England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		27 February 2007

Tuesday, 27 February 2007 JUDGMENT

MR JUSTICE WARREN:

1. This is an appeal by Her Majesty's Revenue and Customs from the decision of the VAT and Duties Tribunal, Mr Michael Johnson, Chairman, dated 6 October 2006. Mr Johnson struck out two appeals of the appellant taxpayer, Mobilx Limited ("Mobilx") which HMRC had applied to strike out on the basis that the tribunal lacked jurisdiction to deal with them. Miss Amanda Tipples appears for HMRC; Mobilx does not appear and was not represented before me for reasons which I will come to later.
2. The relevant facts are not in dispute and they are helpfully set out in Miss Tipples' skeleton argument at paragraphs 4 to 7:

"On 2 May 2006 Mobilx submitted its VAT return for period 04/06. Mobilx seeks a repayment of input tax in the sum of £1.8 million in relation to the period 04/06. The Commissioners are investigating the validity of this repayment claim and had not decided whether to repay Mobilx the sum claimed or any part thereof.

On 6 June 2006 Mobilx submitted its VAT return for period 05/06. Mobilx seeks a repayment of input tax in the sum of £3.13 million in relation to period 05/06. The Commissioners are investigating the validity of this repayment claim and have not decided whether to repay Mobilx the sum claimed or any part thereof. The Commissioners' letter dated 27 July 2006 to PricewaterhouseCoopers LLP explains the ongoing nature of their investigations and concludes by stating:

"Having given consideration to [Mobilx's] previous and current continuous involvement in transactions that resulted in a tax loss [the Commissioners] are satisfied that the above verifications must continue. As a consequence [Mobilx]'s 04/06, 05/06 & 06/06 claims will continue to be withheld until our enquiries are complete. However, I must remind you that [the Commissioners] would of course be prepared to consider repayment of [Mobilx's] claims on the condition that they provide adequate security …""

Recently the Commissioners have decided to refuse the repayment claims in the light of their investigations concerning certain carousel frauds.

3. On 28 July 2006, Mobilx issued a notice of appeal. There are notices in relation to each of the periods and they are both in the same form. The relevant part of the grounds of appeal read as follows:

"Mobilx Limited submitted their VAT return for Period 04/06 [there is likewise one for 05/06] on 2 May 2006, with the relevant paperwork then delivered to HMRC's office at Washington later that week. More than ten weeks have now elapsed and Mobilx Limited have still not received a decision over whether HMRC are prepared to release the repayment due of £1.8 million.

We consider that HMRC's failure to notify Mobilx Limited of their decision is an appealable matter under section 83(c), Value Added Tax Act 1994 and in accordance with R v VAT Tribunal ex p. Happer [1982] STC 700."

The notice of appeal thus expressly acknowledges that Mobilx had not received the decision whether the Commissioners were prepared to release the repayment claim.

4. On 2 August 2006 the Commissioners applied to strike out the appeal pursuant to rule 6 and 18(1)(a) of the VAT Tribunals Rules 1986. There is a similar notice and appeal in relation to the 05/06 period.
5. The issue before the Tribunal was whether it had jurisdiction under section 83(c) of the 1994 Act to entertain the appeals. Before the Tribunal, the Commissioners contended that they had not made any decision in relation to Mobilx's claim for repayment of input tax for the periods 04/06 and 05/06; that they were continuing to make enquiries in relation to the nature of the underlying transactions and that there was no jurisdiction for the tribunal to determine the appeals under section 83(c). Mobilx contended that the repayment of input tax is undoubtedly due, having been properly sought and vouched for. It had no knowledge whether its purchases may have been tainted by fraud. The Commissioners were unreasonably delaying in making payment so that Mobilx were suffering hardship in consequence. It was unsatisfactory that the continuation by the Commissioners of their enquiries is open ended in such a way that it is unclear when they may be regarded as having come to a conclusion, and in the circumstances there was jurisdiction to determine the appeals under section 83(c).
6. As I said, since then MRCHHMHHMR JUSTICE LLOYD JONES: HMRC has reached a stage in its investigations where it had felt able to make and has made a decision refusing Mobilx's claim for repayment. It is quite clear, therefore, that Mobilx can bring an appeal against that decision to the Tribunal. In the light of that decision, Mobilx saw no need for this appeal to proceed. Its position is put in a letter from PWC to the court dated 14 February 2007. I will read some of it. Having stated in the second paragraph that the decisions had been made refusing recovery of the input tax and that there was no doubt that the Tribunal now possessed jurisdiction, they said they would like:

"… respectfully inform the Court that Mobilx does not intend to be represented at the hearing of this Appeal in view of the following factors:"

They say this:

"As stated above, this Appeal has now been rendered wholly academic following the Commissioners' rejection of the claims for input tax credit for both periods.

