WHA Limited and another (Appellants) v Her Majesty's Revenue and Customs (Respondent)
Lord Hope, Deputy President
JUDGMENT GIVEN ON
1 May 2013
Heard on 21, 22, 23 and 24 January 2013
Roderick Cordara QC
Tim Eicke QC
Hui Ling McCarthy
(Instructed by Forbes Hall LLP)
Jonathan Peacock QC
James Eadie QC
Aidan Robertson QC
(Instructed by Her Majesty's Revenue and Customs)
LORD REED (with whom Lord Hope, Lord Walker, Lord Mance and Lord Carnwath agree)
(1) Is there a supply of repair services for the purposes of WHA's business by the garages to WHA, as well as or instead of a supply of services to the insured, on which WHA may claim deduction of input tax?
(2) If the answer to question (1) is yes, what is the application to WHA's claim of the EU law doctrine of abuse of right?
(3) In any event, was the then extant UK legislation pursuant to which Viscount claimed to recover the input tax charged on the supplies to it by WHA ultra vires? If so, was that legislation void ab initio and does this cause the claim by Viscount for recovery of such input tax to fail?
(4) Are the Commissioners entitled to raise or rely on the latter issue for the first time before this court or as the sole reason for withholding repayment from Viscount, insofar as (i) Viscount may have had a legitimate expectation that its claim would be met, (ii) the issue was not identified in any of the Commissioners' original decisions, (iii) it was not argued by them before any of the courts below and (iv) the Commissioners have consistently maintained that the tribunal has no jurisdiction to hear or determine public law questions?
The relevant legislation
"The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.
On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.
The common system of value added tax shall be applied up to and including the retail trade stage."
"The following shall be subject to value added tax: 1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such . . ."
Articles 5 and 6 define "supply of goods" and "supply of services" respectively. The former means "the transfer of the right to dispose of tangible property as owner". The latter means, generally, "any transaction which does not constitute a supply of goods within the meaning of article 5".
"A. Within the territory of the country 1. the taxable amount shall be: (a) in respect of supplies of goods and services…, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies…."
The factual background
"1. Obtain policy type and number from the proposal form ... Check proof of servicing.
2. With policyholder's authority, including agreement to pay all costs incurred by the repairer which do not form part of an authorized repair, establish precise cause of failure and the cost [of] parts and labour required for the repair.
3. To obtain authorization to carry out a repair phone WHA's claims department. No rectification to be carried out without prior authority from WHA.
4. After obtaining authority and having carried out the repair in accordance with the authority given, send a detailed VAT repair invoice for all parts used in the authorized repair and the authorized labour costs together with any relevant service invoices to WHA.
5. Obtain payment from policyholder for all costs in excess of those authorized by WHA."
The tribunal's decision
"We are satisfied that the documentation and the arrangements, designed to divert the supplies of labour and parts from their normal direct route from garage to insured by routing them instead via the Gibraltar loop, do no more than create a paper trail. Their purpose is to facilitate Project C. The reality is quite different. … The garage supplies the labour and parts to the insured."
The decision of the High Court
"WHA's duty to Viscount includes … having the appropriate repairs done. Only if that is done are the obligations of the successive insurers to the insured discharged. WHA sees to that by having the work done, that is to say by setting up arrangements whereby garages will do the work with the necessary authority from WHA, and will look to WHA for payment. The service which … a garage supplies to WHA is the service of repairing the insured's car, thereby satisfying the obligation of NIG to the insured, and in turn the corresponding obligations of every other party in the insurance chain." (para 40)
Addressing the question posed by Lord Millett in Redrow at p 418, Lloyd J stated that WHA received a benefit from its contract with the garage, namely the discharge of its obligations to Viscount. That was a benefit supplied by the garage to WHA and used by WHA for the purposes of its business (para 41). On that basis, Lloyd J disagreed with the tribunal's conclusion on this issue.
The decision of the Court of Appeal
"However, such a conclusion suffers from the unattractive feature that the owner does not pay for the work, and receives no invoice in respect of it, and that, accordingly, even if the circumstances would otherwise justify someone recovering the input tax, there could be nobody entitled to recover the input tax, at least on the face of it. The owner could not recover input tax because he had not paid it, and neither could WHA, because although it had paid the VAT, it could not be treated as input tax because there would have been no supply of services to WHA. …The court should certainly not lean in favour of analysis which results in such a dichotomy."
The parties' contentions