England and Wales High Court (Administrative Court) Decisions

Queen on the application of GREENWICH PROPERTY LTD. v. COMMISSIONERS OF CUSTOMS & EXCISE [2001] EWHC Admin 230 (28th March, 2001)

Case No: 2950/2000

Neutral Citation Number: [2001] EWHC Admin 230

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

ADMINISTRATIVE COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Wednesday 28^th March 2001

MR JUSTICE COLLINS :

1. On 23 September 1998, the Commissioners of Customs and Excise (`the Commissioners') decided to uphold an assessment that the Claimant was obliged to account for Value Added Tax (VAT) in a total sum of about £210,000. The assessment arose because the Commissioners decided that the claimant was not entitled to benefit from a concession which it believed meant that it was able to treat a supply as zero-rated. The delay in seeking judicial review of that assessment is because the claimant initially appealed to a Value Added Tax tribunal. But on 20 July 2000 the tribunal decided that there was no right of appeal since the claimant's case depended on an extra-statutory concession and it was "not within the jurisdiction of the tribunal, which is appellate in nature, to review the Commissioners' application of the [concession] any more than it is within our jurisdiction to review the Commissioners' `care and management' powers, such as their conferring and withdrawing the benefits of extra-statutory concessions". On 15 August 2000 this application for judicial review was made. On 18 September 2000 Richards J granted permission to proceed notwithstanding the delay since he was satisfied that there was a good reason for it. Mr. McKay, who appeared before me on behalf of the Commissioners, indicated that he did not propose to take any point based on delay.

2. The claimant asserts that it had a legitimate expectation in accordance with the concession, whose terms it followed, that the relevant supply would be treated as zero-rated and it would therefore be unfair and so unlawful for the Commissioners to seek to claim the amount assessed. It relies in particular on R v Customs and Excise Commissioners ex parte Kay [1996] S.T.C 15000 and R v ITC ex parte MFK [1989] S.T.C. 873. In the alternative, it submits that the Commissioners' decision was irrational in that they misunderstood and so misapplied a decision of the VAT Tribunal in University of Bath v Commissioners of Customs and Excise (1996 No. 14235) and failed to appreciate that the arrangements made by the applicants did not fall outside the concession

3. The claimant company is a wholly owned subsidiary of the University of Greenwich. The University needed student accommodation. It decided to construct what is described as a student village at Avery Hill. This was to provide some 1300 bedrooms. The University itself paid for the development of about one half of the complex in Phase 1. This cost some £10 million and meant that the University had to pledge many of its teaching buildings in order to enable the essential development to go ahead. It therefore decided to fund Phase 2 in a different way by means of a Private Finance Initiative (PFI). PFI providers were invited to submit proposals for the supply of 650 bedrooms and ongoing facilities management for a period of 30 years at a price which would result in the University at least breaking even.

4. It is not necessary for the purposes of this case to rehearse the other requirements of the scheme in any detail. In due course, an arrangement was made with Wimpey Developments Limited through its subsidiary, of which it was guarantor, Avery Hill Developments Ltd (AHDL). The Principal Agreement, which was entered into on 25 October 1995, provided that the University should grant a lease of the relevant site at Avery Hill to the claimant. AHDL would construct the student residences for the claimant. The residences were to be maintained by AHDL for 30 years. The claimant would grant a lease of the newly constructed buildings to the University. It was recognised that the buildings would not be required for accommodation of students during the summer vacations and so AHDL were to be able to exploit them for other uses during those periods.

5. Before considering the relevant facts in more detail, I should set out the statutory framework and identify the concession relied on. VAT is normally chargeable on a supply of goods or services made by a taxable person, that is to say, a person whose annual turnover is sufficient to require him to be registered for VAT purposes. The taxable person can set off VAT he has paid on supplies to him in connection with his taxable supplies. The simple case is the wholesaler who purchases goods and then sells them on to a retailer. He can set the tax he pays on acquiring the goods against that which he has to charge the retailer and will pay the balance to the Commissioners. Naturally, there will be other items he purchases in connection with his business which he may also be able to set off in the same way. What he can set off is called input.

