20436

VAT – Assessment out time – s73(6)(b) VATA – whether Skeleton Argument “evidence of facts”?  No – appeal allowed 

LONDON TRIBUNAL CENTRE						   

	ENRON EUROPE LIMITED	Appellant
(In Administration)

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	ADRIAN SHIPWRIGHT (Chairman)
					RUTH WATTS DAVIES  F.C.I.P.D.  M.I.H.

Sitting in public in London on 18 September 2007

Andrew Hitchmough, Counsel, instructed by PricewaterhouseCoopers Legal LLP, for the Appellant

Sarabjit Singh, Counsel, instructed by the General Counsel and Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

Introduction
1.	This is an appeal by the Appellant, Enron Europe Limited (in administration), (“Enron”), against an assessment for £6,608,250 made on Enron as the representative member of the group. The assessment was raised on 21 March 2005.
The Issue
2.	The sole issue in this appeal is whether the assessment was made in time under section 73 VATA.  In essence, the question is whether Mr Hitchmough’s Skeleton Arguments for the hearing in 2005 was to be treated as “evidence of facts” for the purposes of section 73 VATA or not?
The Law
Legislation
3.	The relevant statutory provision is section 73 VATA which is headed “Failure to make returns etc”.  So far as is relevant reads:
“(1) Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.
(2) In any case where, for any prescribed accounting period, there has been paid or credited to any person—
(a)     as being a repayment or refund of VAT, or
(b)     as being due to him as a VAT credit,
an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly.
(3) An amount—
(a)     which has been paid to any person as being due to him as a VAT credit, and
(b)     which, by reason of the cancellation of that person's registration under paragraph 13(2) to (6) of Schedule 1, paragraph 6(2) of Schedule 2 [, paragraph 6(2) or (3) of Schedule 3 or paragraph 6(1) or (2) of Schedule 3A] ought not to have been so paid,
may be assessed under subsection (2) above notwithstanding that cancellation.
…
(6) An assessment under subsection (1), (2) or (3) above of an amount of VAT due for any prescribed accounting period must be made within the time limits provided for in section 77 and shall not be made after the later of the following—
(a)     2 years after the end of the prescribed accounting period; or
(b)     one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge,
but (subject to that section) where further such evidence comes to the Commissioners' knowledge after the making of an assessment under subsection (1), (2) or (3) above, another assessment may be made under that subsection, in addition to any earlier assessment…”

4.	It should be noted by Regulation 86 of the VAT Regulations, electricity, gas and power are treated as supplied for VAT purposes at the earliest of the issue of an invoice or payment.  There is no invoice to date here so we are only concerned with payments and, in particular, the date of payment.
Cases etc
5.	We were supplied with copies of the reports of the following cases:
HMRC BUPA [2007] EWCA CIV 542
CCE v JH Corbitt (Numismatists) Ltd [1980] STC 231
Cumbrae Properties [1963] Ltd v CCE [1981] STC 799
CCE v DFS Furniture Co Plc [2004] STC 559
Pegasus Birds Ltd [2000] STC 91
CCE v Post Office [1995] STC 749
Spillane v CCE [1990] STC 212
Van Boeckel v CCE [1981] STC 290
The Evidence
6.	An agreed bundle of documents was produced.  No objection was taken to any of them they were all admitted in evidence.
7.	No oral evidence was led.  There were no witness statements.
8.	The bundle contained the helpful judgment of Lightman J. and the careful  decision of the tribunal from the 2005 litigation.
9.	There was no Statement of Agreed Facts for this hearing. 
Common Ground
10.	It was common ground that:
a)	All the relevant documents and information except for Mr Hitchmough’s skeleton arguments for the hearing in 2005 were in the Respondent’s possession more than 12 months before the assessment in question here was made.
b)	As the assessment in question was raised in March 2005 and the supplies in question were made before 1 April 2002 section 73(6)(a) VATA was not in point only section 73(6)(b) VATA was in issue.
c)	An assessment for the same amount but for the period 09/02 was made and appealed against.
d)	The tribunal said at paragraph 30 of its decision “For the above reasons we have come to the conclusion that no tax point arose in respect of any sum other than the £655,858 in the period 9/02, and further that no tax point occurred in respect of any other sum in that period. So far as the netting agreement is concerned, in our view, for the reasons we have given, we consider that it was a novation netting, and not simply payment netting. For those reasons, this appeal succeeds”.
e)	Lightman J. reached the same conclusion but on a different legal analysis, he said:

