THE HIGH COURT
JUDICIAL REVIEW
	                                                                          Record No. 1995 202 J.R. 
BETWEEN
D.H. BURKE & SON LIMITED
		APPLICANT
AND
THE REVENUE COMMISSIONERS, IRELAND AND THE ATTORNEY GENERAL
		RESPONDENTS

JUDGMENT of McCracken J. delivered the 4th day of February, 1997.

	The Applicant is a company which owns and operates a chain of supermarkets in the west of Ireland, and which is registered for Value Added Tax in relation to its business.  It sells a wide range of goods in respect of which Value Added Tax is payable, but at varying rates depending on the specific goods.  Under the Value Added Tax legislation, the Applicant, as an accountable person, ought to make two-monthly returns declaring the sales of goods under each rate of tax.  To do so would result in serious practical difficulties for all retailers if the Act were strictly adhered to, as it would require a very onerous system of record-keeping to enable it to differentiate between items liable to different rates of tax.
	The first named Respondent ("the Revenue") set up a scheme to ease the burden on retailers, which is described in a leaflet headed "VAT Schemes for Retailers".  While the authority for such a scheme is not expressly stated, it would appear to come within the general powers given to the Revenue under Section 43 of the Value Added Tax Act, 1972 whereby the tax is placed under the care and management of the Revenue.  In any event, the Applicant is not challenging the validity of the scheme.  There are in fact four separate schemes set out in the leaflet, but this case is only concerned with Scheme 3 which was operated by the Applicant.  In the introduction to the scheme, under the heading "Purpose of Schemes", it is stated:-

	"To calculate the tax due in a taxable period a retailer who sells a mixture of goods liable to two or three rates of tax (including zero rate), must know the amount of (1) his purchases and (2) his sales at the different rates of tax in the period.  All traders must keep records of their purchases under the different rates of tax, purchases of stock in trade being kept separately from other purchases, and they will, therefore, have full details of the tax in relation to purchases.  Many retailers, however, could not reasonably be expected to record sales under the different tax rates and it will be necessary to apportion their total turnover between goods liable at each of the different tax rates before they can compute their tax liability.  The schemes set out in the following pages have been designed for this purpose".

	The introduction also states that:-

	"All of the schemes are concessional and subject to periodic review by the Inspector of Taxes". 

	Scheme 3 is stated to be a scheme for traders who do not operate stock control systems and whose annual turnover exceeds £300,000.  The leaflet then briefly sets out the scheme as follows:-
	"Receipts in the taxable period to be apportioned by reference to purchases for re-sale in that period and in the preceding five taxable periods (or the number of taxable periods since trading commenced if less than five)". 