6. Some supplies are exempt. No tax is chargeable and no input may be claimed. Others are zero-rated. Again, no tax is chargeable, but the fiction is that the supplies are taxable but the tax is nil. This means that input can be claimed. There is thus a great advantage in being able to make a zero-rated as opposed to an exempt supply.

7. Supplies which are zero-rated are identified in Schedule 8 to the Value Added Tax Act 1994 as amended. Group 5 in Schedule 8 is headed `Construction of Buildings etc.'. Item 1, so far as material, reads:-

"1. The first grant by a person -

(a) constructing a building -

(ii) intended for use solely for a relevant residential ... purpose ... of a major interest in, or in any part of, the building ... or its site".

There follow notes which define and explain the terms set out in the items. Note (4), so far as material, reads:-

"(4). Use for a relevant residential purpose means use as - ...

(d) residential accommodation for students...."

Note (12)(b) requires that, in order that the relevant supply shall qualify under Group 5, before the supply is made the "person to whom it is made has given to the person making it a certificate in such form as may be specified in a notice published by the Commissioners stating that the ... supply ... relates" to the building intended for the qualifying use. And Paragraph 1 of Schedule 10 to the Act provides that if the use of the building is changed to a non-qualifying use within 10 years, the zero-rating will be removed retrospectively. The provisions are a little more complicated and cover uses of parts of the building as well, but it is not necessary to go into more detail. Schedule 9 to the Act deals with exempt supplies. Item 1 of Group 1 covers the grant of any interest in or right over land. There are many qualifications but suffice it to say that, as will become clear when the scheme devised by the claimant is considered, the relevant supply would, if not zero-rated under group 5 of Schedule 8, have been exempt under Group 1 of Schedule 9. If so, the input claimed on the basis of zero-rating would have been wrongly claimed and so repayable to the Commissioners. Since the Commissioners decided that the supply was exempt rather than zero-rated, the assessment in question was made.

8. The difficulty arises because of the word `solely' in Item 1 of Group 5. No university would want to be unable to turn its residential accommodation for its students to profitable use during the vacation. Greenwich was no exception. Thus it would be impossible to certify that the new building was intended for use solely for accommodation for students if the provisions of the Act applied with no modification.

9. The Commissioners, following discussions with the Committee of Vice-Chancellors and Principals of the Universities of the United Kingdom (CVCP), agreed to apply a concession which was contained in a document, known as `the Concordat', issued by the CVCP, identifying concessions made by the Commissioners and setting out guidelines the purpose of which was to `interpret the law concerning VAT within the higher education context'. The Concordat is dated 30 March 1990. It followed a letter from HM Customs and Excise to Mr. Anderson-Evans, who was the senior administrative officer of CVCP dealing with the matter, of 8 January 1990. Paragraph 6 of that letter reads:-

"That leaves the question of the issue of certificates. Higher education institutions are in a peculiar position as they know that some use is likely to be made of student accommodation for non-qualifying purposes during vacations but such use is difficult to quantify. In the circumstances, because in any event tax will be collected in respect of this non-qualifying vacation use and provided that the new building is clearly intended primarily for use as student accommodation for ten years from the date of its completion, then we are content for higher education institutions to disregard the 10% de minimis rule and to issue a certificate for the construction or acquisition of such a building as "relevant residential" building under Group 8 of the zero-rated schedule. Of course, where only part of a new building will qualify and part will not, the certificate and accompanying plans must clearly indicate which part or parts are entitled to relief and the 10% de minimis concession does not apply in this respect."

10. This concession was set out in Paragraph 37a of the Concordat, which itself is stated to contain detailed guidelines agreed with Customs and Excise. Mr. McKay did not contend that the Concordat should be treated other than as a document containing guidelines approved by the Commissioners. Any university or higher education establishment was entitled to rely on a concession contained in it, provided it complied with any conditions or prerequisites to enable that concession to apply. Paragraph 37a reads, so far as material:-

"Zero-rating for the construction or acquisition of a new building for use as student accommodation depends on the higher education institution being able to issue a certificate to the builder or developer as set out in the VAT leaflet on `Construction: VAT certificates for residential or charity buildings.

