United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2004] UKVAT V18852

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Elstead (Thursley Road) Recreational Trust v Customs and Excise [2004] UKVAT V18852 (29 November 2004)

18852

RIGHT OF APPEAL – Strike out application prior to appeal hearing – Preliminary ruling by Commissioners that proposed construction was zero-rated – Whether that decision gave rise to right of appeal

HUMAN RIGHTS ACT – Whether Appellant denied a hearing – S.84(3)(b) of VATA 1994 considered – Appeal struck out

LONDON TRIBUNAL CENTRE

ELSTEAD (THURSLEY ROAD) RECREATIONAL TRUST Appellant

and –

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: MISS J C GORT (Chairman)

MR C R SHAW FCA

Sitting in public in London on 15 October 2004

Mr P Murphy, secretary of the Trust, for the Appellant

Mr H McKay of counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

The disputed decision was contained in a letter dated 4 July 2003 in which a VAT officer had ruled that the supply of construction services to build a new pavilion for the Appellant was standard rated. The decision had been upheld on review by two subsequent officers.

The appeal was listed to be heard on 15 October 2004. By a notice dated 14 October 2004 the Commissioners applied for the appeal to be struck out on the basis that the appeal could not be entertained by the Tribunal. The grounds for the application were that the appeal concerned the VAT liability of a future supply of construction services and as no construction services had been supplied to the Appellant, the Tribunal did not have jurisdiction to entertain the appeal under section 83(b) of the Value Added Tax Act 1994.

The facts of the case were that the Trust had been formed in March 1999 and was not registered for VAT. It was founded as a result of an initiative by the Elstead Cricket Club, the Elstead Football Club and the Peter Pan pre-school to build a new pavilion. The object of the Trust was stated to be: "To provide for the parishioners of Elstead and the inhabitants of the surrounding areas in the interest of social welfare facilities for recreation and leisure-time occupation and with the object of improving the conditions of life for the said inhabitants."

On 24 June 2003 Baker Tilly, who were acting on behalf of the Appellants, wrote to the Commissioners contending that the construction of the new pavilion would qualify for zero-rating for VAT under Item 2(a) of Group 5 to Schedule 8 of the Value Added Tax Act. In addition they contended that, as some of the building materials would be purchased by the Appellant, VAT on those materials would be recoverable under the DIY scheme as the building would be used for relevant charitable purposes.

By the letter of 4 July 2003 the Commissioners had stated to Baker Tilly that the construction services did not qualify for zero-rated VAT liability as, on the available information, there appeared to be a considerable element of allowance for commerciality and the pavilion would not be used "solely" for charitable purposes. Baker Tilly requested a review of this decision and a further letter was written by a different officer confirming that she was upholding the decision. Following further requests for reviews the decision was again reviewed and was upheld.

In the letter of 4 July 2003 the Commissioners stated inter alia: "The objective for the proposed pavilion …". In the first review letter dated 10 September 2003 reference is again made to the "proposed" building and the Appellant was informed that it may appeal that decision to an independent VAT tribunal. In their final review letter, which was dated 25 March 2004, the Commissioners made no reference to the fact that the building had not commenced, and again the Appellant was told that the decision could be appealed to the VAT Tribunal and that a further period of 21 days from the date of the letter was the time in which such an appeal should be lodged.

In the statement of case, which is dated 28 June 2004, there was again no reference to the fact that the Appellant had not commenced building. The Commissioners' contentions were that to qualify for zero-rating under Group 5 of Schedule 8 of the VAT Act 1994, the Appellant must show either that the pavilion would be used otherwise than in the course or furtherance of a business, or that it would be used as a village hall or similar facility. It was concluded that the Appellant satisfied neither test.

Prior to hearing the substantive appeal it was decided that, although the Commissioners had only given one day's notice of their application, nonetheless the Appellant had been warned some weeks prior to 14 October that the Commissioners would be submitting that the appeal could not be heard by the Tribunal. In the circumstances therefore it was decided to allow the application to proceed, although a formal notice had not been served within the required time.

Section 83 of the VATA provides:

Subject to section 84, an appeal shall lie to the Tribunal with respect to any of the following matters –

…

(b) the VAT chargeable on the supply of any goods or services …

…

(g) the amount of any refunds under section 35.