Mobilx specifically disagrees with the contentions set out in the Commissioners' latest facsimile that they are entitled to continue their pursuit of this Appeal ...

The objective of Mobilx throughout has been to challenge the Commissioner's refusal to repay the amount of input tax credit being sought. That objective can now be pursued by appeals before the VAT and Duties Tribunal, whether by way of amendment to the existing notices of appeal so as to refer to the recently notified decisions, or by way of service of fresh notices of appeal.

Mobilx has no desire to incur further expenditure in relation to this appeal in view of the severe financial impact which it has already suffered in consequence of the Commissioner's decision to refuse its entitlement to input credit and the time which has elapsed since the claims were originally made."

After those three bullet points which I have set out, they say:

"However, notwithstanding the above, Mobilx has instructed us to confirm that this should not be regarded as any acceptance that the Tribunal's decision was wrong."

Mobilx has neither sought to withdraw its appeals to the Tribunal, nor to amend them so as to rely on the decisions which HMRC have made. Indeed, it seems to be saying that it regards the decision of the Tribunal as correct. In these circumstances, HMRC wish to proceed with the appeal; I consider that they are entitled to do so. Since my decision on this case may be of some significance for HMRC in a number of cases, it is unfortunate from my perspective that Mobilx did not appear to argue that Mr Johnson was correct.

7. The legislation: I think it is only necessary to look at section 83 of the VAT Act 1994, which reads as follows (relevantly):

"Subject to section 84, an appeal shall lie to a tribunal with respect to any of the following matters -

…

(c) the amount of any input tax which may be credited to a person."

The central question in the present case is the width of that provision and whether it requires that a decision has been made by HMRC which is the subject matter of an appeal, or whether there is some more general power exercisable whenever there is some sort of issue between HMRC and a taxpayer. Mr Johnson construed the section in a wide way. He said:

"It seems to me that section 83(c) does not require a positive stance to have been adopted by the Commissioners before an appeal can be entered under that provision. Section 83(c) is apt, I think, to cover any situation where an issue has arisen between a would-be appellant claiming an entitlement to a credit for input tax on the one hand, and HMRC on the other." [Quote unchecked]

8. In reaching that conclusion, Mr Johnson expressly disagreed with the decision of Mr John Avery-Jones in P&C Telecom v HMRC in September 2006, another case on section 83(c) involving a carousel fraud, where HMRC had applied to strike out an appeal when they were still investigating the facts and had not decided whether or not to allow the reclaim. Mr Avery-Jones held that the decision was a pre-requisite to an appeal. There had been no decision, there was nothing to appeal and the purported appeal was struck out.
9. Neither Mr Johnson nor Mr Avery-Jones had the benefit of the decision of Lindsay J in Touchwood Services Limited v HMRC [2007] EWHC 105 Ch, handed down on 31 January 2007. I should review that decision in a little detail because it is, I think, conclusive in favour of HMRC of the question which I have to answer. I take the facts from the summary in Miss Tipples' helpful supplemental skeleton.
10. The facts of Touchwood were as follows. On 23 August 2005, the appellant taxpayer lodged with the Commissioners three voluntary disclosures seeking repayment of £715,198. In October 2005, the Commissioners agreed to repay part of that claim. However, by January 2006 there had been no decision by the Commissioners whether to repay the balance claimed to the appellant. The Commissioners said that no decision had been made because their enquiries were still incomplete. On 23 January 2006, the taxpayer sought to appeal to the Tribunal. By a notice dated 23 February 2006, the Commissioners applied to strike out the appeals pursuant to rule 6 of the Value Added Tax (Tribunals) Rules 1986 on the grounds that the Commissioners had not made a decision. That application succeeded before the Tribunal, the Chairman, Mr Wallace, on 12 April 2006 and the taxpayer appealed against that decision to the High Court. The only question before the appeal court was as set out in paragraph 2 of Lindsay J's judgment:

"… did the Tribunal err in law in holding that by the time of the Rule 6 notice, 23^rd February 2006 (and hence after an interval of some 6 months), or, perhaps, by the time of the hearing before Mr Wallace on 6^th April 2006 (after an interval of some 7½ months), no appealable decision had been made with respect to Touchwood's disclosure of 26^th August 2005?"