Higher education institutions may, on occasions be in some difficulty with respect to issuing certificates as they know that some use is likely to be made of student accommodation for non-qualifying purposes during vacations, e.g. the letting of student accommodation for holiday use or for non-educational conferences etc. but such use is difficult to quantify. In the circumstances, because in any event tax will be collected in respect of this non-qualifying use and provided that the new building is clearly intended primarily for use as student accommodation for 10 years from the date of completion, then Customs have agreed that higher education institutions may issue a certificate for the construction or acquisition of such a building as a `relevant residential' building. Where only part of a new building will qualify and part will not, the certificate and accompanying plans must clearly indicate which part or parts are entitled to relief.

A building or part of a building constructed for a qualifying residential purpose must be used for that purpose for 10 years from the date of construction in order to qualify for zero-rating. If, within that time, a higher education institution disposes of all or part of that building for a non-qualifying use or should its usage for any reason change, tax will be due. The special rules governing such activities are explained in detail in the VAT leaflet `Construction: VAT certificates for residential or charity buildings'."

11. Pursuant to the Principal Agreement referred to in paragraph 4 above, on 25 October 1995 the University granted to the claimant a Ground Lease of the site for a period of 125 years. Prior to making the arrangements in question, the University had sought guidance from the Commissioners through Coopers and Lybrands (as they then were) who were advising them. In a letter of 26 October 1994, Coopers and Lybrands explained that it was proposed that the University should set up a subsidiary company wholly owned by it to which a ground lease of the site would be granted at an amount reflecting its market value. The subsidiary would then commission the construction of the building by a Wimpey company under a contract which would `cover both the construction of the new Phase IA and II buildings and the upkeep and maintenance of these buildings during the next 25 years or so'. Wimpey would provide the funding for the project and so payment under the construction and maintenance contract would be spread over 25 years or so. Once the building was completed and fitted out, the subsidiary would grant a major interest lease to the university. The letter made the point that, as the only supply of the building that the subsidiary would make would be zero-rated, the input that it incurred in connection with the building would be referrable to that taxable supply and so, as Customs and Excise had agreed, it would be recoverable in full.

12. On 10 January 1995 a Mr. Adams on behalf of HM Customs and Excise confirmed that the construction and maintenance by the Wimpey company would be standard rated but that so long as the lease issued by the subsidiary to the University was granted for a single capital sum, that would be the consideration for one zero-rated supply. This was because the building to be provided was to be fully maintained over the period of 25 years or so. Mrs Hamilton correctly did not seek to rely on this letter to prevent the Commissioners deciding to treat the supply as exempt since she accepted that the whole of what was proposed, in particular the arrangements for exploiting the vacation use, had not been put to Mr. Adams. That was because they had not then been fully worked out.

13. On 26 September 1996 the University issued a certificate in reliance upon the terms of Paragraph 37a of the Concordat to the claimant. It was signed by Mr. Denton, who is Director of Finance for the University and who is a director of the claimant company. The certificate accords with the relevant Notice issued by the Commissioners and reads:-

"I certify that the information given above [viz: that the University would be using the building at Avery Hill] is correct and complete. I also certify that this organisation is to use this building as or identifiable parts of this building solely for a qualifying purpose. I understand that if the building or zero-rated parts of it is disposed of, let or otherwise used for a non-qualifying purpose within the period of 10 years from the date of completion a taxable supply will have been made and this organisation will account for tax at the standard rate."

One of the problems of concessions is that they can lead to documents such as this certificate which is and is known by all concerned to be inaccurate. The building was not going to be used solely for a qualifying purpose. Nonetheless, the Commissioners were content that such a certificate should be issued provided that the concession referred to in Paragraph 37a was applicable. It is a pity that the trenchant aphorism of Walton J in Vestey v IRC [1979] 1 Ch. 177 at 197:

"One should be taxed by law, and not be untaxed by concession"

has not been heeded. Concessions lead not only to artificiality and false documentation but also to arguments whether particular transactions fall within them. The language of concession is not that of a statute and should not be construed as if it was. But if a concession is published to all who might benefit from it, they are entitled to arrange their affairs in reliance on it, provided that what they do falls clearly within the terms of the concession. As Bingham LJ said in a leading case relating to legitimate expectation arising from concessions, R v IRC ex parte MFK (1989) S.T.C. 873 @ 892d:-

"The taxpayer's only legitimate expectation is, prima facie, that he will be taxed according to statute, not concession or a wrong view of the law .... No doubt a statement formally published by the Revenue to the world might safely be regarded as binding subject to its terms, in any case falling clearly within them."