“[3] The Commissioners have at all times contended that the date of payment was 6 August 2002 and the assessment was made on this basis. The taxpayer, whilst challenging the assessment, at no time disclosed that it challenged that this was the date of payment or that it maintained that the correct date was some other date until the eve of the hearing before the tribunal. On the eve of the hearing before the tribunal the taxpayer for the first time maintained that the correct date was, at the latest, 21 February 2002. This remained the taxpayer's contention until in the course of the hearing before me and in response to a direct question from me the taxpayer identified the actual date of payment as 29 November 2001. After I had reserved judgment when in response to a query from me the taxpayer contended that the date of payment was 1 December 2001. At a later date it occurred to me that the date of payment might be 21 February 2002 and I invited counsel to make submissions in writing in this regard and they did so.
[4] It is and has at all times been common ground (as is clear as a matter of law) that: (1) the sum assessed (the debt) became due on one of the above dates. (The holding to the contrary by the tribunal without reference to the parties is by common consent clearly wrong and unsupportable.); and (2) the choice between the alternative dates turns on the construction of the provisions of an 'industry' netting agreement dated 26 October 2001 made between Morgan Stanley and Enron (the netting agreement).”
He continued at paragraph 25:
 “The decision in this case turns on a careful analysis of the terms of the netting agreement informed as to the forms of netting to which I have referred. The distinctive features of the netting agreement are as follows: (i) cl 1(a) provides that on service by the non-defaulting party after an event of default of the required notice of default all outstanding transactions shall terminate on the early termination date; (ii) cl 1(b) provides that upon service of such notice (and accordingly ahead of the early termination date) no further payment or delivery in respect of the terminated transactions shall be made; (iii) cl 1(c) provides that in lieu of such payments or deliveries there shall be due from one party to the other an amount equal to the net market value (as there defined) of all transactions on the early termination date. The market value of each transaction is the sum of two figures. The first is (in substance) the assessment by the non-defaulting party of the replacement cost with an independent third party of each discharged transaction so as to arrive at the loss or gain compared to the agreed price for that transaction. The second is the aggregate of the amounts remaining due and unpaid between the defaulting and non-defaulting parties; (iv) cl 1(d) provides that the non-defaulting party shall make the calculations provided for in cl 1(c) and provide to the defaulting party the calculation statement showing in reasonable detail such calculations and specifying any amount payable; (v) cl 1(e) provides that the party due to receive the sum calculated in accordance with cl 1(d) shall invoice the other party for the same, and the amount set out in the invoice shall become due five working days after receipt of the invoice by the paying party and shall bear interest as there provided.
[27] The issue before me is at which of these stages is the prior entitlement and indebtedness of the parties to each other discharged and cancelled out and replaced by the obligation of one party to pay the balance due.”
He said at paragraph 28:
“… I do not find this question easy but after anxious consideration I have concluded that the pre-existing indebtedness survives the notice and the early termination date and the cancellation of executory contracts. The provision of cl 1(b) to the effect that no further payment shall be made does not discharge the indebtedness: it imposes a moratorium prior to its subsequent discharge. The subsequent calculation exercise is designed to take account of the sums which continue to be due (though not payable) and carry out an exercise in set off. It gives effect to a contractual set-off. The calculation exercise is completed and the set off is effective to discharge the pre-existing indebtedness when (but not before) the calculation statement is provided. When it is so provided, the accounting exercise is completed, the exercise in set off is effective and pre-existing liabilities are discharged. The calculation statement is binding on the parties as soon as it is provided. There is no deferment of its binding effect pending verification or agreement. The balance so calculated alone is due and this only becomes due and payable five working days after receipt of the invoice.”
He continued at paragraph 29:
“In this case the balance became 'due', reflecting the completion of the netting process and the discharge by way of set off of the pre-existing liabilities, on 21 February 2002 when the calculation statement was provided by Morgan Stanley to Enron. The payment of unpaid purchase price of £38,319,606 was accordingly paid and discharged on that date. The payment of the balance of £655,858 on 6 August 2002 had no effect on this (previously discharged) liability: the payment discharged the new liability to pay this sum which arose from the provision of the calculation statement. The assessment is accordingly invalid.”
Findings of Fact
11.	The supplies in issue involved the forward purchase of gas and power under long and complicated documents. There were complex provisions in these documents dealing with events of default. These came into play when Enron went into Administration. There was a consolidation of certain obligations and provisions as to payment which raised complex legal issues of construction [and] set off to decide when payment was made and so when, as a matter of law, was the taxpoint. As Lightman J. said.
12.	It does not seem to us that this is "evidence of facts". It is legal argument directed to the question when as a matter of law the supplies were made. It thus has the non-factual character of the type described in DFS (see Discussion below). We find it was not evidence of facts. It was the Appellant’s legal argument in skeleton form. 
13.	We find that the Skeleton Argument set out legal argument in numbered paragraphs, was not evidence of facts and was of a non-factual character of the type described in DFS. We find this as fact. 
14.	This accords with how an ordinary person would view legal submissions and we find this as a fact.
15.	When an experienced Chancery Division does not find it easy to decide as the legal construction of agreements we do not see how the Skeleton Argument which did not persuade the judge can be evidence of facts and we so find. 
The Submissions of the Parties
The Appellant Submissions in outline
16.	Mr Hitchmough, in essence, submitted that the assessment in question here was made out of time by virtue of section 76(3) VATA.
17.	In more detail he contended:
a)	Section 76(3) VATA subparagraph (b) provided (so far as relevant) that “… an assessment must be made within the time limits… and shall not been made after …(b)     one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge…”
b)	It was common ground that other than his Skeleton Argument for the 2005 hearing the Respondents had received all relevant information and documents more than a year before.
c)	His Skeleton Argument set out his legal arguments and submissions which included as a matter of law his view that the tax point was not in the period 09/02.  Accordingly “the Assessment had been raised for the wrong VAT period”.
d)	His Skeleton Argument contained legal submissions – how could they be “evidence of facts”? 
e)	The phrase “evidence of facts” had been considered by the Court of Appeal in DFS v CCE in connection with section 78A(2) VATA. The question in that case was whether a decision of the European Court of Justice was “evidence of facts”.
f)	Jonathan Parker LJ (giving the judgment of the Court of Appeal) said “the enactment of a statute or the pronouncement of a judicial decision are undoubtedly facts… their legal effect seems to us to be of an entirely different nonfactual character…” (paragraph 44).
g)	His legal submissions should be treated in the same way as being of a nonfactual character.
h)	Accordingly, the Skeleton Argument was not “evidence of facts” so that the assessment was made out of time and the appeal should be allowed with costs.