Section 84(3) of the VATA provides:

(3) Where the appeal is against a decision with respect to any of the matters mentioned in sections 83(b) … it shall not be entertained unless –

(a) the amount which the Commissioners have determined to be payable as VAT has been paid or deposited with them …

Section 35 of the VATA 'Refund of VAT to persons constructing certain buildings' provides:-

(1) Where –

…

(c) VAT is chargeable on the supply, acquisition or importation of any goods used by him for the purposes of the works,

the Commissioners shall, on a claim made in that behalf, refund to that person the amount of VAT so chargeable.

Group 5 Schedule 8 to the VATA provides:

Item No.

…

(2) The supply in the course of the construction of –

(a) a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose …

It was the Appellant's position that the Commissioners' decision contravened article 6 of the Human Rights Act in that they were denied the right of appeal to an independent body. It was also their case that, as a consequence of the Commissioners' decision, they had suffered hardship because, until an appeal had been heard by the VAT Tribunal the VAT position was uncertain and they were not able, without risk, to commence building. Furthermore the Council grant which they were expecting could not be drawn on until the VAT issue had been resolved. They could not offer a construction contract until it was known what the full cost of the contract would be and it would be a breach of the duty of care by the Trustees if they were to do so. A further problem was that bodies operating at a national level would not give grants where there were doubts about the cost of a project, or where construction had started. If, therefore, they had started construction in order to be able to have a right of appeal to the Tribunal, they would not be able to receive any such grants.

It was further submitted on behalf of the Appellant that the Trust had been misled and its position prejudiced by the Commissioners not telling them of the true position, and encouraging them to appeal to the Tribunal, when they were now saying that no such appeal lay to the Tribunal.

Since the Commissioners had been able to reach a decision on the information it had about the proposed building, the Tribunal ought similarly to be able to reach a decision on the appeal against the Commissioners' decision. The effect of the Commissioners' actions was to deny the Appellant a right of appeal.

Reasons for decision

At the conclusion of the hearing on the application we announced that we had concluded that we were not able to entertain the appeal and these are our reasons.

It is clear from the language of section 83(b) that there must be a supply of goods or services. In the present case there has to date been no such supply.

Section 83(g) refers to "refunds" under section 35. There can only be a refund where in fact there has been a payment. There has been no such payment in the present case. Furthermore section 35(c) refers to VAT chargeable on the supply of any goods "used" and therefore clearly refers to an event which has already taken place. Item No.2 of Group 5 of Schedule 8 refers to a supply "in the course of the construction of …" and in the present case there is no construction under way. This section clearly envisages that supplies are taking place or have taken place.

We find that there is no right of appeal in the present circumstances under the framework of the VATA. With regard to the Appellant's submission that it has been denied the right of appeal to an independent body, it is the case that the Appellant in the present circumstances would be able to apply for judicial review of the Commissioners' decision. We are aware that this is an expensive and time consuming procedure, but it cannot be said that the Appellant has been denied the right of appeal, unsatisfactory although the situation undoubtedly is.

We find that the Appellant has indeed suffered hardship as a consequence of the Commissioners' decision, however section 84(3)(b) is not dealing with hardship occasioned by the decision as such, but by hardship occasioned by having to pay the tax which, if it were successful in the appeal, it would not ultimately have to pay. In the present situation there is no amount of tax which it has been determined that the Appellant has to pay.

Section 3 of the Human Rights Act provides by subsection (1): "So far as it is possible to do so, primary legislation and subordinate legislation must be read and given effect in a way which is compatible with the convention rights". There is therefore no absolute obligation upon the Tribunal to construe the primary legislation, in this case the VAT Act, in a way which is compatible with the convention rights. Whilst we have great sympathy with the Appellant in its particular circumstances, and whilst the Commissioners have undoubtedly acted in such a way as to cause the Appellant hardship both in terms of time wasted and money spent, by not themselves being aware of the Tribunal's inability to hear an appeal at this stage of proceedings, and by advising the Appellant that he can appeal their decision to the Tribunal, it is nonetheless not possible to construe the primary legislation in such a way as to give the Appellant a right of appeal to the Tribunal.

Mr McKay quite properly apologised on behalf of the Commissioners and referred to the admirable restraint shown by Mr Murphy. At the time we announced our decision we also awarded the Appellant costs and we informed the Appellant of his right to apply to the Adjudicator. The Commissioners themselves also have a procedure for applying for compensation in certain circumstances. We trust that the Commissioners will look upon any claim for costs or application for compensation from the Appellant favourably.

In the light of the decision that the Tribunal cannot entertain this appeal, the appeal itself must be dismissed.

MISS J C GORT

CHAIRMAN

RELEASED: 29 November 2004

LON/04/828