14. On 27 September 1996, the claimant granted an underlease of the new building to the University for a term of 125 years less 10 days in consideration of the payment of the sum of £35,356,769. This was the single supply (which contained a landlord's covenant to maintain and keep in repair) which was zero-rated in accordance, as the parties believed, with Paragraph 37a of the Concordat. On the same day, the University granted an exclusive licence to AHDL `for third parties to hire the new buildings or parts thereof' during the summer vacation. There were conditions attached to ensure that only appropriate hirings should take place. Payment was to be £66,921 indexed at the rate of 3% per year to be paid each year. That sum was taxable at the standard rate.

15. In June 1998, Mr. Dean-Webb, who is described as a Tax Avoidance Visiting Officer, concerned himself with the transactions and was particularly interested `to examine the way in which AHDL had avoided charging VAT to the claimant for the construction'. He paid visits to the University in October 1998 and sought advice from the Land and Property and the Construction VAT Policy Divisions of Customs and Excise, but not, it would seem, from the solicitors. It is remarkable that he did not in raising the question whether the certificate should properly have been issued initially refer to the Concordat but concluded, no doubt correctly but irrelevantly, that the statutory provisions could not be met. The Concordat was then drawn to his attention. He said that he understood that the concession only operated "where the University itself hired out student rooms for holiday use...". He was told that his understanding was correct and that principle was enshrined in the University of Bath case.

16. Eventually, on 6 July 1999 Mr. Dean-Webb wrote to the claimant and to the University stating that the certificate should not have been issued because the University did not intend itself to provide the accommodation for use by others than students in the summer vacation but had granted a licence to AHDL to occupy the building. He also identified, as he believed, one element of the composite supply which was not closely related to the supply of land, namely postal services. However, that has not been pursued before me and I have not had to go into it. The Commissioners have nailed their colours to the argument that the University itself must make the student accommodation available in the vacation in order to qualify for the concession. They also have argued that what was happening was tax avoidance and so, even if there was a legitimate expectation, the benefit should not be granted because of an over-riding public interest. They relied on R v North and East Devon Health Authority ex p. Coughlan [2000] 2 WLR 622. Finally, they submit that their construction of the concession is not unreasonable and must therefore, since European VAT law requires exceptions to tax to be narrowly drawn and construed, prevail.

17. On 14 July 1999 the assessment was raised. It was confirmed by a more senior officer, Ms Watson, following a request for a review. An appeal to the VAT and Duties Tribunal was dismissed on the ground that there was no jurisdiction, since the tribunal could not review the exercise by the Commissioners of their law and management powers. Hence the claim is before me.

18. Since reliance has been placed on the Bath University case to maintain that the concession only applies where the University itself deals with the vacation hirings, it is necessary to see what it does decide. The facts were, so far as material, these. The University had constructed some buildings between 1965 and 1975 to be used as student accommodation. They were refurbished in three separate phases and, once refurbished, were all available for vacation letting. The University set up a company, University of Bath One Ltd., to which it granted leases of the buildings. The issue was whether the grant of those leases was a zero-rated supply. The leases and so the relevant supplies were made by and not to the University. But, more importantly, no certificate had been given by the University in accordance with Note 12. This was because the concession in Paragraph 37a only applies where the university can issue a certificate to the builder or developer for the construction or acquisition of the relevant building. In the Bath case, this could not be done since the buildings had been constructed by the University and the refurbishment was what led to the possibility of vacation lettings and in any event the wording of the concession presupposed a supply to and not by the University. The issue was whether the supplies should be zero-rated because the buildings were defined as dwellings within Item 1(a)(i). The only reference to 1(a)(ii) appears at the end of the decision where it is said:-

"The facts [sc. Relating to Phase Three] are also the same with the exception that the company undertakes all the lettings including third party lettings, so that there is no question but that the intended use of these properties at the time of the granting of the leases was not itself for a relevant residential purpose".

Absent an attempt to rely on the concession, that was an inevitable finding.