	There is no further explanation given of the scheme, but a detailed example is set out.  The way the scheme operates is that the retailer calculates his purchases for the relevant two month tax period and the five previous periods under each of the tax rates, exclusive of Value Added Tax.  These will be known figures taken from the retailer's purchase records.  To each of these figures is added a percentage for the retailer's mark-up or profit.  This percentage figure is an estimate by the retailer, and is subject to review or verification by a tax inspector.  This results in the estimated selling price of goods subject to  each rate of tax.   Value Added Tax at the relevant rate is then added to give the estimated selling price, tax inclusive, to the ultimate purchaser.  In the example given, the tax inclusive selling price for the relevant six taxable periods in respect of zero per cent rated goods is £80,530, in respect of 18% rated goods is £35,213 and in respect of 30% rated goods is £13,962.  This gives total estimated tax inclusive sales of £129,705.  To calculate the Value Added Tax liability under each rate of tax, the tax inclusive selling price for that rate is divided by the total tax inclusive sales, which is then multiplied by the total sales for the taxable two month period only.  In the example given, if the total sales figure is £60,000, the proportion thereof liable to the 18% tax rate would be £35,213 divided by £129,705 multiplied by £60,000, which given the tax inclusive amount of £16,289.  Similar calculations can be made in relation to the other rates of tax, and these figures are used to calculate the tax liability.
	As can be seen, the system appears to be a very practical one in most circumstances, and it assumes that the proportion of goods sold under any particular rate of tax will be the same as the proportion of purchases by the retailer under the same rate of tax.  Unfortunately, as in many general schemes such as this, there may be exceptional circumstances in which the scheme becomes very difficult to apply.  This is so in the present case.
	Among the items sold by the Applicant in a number of its outlets are alcoholic drinks.  These goods are normally kept in bonded warehouses, that is secure premises approved of by the Customs and Excise authorities, until they are required for sale to the public.  The goods kept in bond are commonly owned either by the manufacturers or by wholesalers, and are frequently sold by them to retailers out of bond, that is after the excise duty has been paid.  The goods cannot be physically released from bond until excise duty has been paid.  However, some retailers, including the Applicant, purchase such goods while they are in bond, and only pay the manufacturer or wholesaler the price of the goods, but not the excise duty.  The goods then become the property of the retailer, and if he wishes to put the goods on sale, he must himself, as owner of the goods, pay the excise duty before taking the goods out of bond.  This leads to a strange anomaly.  If he buys the goods out of bond, that is with excise duty paid, Value Added Tax will be payable on the entire price, which includes the excise duty, as this is the total consideration for the purchase within the meaning of Section 10 of the 1972 Act.  He is then, of course, entitled to reclaim that Value Added Tax.  However, in the Applicant's situation, the Applicant purchases the goods while they are still in bond, therefore only paying Value Added Tax on the value of the goods themselves, as this is the consideration under Section 10, and when he takes the goods out of bond he pays the excise duty, upon which Value Added Tax is not chargeable.   Were it not for the scheme in the present case, he would then be entitled to a refund of the Value Added Tax on the purchase price for the goods only, while he would be liable to pay Value Added Tax at the relevant rate on the entire retail sale price.
	Under the scheme, the higher the proportion of zero rated purchases, the lower will be the overall tax payable.  The Applicant in the present case argues that in relation to its purchases of alcoholic drinks, it is entitled to include the Value Added Tax actually paid under the top rate of tax in the calculations under the scheme, which is undoubtedly correct.  However, the Applicant also argues that in relation to the excise duty, it is entitled in the same calculations to include the amount of the excise duty in the tax exclusive purchase price at the zero rate of tax.  It argues that the excise duty is part of the cost of the purchase of the goods, and that this must be entered or taken into account under one or other of the three rates of tax set out in the scheme.  As there is in fact no Value Added Tax payable on excise duty, it argues that the only heading under which it could be entered is that of zero per cent.
	The Revenue, on the other hand, argue that the rate of zero per cent is only applicable to specific items set out in the Second Schedule to the Value Added Tax Act, and that there is nothing in that schedule to refer to excise duty.  They go further, and argue that, under Section 11 of the Act, tax is chargeable at the top rate if it is not chargeable at any of the rates specified under any of the other headings, and therefore the excise duty ought to have been included in the tax exclusive figures at this rate under the scheme.
	The differences between the parties is clearly a question of interpretation of the scheme, always bearing in mind that it is a scheme the purpose of which is to provide as accurate as possible a method of assessing the actual liability for tax.  That being so, it is necessary to examine the wording of the scheme in some detail.  The following matters appear to me to be relevant to the proper interpretation of the scheme:-

1.	I have already referred to the basis of the scheme as set out in the introduction to it.  Its object is to obviate the necessity to keep detailed records of sales on which the Applicant would be liable to pay Value Added Tax.
2.	Scheme 3, which was operated by the Applicant, relates to traders "whose annual turnover exceeds £300,000".  Accordingly, eligibility for the scheme is governed by the turnover or sales of the retailer.

3.	The scheme itself operates by apportioning "receipts in the taxable period", that is again the monies received by the retailer on sales by it.

4.	The example given relates to "total sales including tax in the taxable period".

5.	The calculations then given lead up to a figure for "total estimated tax inclusive sales".  This total is reached by adding together the estimated tax inclusive sales at each rate of tax.

	It can be seen that the entire emphasis, therefore, is on sales by the retailer rather than on purchases.  This is perfectly logical, as what is being calculated is the tax payable by the retailer on the sales by it.  That being so, the reference to the rate of tax in the calculations should, in my view, refer to the rate of tax payable on the sale by the retailer, not the rate of tax on the purchase by the retailer.  I think this is supported by the fact that the second column in the calculations refers to purchases for the relevant periods tax exclusive.  The tax only comes into consideration after the calculation has thrown up the selling price tax exclusive.
	The alcoholic drinks with which we are concerned are liable to Value Added Tax at the top rate when sold by the Applicant.  It must follow from this that the cost of the purchase of those goods must be included in the column relating to the top rate of tax.  On this interpretation there could be no question of any portion of the cost to the Applicant being entered as zero per cent tax.
	The only question which can then arise is whether the amount entered in the calculation is limited to the price paid by the Applicant to the wholesaler, or whether it should also include the excise duty paid by the Applicant.  The relevant column is headed "Purchases for relevant period plus five previous periods (tax exclusive)".  It should be noted it does not say "purchase price", and in my view this should be interpreted as the cost of the purchase rather than the purchase price.  To insert the purchase price alone, and completely ignore the excise duty, would not only distort the calculation, but would make nonsense of adding a mark-up of a fixed percentage, as of course the Applicant's mark-up is a percentage, not of the price paid by him for the actual purchase of the goods, but of that price plus the excise duty.
	I also think that the point made at paragraph (5) of Mr. O'Brien's affidavit supports the interpretation I suggest.  He points to the situation where a retailer may purchase goods from a small supplier, who, because of his turnover, is not registered for Value Added Tax, and therefore no Value Added Tax is paid by the retailer on that purchase.  Nevertheless, if the purchases attract the top rate of tax when sold by the retailer, they would be considered for the purpose of the calculation as being liable to that top rate of tax.  Accordingly, the calculations made by the Applicant ought to have been based on the inclusion of both the purchase price and the excise duty in the top rate of tax.

