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United Kingdom VAT & Duties Tribunals (Customs) Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> United Kingdom VAT & Duties Tribunals (Customs) Decisions >> Miller Methill Ltd v Revenue & Customs [2006] UKVAT(Customs) C00214 (13 March 2006)
URL: http://www.bailii.org/uk/cases/UKVAT/Customs/2006/C00214.html
Cite as: [2006] UKVAT(Customs) C00214, [2006] UKVAT(Customs) C214
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CO214
Value Added Tax – Shipbuilders relief – whether Appellants entitled to be paid relief for vessel delivered on 12.8.04 – relief incompatible with EU Directive after 2000 and Finance Act 2004 s.323. Appeal Dismissed.
EDINBURGH TRIBUNAL CENTRE
MILLER METHIL LIMITED Appellants
- and -
THE COMMISSIONERS FOR
HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: (Chairman): T Gordon Coutts, QC
(Member): S A Rae, LLB., WS
for the Appellants Robert McBurney
for the Respondents Ian Artis
© CROWN COPYRIGHT 2006.
Introductory
This is an appeal against a refusal by the Respondents to pay shipbuilders' relief to the Appellants in relation to a vessel they constructed. The Appellants are small shipbuilders employing about 50 persons and are not members of any trade association. They have constructed vessels and obtained relief on previous occasions.
Background Facts
The Appellants entered into a contract with a Government Agency, the Scottish Environmental Protection Agency, on 19 December 2002 for the supply of a hydrographic vessel, the John Murray. John Murray is, unusually, a masculine name for a vessel but John Murray, later Sir John Murray was and is regarded as the founder of modern hydrography and it was deemed fitting that this vessel should be named after him. The vessel was agreed by the parties before the Tribunal to be a self propelled sea-going vessel of not less than 100 gross tonnes and was for the performance of specialised services. As such it fell within the definition of such vessels for the purposes of the aid rules in EC Regulation 1540/98. That Regulation which established new rules on aid to shipbuilding came into force on 1 January 1999 and ceased to have effect on 31 December 2003.
The contract to build the John Murray was signed on 19 December 2002 and the vessel constructed and delivered at Methil to the Agency on 12 August 2004. On that date the Appellant submitted a claim for shipbuilders' relief to the Respondents. That claim was rejected for the reasons undernoted and that rejection is the subject matter of this appeal.
Legislative Background
Before the accession to the EU the United Kingdom had provided for various reliefs and subsidies for shipbuilders. In the Finance Act 1966 Section 2 provisions relating to Excise Duty and Duty on Hydrocarbon Oils provided that those were to be reimbursed by the Respondents. That is referred to as Shipbuilders Relief. Other aid and assistance to shipbuilders was provided via the DTI or its predecessor but that was of a different category. In the said Council Regulation 1540/98 new rules were established. Production aid was determined to cease on 31 December 2000 by paragraph 3(1) in the Regulation. State aid was defined and defined in such a manner as plainly to include the rebate on hydrocarbon oils etc provided for in the Finance Act 1966.
By Section 323 of the Finance Act 2004 shipbuilders' relief was abolished in the following terms:
323 Ending of shipbuilders' relief
(1) Relief under section 2 of the Finance Act 1966 (c.18) (relief for shipbuilders in respect of certain taxes and duties) is not available, and shall be regarded as never having been available, in any case where the contract mentioned in subsection (2) of that section is –
(a) a contract made on or after 1st January 2001 relating to a self-propelled sea-going commercial vessel, within the meaning of the 1998 Regulation, or
(b) in a case not falling within paragraph (a), a contract made on or after 13th January 2004.
(2) In this section "the 1998 Regulation" means Council Regulation (EC) No 1540/98 of 29 June 1998 establishing new rules on aid to shipbuilding (under which operating aid for shipbuilding ended on 31st December 2000).
As a result of the legislative provisions shipbuilders' relief had been available for builders of vessels like the John Murray for contracts entered into by 31 December 2000 and might still have been available for some other vessels such as naval shipping until 2004. As indicated above the contract for the John Murray was signed after 31 December 2000 and aid in respect of vessels like the John Murray was incompatible with the EU Regulations after 1/1/01. Such Regulations have direct effect and aid was incompatible with the Regulations after that date and could not be granted by any member state.
However if that summary does less than justice to the European dimension any doubt about the availability of shipbuilders' relief was dispelled by the said Section 323. It was withdrawn totally with retrospective effect. However retrospective legislation may be viewed there is not any statutory power available in the Tribunal to go behind that legislation.