19. Following the Bath University decision, CVCP queried with HM Customs & Excise whether it affected the concession and were assured that it did not. In a letter dated 20 September 1996, it was said:-

"The issue before the tribunal was the correct VAT liability of the supply of the grant of the major interests in those buildings by the University to the company. The tribunal found on the facts that this supply could not be zero-rated as the buildings were not dwellings (certification would not be required if they had been), or that the company could not issue a certificate to the University for the zero-rating of these supplies because it was not able to declare that the buildings were to be used solely for the relevant residential purposes ..."

" As you will appreciate, the guidelines, in particular the concession in Paragraph 37a, do not apply to anyone other than higher and further education institutions themselves and thus the concession cannot be applied by the subsidiary company in this case".

20. It will be apparent that the Bath case did not decide that the University must itself make the lettings or hirings of the accommodation during vacations. It merely decided that, in the absence of any attempt to use the concession, there could not be compliance with Item 1(a)(ii) and perhaps that the supply to be zero-rated had to be to and not by the University. Thus Mr. Dean-Webb was incorrect when in the letter of 6 July 1999 to the University he said:-

"...[T]he CVCP guidelines outlined above can only apply to supplies of accommodation actually provided by the University itself. It cannot and does not apply to situations where the entire premises are supplied by way of a licence to occupy to a third party and that third party then makes supplies of accommodation."

21. The purpose behind the concession was to enable the universities to make profitable use of their student accommodation in vacations and still get the benefit of zero-rating within Item 1(a)(ii). Thus `solely' meant in effect `solely in term time'. This the University could certify with no difficulty since it had the under-lease of the building. I asked Mr. McKay to explain the difference in principle between the University itself making the vacation arrangements and appointing a third party to make them. In each case, the supplies or supply were standard rated and so VAT was paid. Mr. McKay was unable to provide any satisfactory answer. He merely asserted that the Commissioners do not want a third party to get the benefit of the zero-rating and that there was a difference between the University making the arrangements itself and handing over for a consideration the business opportunity to a third party. I am bound to say that I cannot see that there is any distinction to be drawn. There is certainly nothing in the language of Paragraph 37a to indicate that the University cannot use a third party.

22. In R v Customs & Excise Commissioners ex parte Kay & Co Ltd. [1996] S.T.C. 1500, Keene J had to consider an agreement between the Commissioners and the professional organisations representing opticians relating to repayment of VAT which had been overpaid. This said inter alia that there was a 6 year period within which such claims could be submitted. An attempt by the Commissioners unilaterally to reduce the period to 3 years was declared to be unfair and an abuse of power. Keene J described the representations in these words (at p.1527j - 1528a]:-

"[The representations] were made to organisations acting on behalf of the taxable persons in the course of formal negotiations, and the Commissioners were no doubt relieved that they could negotiate with such representative bodies rather than have to do so with all the individual taxable persons concerned. The agreement arrived at was a formal statement of the Commissioners' position, intended to be brought to the attention of taxpayer opticians and in my view to be relied on. This was an entirely different situation from that which arose in the MFK case, where many of the representations made by the Revenue had been made to people who were not acting on behalf of the applicants in that case".

The situation here is similar. The Concordat contained guidelines which had been approved by the Commissioners who must be taken to have known and intended that the higher education establishments would act upon them. I have no doubt that it would be unfair and so unlawful for the Commissioners not to apply the concession contained in Paragraph 37a provided that the taxpayer has complied with its terms.

23. I am prepared to accept that, since the Commissioners are relieving a taxable person of a liability imposed by law (something they are empowered to do by virtue of their `care and management' powers: see Customs & Excise Commissioners v Arnold [1996] S.T.C. 127), the taxable person must demonstrate that he has acted strictly in accordance with what the concession permits and has complied with all the conditions necessary to obtain the relief. Any doubt should be resolved in favour of the tax being payable according to the statutory provision since, if there is doubt, or the language of the concession is ambiguous, the taxpayer should inquire of the Commissioners whether what he intends to do falls within the concession. But the language in Paragraph 37a is unambiguous and the University clearly complied with it.

