decision, the tribunal had involved itself in a consideration of actual use, which was not the matter with which the statutory provisions were concerned. That approach was inconsistent with the provisions of Article 7(2E). At page 19 of the decision, the tribunal observed that it had found that the taxpayer had not intended to make the car available to himself for personal use, since, in its view, the evidence amply justified that conclusion. While that finding-in-fact had been made by the tribunal, it was open to challenge if the tribunal had misdirected itself in law as to the appropriate tests to be applied. That was indeed the case. The finding in question was not a finding of a primary fact; it amounted to a deduction from other primary facts and was open to challenge.
[11] Counsel for the appellants submitted that, in reality, there was no real distinction between the present case and that of Commissioners of Customs & Excise v Upton. In the whole circumstances the appeal should be allowed.
Decision
[12] It was represented to us during the course of the appellants' submissions that no controversy surrounded the primary findings of fact in this case. The issue raised by the appeal related to the interpretation of the provisions of the 1992 Order, in particular, Article 7(2E) and (2G). We would begin by observing that the provisions of Article 7 are, at first sight, somewhat difficult to follow. They cannot be regarded as the zenith of the parliamentary draftsman's art. However, we note that paragraphs (2E) and (2G) are quite distinct and are couched in significantly different language. Article 7(2E), containing, as it does, a definition of the "relevant condition" for the purposes of Article 7(2)(a)(iii), requires that there must be a "person who intends to use the motor car either - (a) exclusively for the purposes of a business carried on by him, but this is subject to paragraph (2G) below; ...". Thus the focus of this provision clearly is the intention of the person making the acquisition as regards use. If the test is to be satisfied, the intention as to use must be that it should be "exclusively for the purposes of a business carried on by him". That requirement is, however, made subject to paragraph (2G). This latter provision amounts, in effect, to an exclusion from the provisions of paragraph (2E). This feature of the structure of Article 7 suggests to our mind that the contents of paragraph (2G) are not to be seen as relating to the same issue as that with which paragraph (2E) is concerned. Coming to the provisions of paragraph (2G), the focus of attention is a presumption to the effect that the "taxable person shall not be taken to intend to use a motor car exclusively for the purposes of a business carried on by him if he intends to - ... (b) make it available .... to any person (including, where the taxable person is an individual, himself, or where the taxable person is a partnership, a partner) for private use, whether or not for a consideration". It is a feature of this provision that the intention referred to is as to the making of the vehicle available for private use, as opposed to private use itself.[13] It appears to us that, where a motor vehicle is acquired by a sole trader "who intends to use the motor car .... (a) exclusively for the purposes of a business carried on by him ....", nevertheless that vehicle will indeed have been made available to that person for private use, unless effective steps are taken to render the vehicle incapable of such use by that person. In other words, upon the view that a person must be taken to intend the natural consequences of their own actions, that person may properly be taken to intend to make the vehicle available for private use, unless such steps are taken by him.
[14] The approach which we have just outlined, is, we consider, in accord with that taken by the Court of Appeal in Commissioners of Customs & Excise v Upton. In this connection we refer to the observations of Peter Gibson L.J. at page 647, where he said:
"The very fact of his deliberate acquisition of the car whereby he makes himself the owner of the car and controller of it means that at least ordinarily he must intend to make it available to himself for private use, even if he never intends to use it privately. ... But what is plain is that the tribunal did not recognise that Mr Upton's deliberate action in acquiring the car and obtaining insurance permitting private use was to make the car available to himself for private use and that he must be taken to have intended that result in the absence of evidence to the contrary, even if he did not intend to use the car privately."
Further, the interpretation of Article 7(2G) was considered by Buxton L.J. at pages 648-649. There he said:
"The first issue is, therefore, what the draftsman meant by 'make available for use'. That is an ordinary English expression, deliberately different from 'use' itself. An object can be available for use without there being any present intention of actually using it; just as, for instance, a person can be available for, say, military service without there being any intention that he should serve or be asked to serve.
The question has to be decided as at the moment of acquisition of the car. On the facts of the present case, I see no escape from the conclusion that the car was at that moment, as a matter of fact, available for Mr Upton's private use, however little he then had any intention of actually so using it. He had sole control over the car. It was not to be disabled or in any other way put beyond use: quite the reverse, since the whole purpose of buying it was so that it could be used, albeit in the business and not privately. .... Further, I see no escape from the conclusion that Mr Upton had made the car available to himself. He did that, tautologically enough, by providing himself with ownership and control of the car. And, as we have seen, the availability that was created was availability for private as well as for business use.
Did Mr Upton at the moment of purchase intend to make the car available to himself for private use? The question is not whether he intended to use it, but whether he intended to make it available for use. That again seems to me to lead to a short answer. The first question, of whether what was done constituted a making available for private use, is answered, in the terms urged above, by analysis of what Mr Upton did in the context of the true construction of the statutory concept of making available for private use. Mr Upton unquestionably intended to do the acts that, on that true construction, constituted the making available of the car for private use. He therefore necessarily intended to make the car so available, by intending to do the acts that constituted making the car available for use. He cannot escape from that conclusion by saying, as he does, that he did not intend actual use; or that, for that reason, he did not regard the car as available for his use. If he intends to do the acts that are in law the state of affairs referred to in the statute, then he intends that state of affairs as statutorily defined."
[16] Since it is plain that the decision of the tribunal in this case proceeds on a view of the effect of article 7 which conflicts with that expressed in the decision of the Court of Appeal in Commissioners of Customs & Excise v Upton and, indeed, with our own view, as appears from page 23 of its decision, we conclude that that decision was reached upon the basis of an error of law and cannot stand. We shall therefore allow the present appeal from the decision of the tribunal, the result of which will be that the decision of the appellants to refuse to allow the taxpayer to deduct input tax of £5,372.00 incurred when he purchased the vehicle in question will be restored.
