The High Court held that the taxpayer, an industrial and provident society, was entitled to make a claim for repayment of VAT under VATA 1994, s. 80 where the benefit of such a claim had been transferred to it along with all the assets and engagements of another society.

Facts

In April 1995 the taxpayer took over the stock, property and other assets and all engagements of another industrial and provident society (Leicester) which carried on a similar business to the taxpayer, including the business of a motor dealer. In June 1995, the taxpayer submitted two voluntary disclosures in respect of output tax overdeclared under the margin scheme on the sale of demonstrator cars and in respect of payments by car manufacturers of demonstrator discounts and bonuses. Customs refused to pay any of the tax claimed so far as it related to amounts originally paid by Leicester prior to its transfer of engagements to the taxpayer.

The taxpayer appealed to the VAT tribunal arguing that it had succeeded to all of Leicester's rights and liabilities including the right to claim a refund of overpaid VAT. The tribunal dismissed the appeal, concluding that the taxpayer's argument that Leicester had transferred to it all of its assets and rights was attractive, as was the argument that if the taxpayer was unable to reclaim the overpaid VAT, the right to claim would be irretrievably lost. However, there was no provision in European or domestic law which allowed for the transfer of a right to reclaim an overpayment of VAT. Section 80(1) of VATA 1994 provided that Customs were not liable to repay tax except as provided by that section which provided only for repayment to the taxable person who made the overpayment.

Regulation 35 of the Value Added Tax Regulations 1995 (SI 1995/2518) permitted a taxable person to correct an error, but not an error made by someone else. An alternative argument of the taxpayer was that in some way it and Leicester were to be treated as if they were the same person. That was not possible. The tribunal noted the possibility that there might be a lacuna in the legislation and that provision should be made to cater for situations of the kind faced by the taxpayer.

The taxpayer appealed to the High Court.

Issue

Whether the taxpayer had any standing to make the repayment claim under VATA 1994, s. 80 as Leicester's transferee in respect of the latter's engagements.

Decision

Blackburne J (allowing the appeal) said that a cornerstone of the taxpayer's argument was the reliance on s. 51(1) of the Industrial and Provident Societies Act 1965 as applied and explained in Co-operative Group(CWS)Ltd v Stansell Ltd [2006] 1 WLR 1704, particularly in the judgment of Mummery LJ.

However, the question was not so much the scope and effect of s. 51(1) but whether, on its proper construction, the statutory code (VATA 1994 and its associated regulations) allowed the benefit of a claim under s. 80 for overpaid output tax to be assigned, whether through the mechanism of a resolution taking effect under s. 51(1) of the 1965 Act in the case of a transfer between registered industrial and provident societies, or otherwise. If it did, there could be no doubt that the transfer of engagements by Leicester to the taxpayer was effective to pass the benefit of Leicester's claim. By contrast, if on its true construction the statutory code did not permit the benefit of an overpayment claim to be assigned to another, s. 51(1) could not be prayed in aid to achieve that result, in defiance of the statutory code, in the case of a transfer of engagements between industrial and provident societies.

There was nothing in the statutory code which expressly prohibited a taxable person, entitled to the benefit of an overpayment claim under s. 80, from passing the benefit of that claim to another. Nor was it a necessary implication of the legislation that the benefit of such a claim might not be transferred to another. The provisions of VATA 1994, s. 49, as supplemented by reg. 6 of the VAT Regulations, relating to transfers of going concerns, were directed to very specific matters. It was not a necessary implication of the existence of s. 49 that transfers in other circumstances were, or in particular that the transfer of the right to make a repayment claim under s. 80 was, excluded.

Since there was nothing in the statutory code, either expressly or by necessary implication, to prevent a person who had a claim under s. 80 from passing that claim to another, the transfer of engagements between Leicester and Midlands was effective to transfer to Midlands the benefit of Leicester's claim under the section. It followed that the tribunal reached the wrong conclusions and therefore that the appeal succeeded (Shendish Manor Ltd [2004] BVC 4064 overruled).

The matter would be remitted to the tribunal to determine, failing agreement, the amount of the overpaid tax and whether there were any other and if so what defences to the claim.

Chancery Division.
Judgment delivered 19 June 2007.