	The Applicant addressed detailed arguments based on the premise that the Respondents had retrospectively sought to alter the method of calculation, and, while they accepted that this could be done in the future, they contended it could not be retrospective.  I think these arguments were misconceived.  The interpretation which I have placed on the scheme is what was always the true meaning of the scheme, and this was not in any way changed or being changed by any retrospective act of the Revenue.  The effect of my decision is that the Applicant simply misinterpreted the scheme, and did not make its Value Added Tax returns in accordance with the scheme.  The scheme was not altered retrospectively, and the arguments based on retrospection have no validity.

	There is one further matter upon which I must also comment.  It is claimed by the Applicant that the Revenue acted in breach of natural justice, and were arbitrary and unreasonable in not giving the Applicant an opportunity to present argument and documentation to show why the estimated assessments increasing the Applicant's liability ought not to be raised.  They argue that by doing so, the Applicant becomes liable to penalties and interest, and possible criminal sanctions.  I am not quite clear exactly what it is suggested the Revenue ought to have done.  They wrote a circular letter to all retailers on 23rd April, 1992 setting out their interpretation of the scheme, and stating that if the calculations had not been made in accordance with that interpretation in the past, a substantial underpayment may have arisen.  The Applicant had every opportunity to respond to that circular, and make such submissions as it thought fit.  In fact the Applicant's accountants did communicate with the Revenue in relation to the letter on 30th June, 1992 stating that they have at all times observed the terms of the scheme, but not challenging the interpretation set out in the circular.  The impression given by the reply quite clearly is that they have in fact calculated their returns in accordance with the Revenue's  interpretation.  An assessment was not in fact raised until May 1995, when the Revenue discovered the Applicant's method of calculation, and the Applicant has the statutory right to appeal that assessment, and indeed I understand has done do.

	It must be remembered that Value Added Tax operates under a self-assessment scheme.  Detailed statutory procedures exist allowing the Revenue to re-assess where a taxpayer has made a self-assessment return.  Such re-assessments by the Revenue are open to appeal, and in my view the procedures in relation thereto are perfectly fair and reasonable and comply with the rules of natural justice.
	Finally, because so much reliance was placed on it, I should comment briefly on the case of R. v. Inland Revenue Commissioners, ex parte Unilever Plc (1996) STC 681.  In that case the taxpayer had for many years claimed tax relief in respect of trading losses at a time when, on a strict interpretation of the legislation, they were not entitled to do so.  However, for some twenty years the Revenue had accepted such claims out of time, and in so doing, had exercised a discretion in favour of the taxpayer.  In that case the taxpayer succeeded in establishing that the Revenue's refusal to continue to allow the relief out of time, without warning the taxpayer in advance, was irrational and unreasonable.  It was, however, emphasised in the case that the circumstances were quite exceptional.  In my view, that case is clearly distinguishable from the present.  Firstly, it concerned a discretion, deliberately exercised by the Revenue in favour of the taxpayer for many years, when the Revenue must have known the taxpayer was out of time.  In the present case, there is no question of a discretion involved, and, as this is a self-assessment case, I am satisfied the Revenue did not know that the returns were being improperly made.  Secondly, the Unilever case was based on the fact that, if the relief had been claimed in time, the taxpayer would have been entitled to it.  In the present case, the Applicant was never entitled to have his Value Added Tax assessed on the basis of the interpretation which it has put forward, and therefore it has not lost any right to which it would otherwise have been entitled.  Indeed, if I were to grant the Applicant relief on this basis, there would appear to be a considerable element of unjust enrichment in favour of the Applicant.
	Accordingly, I refuse the relief claimed.