Further Factors Referred to by the Parties
The present claim was made after the passing of the Act of 2004 although prior to its passing various correspondence took place to which the Tribunal was referred. In particular on 2 May 2003 the Appellants' Managing Director wrote to Customs asking "can you please confirm that the 2% shipbuilders' relief will be available to us" to which the response came "with reference to your letter of 2 May, I am sorry to have to say that we cannot guarantee payment of SBR for your contract. The Chancellor of the Exchequer has stated that SBR is to be withdrawn shortly, although we do not have full details yet. Those concerned will be notified of the outcome as soon as possible". In the meantime, although unknown to the Appellant, correspondence and submissions had been occurring between the Respondents and the Shipbuilders and Ship Repairers Association. They complained about muddled replies by the Respondents which had, in 2001 stated "I am still unable to confirm that SBR will not be available for contracts awarded after 31 December 2000". On 14 August 2003 the following passage occurred in a letter from the Federation to the Respondents:
"SSA has been trying to obtain clear guidance from C&E for the last two years and more. When we are told by C&E in a letter dated 9 August 2001 that 'I very much regret that I am still unable to confirm that SBR will not be available for contracts awarded after 31 December 2000..' it seems to SSA crystal clear that the measure was still in operation and available for new business. Further, when the Chancellor spoke to the Social Market Foundation on 3 February this year, he said 'We are removing the last of the permanent, ongoing subsidies for operating costs in coal, shipbuilding and steel'. That seems a clear statement that they have not yet been removed.
C&E are apparently relying on a range of more or less daft excuses for not giving the yards clear advice, including that they had no need to notify anyone since ending SR on merchant ships in a European requirement, over-riding UK law; and that it was not their business to notify anyone, but that of the DTI as the Department responsible for the shipbuilding industry.
This C&E wriggling is particularly irritating since the delay in coming to any sort of decision is harming the interests of some of the smaller yards. McTay Marine on Merseyside, in Ben Chapman's constituency, is owed some £150,000 from SR on two ships. Millers of Methil is owed some £40,000 of SR on a ship that they have just built for SEPA. It is an outrage that a Government Agency has benefited from a lower contract price for this ship by virtue of SR, and now the shipbuilder is being denied payment of the SR."
Submissions for Appellant
These were encapsulated in a short written statement by Mr McBurney in substance as undernoted:
1) Miller Methil not advised by Customs that the duty relief was to be withdrawn.
2) Miller Methil have relied on the duty relief in pricing the tender for the Scottish Environmental Protection Agency.
3) The relief was withdrawn retrospectively which is unjust and unfair.
4) We have, and have provided you with, correspondence which states that the Customs & Excise were considering what to do re Shipbuilders' Relief in 2003. The clear inference being that the relief was still claimable whilst C&E were considering the situation.
5) The DTI clearly stated the situation re direct subsidy after the EU Directive and yards immediately stopped allowing for it in their pricing for contracts after 31/12/2000. Contrast this with the unclear situation with SR and we believe Customs is incorrect in stating that all yards should not have assumed that SR would be available post 31/12/2000.
6) The SEPA contract in question was signed long before the January 2004 announcement stating that the SR was to be retrospectively withdrawn. Indeed the tender process had gone on since 2001/2.
7) The vessel qualified for relief under the rules which prevailed up to the announcement in Jan 2004 i.e. she was over 100t, not for pleasure she was seagoing.
Submissions for Respondents
State Aid is incompatible with the provisions of the Community; it may be tolerated but such toleration was governed by Directive 1540 of 1998. After the ceasing of the said Directive to have effect the previous aid regime, in the Finance Act 1996 was not resurrected – see F.lli Variola SpA 1973 ECR 981 and SPA Eridania 1979 ECR 2749. Although there is a role for the doctrine of legitimate expectation in community law this cannot apply here because there was no legitimate expectation in a precarious right. In any event there had been debate in the industry about the EC Regulations and if the Appellant was unaware of this that cannot be laid at the door of the Respondent. Further the Act of 2004 pre-dated any entitlement the Appellant may have had to Shipbuilders' Relief.
Decision
Despite the Respondents deliberately not taking any point on jurisdiction the Tribunal were extremely doubtful that they had in terms of their statutory appellate jurisdiction or any other community jurisdiction the ability to dis-apply s323 of the Finance Act 2004, which is what they would have required to do in order to uphold this appeal. That Act was of course an implement of an EU Regulation (although late) and so could not be said to be incompatible with any EU taxpayers rights. In our view no question of the frustration of legitimate expectations arises in the circumstances. In these circumstances the provisions of the Finance Act rule, state aid is not available and the appeal must fail.
The conduct of the Respondents, if it fell below proper standards, about which we make no observations, cannot be remedied by this Tribunal. Any complaint would require to be made elsewhere. We also reject the contention that there was some duty on the part of the Respondents to notify a few selected taxpayers of changes in EU Regulation. Persons, particularly business persons, must be deemed to know the law and particularly the law in relation to their specific activity. To suggest that the Respondents require to consider every Regulation and take steps to tell people they think might be effected by it of its existence would be imposing far too high a duty on the Respondents as also to suggest that they require to consider not merely the Regulations themselves but any individual taxpayers they consider might have been affected by it.
No doubt the Government Agency obtained a lower price for the vessel than they would have done but for the miscalculation of the Appellants as to the availability of Shipbuilders' Relief. However that does not mean that they have any obligation to rectify the Appellants' position even if that could be done by way of a reclaim from Customs and Excise. The Agency obtained a price and they cannot be assumed to know why that price was given and the Appellants must abide by their bargain however unfortunate it may turn out to have been for them.
EDN/05/7010