The High Court upheld a decision of the VAT tribunal ([2006] BVC 4,078; Decision No.19,532) striking out an appeal by the taxpayer against the failure of Customs to repay an overpayment of VAT where, on the evidence, Customs had not then made an appealable decision.

Facts

In August 2005 the taxpayer submitted a voluntary disclosure to Customs claiming repayment of input tax of £715,198. In October 2005, Customs notified a repayment assessment of £152,415 on Form VAT 657, but did not refund £562,782. Further correspondence ensued in which Customs informed the taxpayer that they were still verifying the claim. In January 2006 Customs stated that they were not then in a position to make a decision as they were making enquiries into whether the computer chips described on the purchase invoices held were the products actually traded and whether the invoices were valid.

The taxpayer sought to appeal to the VAT tribunal on the grounds that there had, in fact, been a decision within VATA 1994, s. 83(c), in respect of the amount of input tax or, alternatively, an assessment within s. 83(p).

Customs responded by serving a notice under r. 6 of the Value Added Tax Tribunal Rules 1986 that no appealable decision had been made, and applied for the appeal to be struck out. They contended that the documents issued in October 2005 were an allowance of part of the claim and were not an assessment for the recovery of VAT. The taxpayer argued that in accepting its claim in part, Customs had made a conscious decision not to repay the balance. Customs had no power to defer a decision indefinitely and the taxpayer maintained that they had a duty to repay input tax due.

The VAT tribunal held that Customs did not intend to reach any conclusion on the repayment claim either in October 2005 or in January 2006. It had been found in R (on the application of UK Tradecorp Ltd) v C & E Commrs [2005] BTC 5,097 that Customs were under a duty to conduct a reasonable and proportionate investigation into the validity of claims and were entitled to take a reasonable time to investigate them. The tribunal found that that applied equally in the present case. Customs’ decision to defer a decision was not an appealable decision. If the delay in making the decision was thought to be excessive, the taxpayer's remedy was judicial review. The decision to pay part of the taxpayer's claim was also not a decision to refuse to pay the balance. A statement that a greater sum was due from Customs than to them was not an assessment within VATA 1994, s. 73(1). The fact that the document issued was labelled ‘assessment’ did not change that and the appeal should be struck out ([2006] BVC 4,078; Decision No. 19,532). The taxpayer appealed.

Issue

Whether the tribunal erred in law in holding that by the time of the r. 6 notice, or by the time of the hearing before the tribunal, no appealable decision had been made with respect to the taxpayer's disclosure.

Decision

Lindsay J (dismissing the appeal) said the court was far from convinced that all requests for information made by Customs were justified precursors to a sufficiently informed decision on their part as to the voluntary disclosure. The case of Garage Molenheide BVBA v Belgium State [1998] BTC 5,088; [1997] ECR I-7281, contemplated that member states were entitled to frame domestic provisions such that, where there were serious doubts as to the truthfulness or accuracy of VAT declarations that appeared to require a credit or repayment to the taxpayer, enquiries could properly be made by the member state and the credit or repayment might consequently be delayed. It was equally plain that such ability to delay should not be by reference to some blanket provision not responding to the particular facts of the individual cases or one going beyond the member states’ legitimate need to protect its revenues.

To ensure that those requirements were met there had to be, within the domestic provisions, effective recourse to a judge or tribunal. For such recourse to be effective, the judge or tribunal had, inter alia, to be able, upon suitable facts, to look into whether there was actually some urgency or necessity such that the member state might continue to withhold the sum claimed by the taxpayer to be credited or repaid and to look also into whether, in some way less disadvantageous to the taxpayer, there could be at least an interim repayment or credit of the whole or a part of the sum claimed, perhaps against some guarantee or other form of assured reimbursement to the member state should that interim credit or repayment later transpire to be unjustified.

Where a taxpayer was concerned at delay in his being credited or repaid he could either apply to the VAT tribunal or to the Administrative Court. If Customs accepted that they had come to a decision adverse to the taxpayer with respect to his claim to be credited or repaid then the taxpayer might appeal that decision to the tribunal under VATA 1994, s. 83. If Customs said that no decision had been reached, one option open to the taxpayer was to appeal to the tribunal, asserting that the decision had been made and that he appealed against it. If Customs nonetheless remained of the view that no appealable decision had been made and hence that no ability to appeal had arisen they might, as soon as practicable, serve a r. 6 notice to that effect and apply for the taxpayer's appeal to be struck out. But that was not the only option. There was no reason in principle, at least where Customs represented to the taxpayer that they had as yet made no appealable decision and based that representation on an allegation that their enquiries were incomplete and continuing, why the taxpayer should not seek judicial review of such a representation. Excessive, unexplained or unnecessary delay by a public body in making a decision which was required of it was a classic and familiar area for judicial review. The remedies available by way of judicial review included the grant of a declaration of entitlement to be paid forthwith Megantic Services Ltd v R & C Commrs [2006] EWHC 3232 (Admin) considered).

Taken together, s. 83(c) and judicial review would satisfy the requirements of Molenheide. But the availability of practical relief by way of judicial review affected the court's approach to the true construction of s. 83(c). Where an appeal under s. 83 was struck out by way of a r. 6 notice, upheld on the basis that Customs had successfully asserted that their enquiries were both material and continuing, then there could be a real danger that the taxpayer would be denied his credit or repayment for an indeterminate period, perhaps punctuated, at intervals, by fresh attempts to use s. 83 being met by repeated r. 6 notices on the basis of enquiries even then still not complete. But judicial review provided a salutary mechanism by which Customs could be told that enough was enough: that they had had time enough for reasonable enquiry, that if their enquiries were incomplete that was not further to prejudice the taxpayer and that, accordingly, immediate or early repayment or credit in favour of the taxpayer would be appropriate to be declared. The existence of such an alternative to repeated attempts to appeal under s. 83 enabled one to take a stricter approach to the true construction of s. 83, which, had it stood alone without the availability of judicial review, might not have satisfied Molenheide.

Chancery Division.
Judgment delivered 31 January 2007.