The High Court decided, as a preliminary issue, that the making and notification of alternative VAT assessments under the Value Added Tax Act 1994, s. 73(1) and (2) in respect of goods allegedly purchased for onward sale to Spain was valid.

Facts

Customs issued assessments under s. 73(1) of VATA 1994 for unpaid tax on the basis that supplies of goods made by the taxpayer for removal to Spain had been incorrectly zero-rated, since they had not left the UK. The taxpayer appealed on the basis that the supplies were properly zero-rated.

On the basis of further evidence Customs concluded that the transactions were fraudulent and that the taxpayer had never acquired the goods in issue. It therefore made further assessments for the relevant periods under s. 73(2) to recover input tax. Customs referred to the second 2005 assessments as ‘preferred’ and the original 2004 assessments as ‘alternative’ and did not require the taxpayer to pay both sets of assessments. The taxpayer appealed against the later assessments.

The VAT tribunal decided, as a preliminary issue, that there was nothing in s. 73, or elsewhere in the Act, which precluded alternative assessments made at different times on different bases, and that the Community law principles of legal certainty and proportionality were not infringed. The tribunal relied on the fact that the 2004 assessments were the subject of an appeal when the 2005 preferred assessments were made ([2007] BVC 4,083; No. 20,086). The taxpayer appealed.

Issue

Whether the alternative assessments were lawful.

Decision

Patten J (dismissing the appeal) said that both s. 73(1) and (2) were concerned with the recovery of unpaid VAT but the circumstances in which each of the powers was exercisable were very different. Section 73(1) provided a mechanism for assessing unpaid VAT in cases where there had either been an underdeclaration of turnover or perhaps none at all. In this particular case it was relevant only to the recovery of the VAT on the sale of the goods to a Spanish customer in circumstances where a claim had been made for the supplies to be zero-rated.

By contrast, s. 73(2) was concerned with cases where VAT had either been wrongly repaid or credited. That was the power exercised in respect of the 2005 assessments in relation to the credit for input tax on the purchase of the goods. The 2005 assessments therefore related to the same goods but to a different transaction with different tax consequences. The fact that the two assessments in the present case related to different transactions and different fiscal issues made it more rather than less explicable that there should be separate but alternative assessments in this case. However, it did not introduce any factors which, as a matter of logic or construction, should lead to a different conclusion from that reached in University Court of the University of Glasgow v C & E Commrs [2003] BTC 5,445. The taxpayer in that case was faced with two assessments in differing amounts relating to the same period. In the present case, the position was no different (Bennett v C & E Commrs [2001] BTC 5,067 considered). Bennett, which the tribunal relied on, was authority for the proposition that the words ‘subject to the provisions of this Act as to appeals’ in s. 73(9) did not limit the power of Customs under s. 73 to make new assessments.

The argument that alternative assessments had to be made contemporaneously in order to fall within the principles set out in the University of Glasgow case was precluded by authority. In Courts plc v C & E Commrs [2005] BTC 5,037 the Court of Appeal not only affirmed the correctness of the decision in University of Glasgow but also held that a subsequent assessment issued for the same period but on a different legal basis could constitute an alternative assessment within the Glasgow test. The tribunal was therefore correct to reject the taxpayer's appeal on that issue.

As regards the principles of legal certainty and proportionality, the sixth directive was required to be implemented by member states in a way which fully respected the relevant principles of EC law and VATA 1994 had to be construed in that way. However, the issue of whether Customs had power under s. 73(2) to raise the 2005 assessments did not turn on whether the taxpayer had proved its entitlement to zero-rating of the sales to Spain at the time of the transaction. It was simply a question of whether Customs could subsequently assess the taxpayer on alternative bases. The taxpayer was under no misapprehension as to what Customs were seeking to do by the alternative assessment or what sums it was required to pay. Appeals had been lodged against both assessments and the taxpayer was clearly aware of the issues raised under both.

Similarly, proportionality required member states to employ means which, whilst effectively enabling them to recover unpaid tax and prevent fraud, did not go further than what was necessary for that purpose. The ability of Customs under s. 73 to raise alternative assessments did not infringe that principle. It merely permitted Customs to raise alternative factual contentions in support of their claim to recover the tax. The issues of construction which affected s. 73 were essentially procedural in nature and were not detrimental to the substance of the taxpayer's case.

Chancery Division.
Judgment delivered 26 November 2007.