24. Even so, submits Mr. McKay, the Commissioners are entitled to refuse to apply it because the University was employing the concession as a means of avoiding tax. This was, it is said, a tax avoidance scheme and accordingly there was an overreaching justification for not giving the claimant the benefit of the concession. Mr. McKay relies on R v North and East Devon Health Authority ex parte Coughlan [2000] 2 WLR 622, a very important decision of the Court of Appeal which establishes that a representation made by a public body as to how it will behave in particular circumstances may give rise to an enforceable right to the substantive benefits expected from the representation made, since to frustrate that expectation would be so unfair as to amount to an abuse of power. But in cases where such a substantive benefit can legitimately be expected, the court:-

"has when necessary to determine whether there is a sufficient over-riding interest to justify a departure from what has been previously promised ". (Page 645G).

25. Mr. McKay sought to rely on R v IRC ex parte Fulford-Dobson [1987] S.T.C. 344. But there the concession relied on had expressly stated that it must not be used for tax avoidance. There is no such stipulation here. In any event, there has been no attempt to suggest that the scheme, albeit it has some artificial elements, is one which falls within the principle established in W T Ramsay Ltd., v IRC [1982] AC 300. Nor has it been submitted that the approach now adopted by the House of Lords in MacNiven v Westmoreland Investments Ltd. [2001] STC 237 is not applicable to VAT cases. At p.256h in Paragraph 62 Lord Hoffmann said this:-

"My Lords, it has occasionally been said that the boundary of the Ramsay principle can be defined by asking whether the taxpayer's actions constituted (acceptable) tax mitigation or (unacceptable) tax avoidance. In IRC v Willoughby [197] S.T.C. 995 at 1004, [1997] WLR 1071 at 1079 Lord Nolan described the concept of tax avoidance as `elusive'. In that case, the House had to grapple with what it meant, or at any rate what its `hallmark' was, because the statute expressly provided that certain provisions should not apply if the taxpayer could show that he had not acted with `the purpose of avoiding liability to taxation'. The same question arises on the interpretation of the anti-avoidance provisions to which Lord Cooke referred in IRC v McGuckian [1997] STC 908 at 921, [1997] NI 157 at 172. But when the statutory provisions do not contain words like `avoidance' or `mitigation', I do not think it helps to introduce them. The fact that steps taken for the avoidance of tax are acceptable or unacceptable is the conclusion at which one arrives by applying the statutory language to the facts of the case. It is not a test for deciding whether it applies or not. If I may be allowed to repeat what I sad in Norglen Ltd (in liquidation) v Reeds Rains Prudential Ltd [1999] 2 AC 1 at 13 -14:

`If the question is whether a given transaction is such as to attract a statutory benefit, such as a grant of assistance like legal aid, or a statutory burden, such as income tax, I do not think that it promotes clarity of thought to use terms like stratagem or device. The question is simply whether upon its true construction, the statute applies to the transaction. Tax avoidance schemes are perhaps the best example. They either work (Inland Revenue Commissioners v Duke of Westminister [1936] AC 1) or they do not (Furniss v Dawson [1984] AC 474). If they do not work, the reason, as my noble and learned friend, Lord Steyn, pointed out in Inland Revenue Commissioners v McGuckian [1997] 1 W.L.R. 91, 1000, is simply that upon the true construction of the statute, the transaction which was designed to avoid the charge to tax actually comes within it. It is not that the statute has a penumbral sprit which strikes down devices or stratagems designed to avoid its terms or exploit its loopholes'".

The Commissioners may not like the concession being used in this way to reduce the amount of VAT otherwise payable by increasing input against a zero-rated supply, but there is nothing in the language of the concession that prevents it being done. The Commissioners could have made it clear, if they had wished, that the University must make the arrangements itself and not as a third party. They did not. There is no over-riding public interest that prevents a person taking advantage of a concession to maximise the benefits he can legitimately expect from its terms.

26. While I accept that exceptions to the accountability for VAT should be narrowly construed in accordance with the principles of European Law, it has not been argued that this requires an implication which disentitles the claimant to the benefit it seeks or that the Maciven approach is inapplicable.

27. In all the circumstances, I am satisfied that the Commissioners were not entitled to raise the assessment and that the claimant was entitled to rely on the concession. I will hear counsel on the precise form of relief.