Lindsay J answered this question in the negative, upheld the decision of the Tribunal and dismissed the appeal

11. In reaching this conclusion it was necessary for the court to construe section 83(c) of the 1994 Act. After examining the availability of judicial review in relation to HMRC's obligations, in particular its delay or alleged delay in making decisions, Lindsay J said this, at paragraph 16 of his judgment:

"I would expect that, taken together, section 83(c) of the [1994 Act] … and Judicial Review would satisfy the requirements of Molenheide … but the more immediate relevance of the conclusions I have come to as to the availability of practical relief by way of Judicial Review is this: it affects the Court's approach to the true construction of section 83(c) of the [1994 Act.]"

After saying a bit more about judicial review, he says:

"I can thus approach section 83 on the basis that a relatively strict construction of it is not precluded."

Going on at paragraph 18:

"In point of true construction of section 83 (c) … it is notable that the word "appeal" is not defined but, in its context, one of law, the word assumes that there shall have been a prior decision or resolution, here by the Commissioners, which is wholly or in part adverse to the putative appellant in the sense of its rejection or failure to accept some claim advanced by him. In context, too, that prior adverse decision or resolution has to be sufficiently related to that which is specified in para (c) … to be describable as being "with respect to" the material referred to in those paragraphs."

Then in paragraph 19:

"It can be seen, too, that the earlier decision to be appealed must, if it is section 83(c) which is invoked, be with respect not to some issue as to whether the Commissioners are in some general way or merely in principle liable to credit or repay the taxpayer but as to "the amount of any input tax which may be credited to a person". That a mere general liability of the Commissioners to repay or credit does not suffice under section 83(c) is bolstered by a comparison of section 83(c) with section 83(p) or (s) where appeal is allowed as to liability or its amount (see also (sa), (t) and (ta)). The argument would be that when the draftsman intends to allow appeal against liability generally as well as to specific amounts he knows how to do so and that, as he does not prescribe for both general liability and amount in section 83(c), he must be taken not to have intended that that should be permitted. The definitive article before the word "amount" in section 83(c) suggests that the earlier decision has to have been such that it was adverse to the taxpayer as to some ascertained or ascertainable sum."

12. I am not sure that I would place much reliance on the bolstering argument, but I do not dissent from those conclusions in any way.
13. Further, in Touchwood, counsel for the respondent sought to rely on the Tribunal's decision in the case before me. In particular, the respondent there relied on the proposition contained in paragraph 15 of the Tribunal's decision in this case, namely:

"What founds the jurisdiction of the tribunal is that an issue exists between the parties as to the amount of any input tax that can be reclaimed".

Lindsay J held that he could not accept that proposition because, as he put it in paragraph 47:

"Whilst the conclusions in the authorities as to appeal from the High Court to the Court of Appeal have a statutory basis as to appeals only being available as to judgments or orders, a basis not identical to the case of an appeal to the Commissioners under section 83, I would expect a corresponding conclusion, namely that a disappointed party cannot appeal as to an "issue" as to the amount which stops short of being a decision by the Commissioners. One can lose any number of "issues" and yet, overall, win and hence be unable to appeal; it is generally the final decision not the reasons for it that is appealable…"

14. Although I am not bound by the decision of Lindsay J, I would only depart from it if I though it was clearly wrong. However, I consider that it is clearly correct and follow it gladly.
15. In this case, the ground of each notice of appeal is HMRC's failure to notify Mobilx of their decision. In my judgment, this complaint does not relate to any decision of the Commissioners and as such there is no matter for Mobilx to appeal under section 83(c) in respect of the periods 04/06 or 05/06. I would add that this conclusion is consistent with the perhaps clearer wording of the statutory predecessor of section 83, namely the Value Added Tax Act 1983, section 40 which, so far as material provided that:

"An appeal shall lie to a Value Added Tax Tribunal against a decision of the Commissioners with respect to any of the following matters -

…

(c) the amount of any input tax which may be credited to a person."

