19805

Recovery of overpaid tax – amounts paid by way of VAT held not to be due – bonus payments between manufacturers and sellers of vehicles, input tax paid but repayment blocked – output tax paid which was not due – what can be recovered – VATA 1994 Section 80 – VAT Regs 1995 reg. 29.

EDINBURGH TRIBUNAL CENTRE

	                   ARNOLD CLARK AUTOMOBILES          Appellant

	- and -

	HER MAJESTY’S REVENUE AND CUSTOMS    Respondents	

			Tribunal:	T GORDON COUTTS QC (Chairman)
					K PRITCHARD, OBE., BL., WS (Member)

Sitting in  Edinburgh on 26 September 2006.

for the Appellant		Colin Tyre, QC

for the Respondents	I Artis, Counsel

© CROWN COPYRIGHT 2006

DECISION

INTRODUCTORY

	This matter came before the Tribunal by way of an application within an appeal by the Appellant against a refusal by the Respondents of payment of a sum claimed in a voluntary disclosure relating to bonus payments on the purchase and sale of vehicles.   A decision letter dated 8 November 2004 gave rise to the issues discussed before the Tribunal.

	While that letter rejected Section 80 bonus claims by the Appellant it also continued “I am aware that Arnold Clark’s overall claim may include elements made under Regulation 29 SI 1995/2518 which are not subject to the unjust enrichment rules.”

	Following the letter a Notice of Appeal was lodged against refusal of payment which discussed unjust enrichment and loss and damage all under the context of Section 80 of VATA 1994.   A Statement of Case was presented by the Respondents which dealt solely with Section 80 and unjust enrichment.

	However on 13 June 2006 the Appellant lodged a Notice of Application.   In that Notice of Application the following passage appears:

	“Unusually, the Respondents’ refusal is not based upon the contention that the VAT claimed has not been borne by the Appellant because it has been passed on to the lessees of the cars in question.   Rather, it is based solely upon the contention that tax on the bonus payments has been passed to the manufacturers and borne by them.
	The Appellant submits that this argument is patently misconceived and can be disposed of by the Tribunal without the need for a full hearing and, in particular, without the need to hear any evidence.   The Respondents’ argument proceeds upon the assumption that the Appellant’s claim is for output tax which it charged on the bonus payments, in accordance with the law as it was understood to be prior to the Elida Gibbs decision.   This assumption is incorrect.  The claim is properly to be regarded as a claim under regulation 29(1) of the VAT (General) Regulations 1995 for recovery of input tax incorrectly paid by the Appellant on the supply of the cars.   The effect of treating the bonus payment as a discount, as it ought to have been treated, is to reduce the sale consideration for the cars, and hence to reduce the Appellant’s liability for input tax on the supply to it of the cars.   Since the whole input tax on cars to which the appeal relates was “blocked” and irrecoverable by the Appellant, the Appellant has borne the burden of the tax and will not be unjustly enriched by repayment of that part which was overpaid.”

Thereafter no response was made by the Respondents to the plainly stated intention and, perhaps, variation of a ground of appeal set forth above.

	In any event any such response if objecting to the inclusion of the matters above could have been met by amendment and, since the issue was whether the Respondents were unjustly retaining money to which they were not entitled, the Tribunal would in all probability have looked favourably on an amendment.

	The Respondents had ample notice of the matters to be deployed at the appeal and the Tribunal heard the Appellant’s argument on all matters deployed in the Notice of Application.

THE FACTUAL BACKGROUND	
	The Appellant carries on business as a car dealership which also provides contract and daily car hire.   It received the benefit of bonuses from car manufacturers for bulk purchase of vehicles.    Prior to the decision of the ECJ in Elida Gibbs v C.E.C. [1996] STC 1387 the practice had been adopted and insisted upon by the Respondents of treating such bonus payments as payment for a service by the dealer to the manufacturer.    The sum involved as bonus was then actually or notionally invoiced and VAT was paid on that invoice.    That was output tax which the Appellant paid and, equally, the manufacturer could recover.

	Following the decision in Elida Gibbs, the bonus payments required to be treated as a discount on the price.   The effect of this was that the Appellant did not require to pay input tax to the manufacturer on the whole price of a vehicle but upon the discounted price.    The difference between the two was the same sum as the output tax which had hitherto been charged to the manufacturer by the Appellant.

	In the normal course of events the Appellant as a trader would have been entitled to recover the excess tax initially paid and had accounted.   However legislation prevented recovery when motor vehicles were involved.    This is known as blocked VAT.

ARGUMENT FOR APPELLANT
	The Appellant sought a finding from the Tribunal that it was entitled to payment of such sum as was paid by way of VAT by them on the difference between the original and the discounted price.   In that regard the question of unjust enrichment was, said the Appellant, irrelevant.

	Counsel referred to Societe Comateb v Directeur General des Douanes et Droits Indirects [1997] ECR I-165 and in particular paragraph 27 of the judgment which states :  “ A Member State may resist repayment to the trader of a charge levied in breach of community law only when it is established that the charge has been borne in its entirety by someone other than the trader and that re-imbursement of the latter would constitute unjust enrichment.”    Since there was no indication in the Statement of Case that it was contended that the Respondents were to attempt so to establish in relation to input tax the Appellant was entitled to payment.   In contrast to C & E Commissioners v National Westminster Bank plc  [2003] STC 1072 it was not being contended in the present case that the input tax was passed on to anyone.    Accordingly there was no pleading of fact or argument available to the Commissioners to deny payment.

ARGUMENT FOR THE RESPONDENTS
	The present claim could not be disposed of without evidence since it might be difficult to establish and to separate out the issue of what was or was not passed on to customers.    Counsel’s argument related to VATA Section 80 (3A) and in particular 83 (3B).    He pointed out that a Regulation 29 claim was not made in the Statement of Case but could not suggest any reason why he was not now sufficiently forewarned to be able to deal with it.    In the event while it was, rightly, conceded that no unjust enrichment provisions apply to Regulation 29 input tax claims, however a proof should be held about entitlement as well as quantification.

DECISION
	In the Tribunal’s view it is plain from the facts as set out and accepted in the Statement of Case that tax was paid to the Commissioners relating to two amounts, both identical.     This arose as a result of the output tax being paid and the input tax not being fully deducted.    When the bonus payments were properly accounted for as discount, no tax was due as output tax, and further only the actual price plus VAT paid by the Appellant should have been the sum on which the input tax was blocked.   In other words when the bonus was properly accounted for as discount the actual price paid plus VAT by the Appellant was greater than the correct price that should have been accounted for plus VAT for the vehicle.

	Since it was conceded that no question of unjust enrichment could arise on a Section 29 claim and for the purposes of the hearing before us the Appellant conceded that they were not seeking to recover both amounts of tax they had paid but simply one, it follows that the Appellant is entitled to the finding that they sought i.e. that they are entitled to payment of such sum as represents the VAT they were erroneously deprived of, the blocked VAT.    That sum should in the view of the Tribunal be capable of agreement following negotiation but failing such agreement the matter may be referred to the Tribunal.

FINDING
	The Tribunal finds that the Appellant is entitled to payment of such sum as represents the VAT they erroneously paid as input tax as a result of the erroneous accounting for discount.

T GORDON COUTTS, QC

CHAIRMAN

RELEASE :   6 OCTOBER 2006.

EDN/04/158