16. I have not needed to rely on this provision and the proposition that a consolidating Act such as the VAT Act 1994 is not intended to change the law in reaching my conclusion, but had I been in serious doubt about the meaning of section 83, I may well have been entitled to rely on that predecessor provision to arrive at the same conclusion.
17. For completeness, I would mention a few of the decisions which preceded the decision of Lindsay J in Touchwood. The first is Marks & Spencer Plc v Commissioners of Customs and Excise [1998] VNDR 93, in which Mr, now Sir, Stephen Oliver QC, held that section 83 required there to be a decision as a pre-requisite to the Tribunal's jurisdiction, although he appears to have reached his conclusion partly in reliance on the wording of the predecessor provision. As to the meaning of "decision", he expressed the view that a decision is an official act by the Customs authorities pertaining to a VAT statutory provision that gives a ruling in a particular case and has legal affect upon the person at whom it is directed.
18. In Tricell (UK) Limited v Commissioners of Customs & Excise, VAT Tribunal decision 18127 released on 17 April 2003, Mr Colin Bishop as Chairman of the Tribunal decided that HMRC's approach depended on two aspects: the issue of fact as to the nature of the transaction and the issue of law, namely whether, if the Commissioners were correct in their suspicions about the nature of the transactions, they were also correct in their view that such transactions were not, as a matter of law, within the scope of the 1994 Act. The Chairman was of the view that the Commissioners had come to a concluded view about the law and as such the question before the Tribunal in Tricell was whether there was a sufficient decision for the purposes of section 83. The Chairman, having referred to the decision in Marks & Spencers, decided that the Commissioners' conclusion on the law was a sufficient decision for the purposes of section 83 and he dismissed the Commissioners' application to strike out the appeals.
19. I leave open the question, which does not arise in the present case, whether a dispute of law, without the figures having been addressed, is enough to found the Tribunal's jurisdiction, a matter on which HMRC perfectly properly declined to express a view before me.
20. Finally I should mention Mr Avery-Jones' reasoning in P&C Telecom Limited where he says this:

"We therefore had the situation that, in the course of an appeal, one cannot tell whether the appellant is entitled to input tax deduction until Customs have finished their investigations. This narrows the difference between the parties. Counsel for the appellant wants to be able to appeal at the beginning and then Customs' investigations can be monitored by the Tribunal as part of its case management. Counsel for the Commissioners wants to put off the start of the appeal until it is known whether the Customs are in fact disallowing the input tax deduction, and in the meantime judicial review, perhaps more practically the adjudicator, is available to monitor the length of the Customs' investigations. It seems to me that counsel for the Commissioners' contention is the preferable interpretation of section 83(c). One cannot have a dispute about the matter of the amount of input tax until the outcome of Customs' investigations is known. Customs may, after their investigations, conclude that the appellant did not know and should not have known about any fraud, or it may be that there was no fraud."

21. As I have said, my conclusion is that the decision is required before a Tribunal can assume jurisdiction. There had been no relevant decision in the present case before the relevant purported appeals were issued. The fact that decisions have now been made means that Mobilx now as a right to appeal those decisions, so that the current purported appeals as they stand cannot be adjudicated on by the Tribunal.
22. Mr Johnson came to the contrary conclusion. His reasons were essentially as set out by Miss Tipples in paragraph 27 of her skeleton argument. There are five lettered paragraphs which I shall just read. These are the reasons which Mr Johnson gave:

"(a) It is not a requirement of section 83 that in order to ground an appeal it should be clear at the outset how much input tax each party says should be credited to an appellant. It simply provides that an appeal shall lie to a Tribunal with respect to the amount of any input tax which may be credited.

(b) It follows that at the time the notice of appeal was served, it is irrelevant whether the Commissioners have finally made up their minds to allow the reclaim in part or not at all.

(c) A decision is not stated as a prerequisite of section 83(c). This is to be contrasted with other subparagraphs of section 83 of the 1994 Act.

(d) Section 83 does not require the Commissioners to adopt a positive stance before an appeal can be entertained under this provision. Rather it is apt to cover any situation where an issue has arisen between a would-be appellant claiming entitlement to a credit for input tax on the one hand and the Commissioners on the other. This is the approach equivalent to that adopted in Tricell.

(e) There is presently an issue between the Commissioners and Mobilx in this case. The Commissioners by their letter informed Mobilx that they have decided to withhold the repayment of input tax in full, depending on the evidence available. That decision grounds the jurisdiction of the Tribunal in relation to the appeals."

23. I agree with Miss Tipples when she submits that the decision was wrong in law for the reasons I have given in the analysis of Lindsay J's judgment. Accordingly, I allow the appeals of HMRC and strike out Mobilx's appeals to the Tribunal.