HMRC’s Submissions in outline
18.	Mr Singh, in essence, submitted that the skeleton argument was evidence of facts.  It was the transmission of the Appellant’s view that the supply was made for a period other than 09/02.
19.	In more detail he contended:
a)	The onus was on the Appellant to show that the assessment was out of time.
b)	The context that VAT is a self assessed tax has to be considered (cf van Boeckel).
c)	“A ‘fact’ which justified the making of the assessment was the opinion of the Appellant that the supplies in question were made no later than 21 February 2002.  This opinion only came to the attention of the Respondents on 10 of February 2005 when they received the Appellant’s skeleton” (paragraph 10 Respondent’s Skeleton Argument).
d)	This is confirmed by Pegasus Birds (see paragraph 15 of the judgment) where the accountant’s opinion was treated as a fact.
e)	This is the position here.  The Appellant’s earlier Skeleton Argument cannot be elevated to the status of a statute or judicial decision (see DFS).
f)	“The Appellant’s opinion as to when the relevant tax point is is not a matter of law…” The Appellant’s opinion is a matter of fact, relating to the factual question of when the relevant supplies were made (see paragraph 14 Respondent’s Skeleton).
g)	The Court cannot substitute its opinion and can only interfere if it is showing that the decision was perverse or Wednesbury unreasonable (see Corbitt, Cumbrae and Pegasus Birds).
h)	Accordingly, the assessment was made in time as the Skeleton Argument transmitted the Appellant’s view that the tax point was no later than 21 February 2002 which is a matter of fact and not a matter of mixed fact and law and was therefore “evidence of facts”.
i)	Consequently the assessment was made in time and the appeal should be dismissed.
Discussion
Introduction
20.	As the parties agree the sole issue here is whether the assessment was made in time under section 73 VATA.  The essential question is whether Mr Hitchmough’s skeleton arguments for the hearing in 2005 is “evidence of facts” for the purposes of section 73 VATA or not? If it is the assessment was made in time, if it is not the assessment was not made in time as only section 73(6)(b) VATA was in point.
21.	Accordingly, to decide this appeal we have to answer the question whether Mr Hitchmough’s Skeleton Argument for the 2005 hearing was “evidence of facts”.
22.	Parliament has enacted section 73(6)(b) VATA and it is our duty to apply it. In our view it is irrelevant whether or not it gives a windfall to one party or another. That is a matter for Parliament not for us. We have to consider whether the Skeleton Argument was “evidence of facts” or not construing it according to the usual principles of construction.
Was the Skeleton Argument “evidence of facts”
23.	This requires us to consider the Skeleton Argument and what it was for. We then need consider whether it had the nonfactual character referred to in DFS.
24.	The Skeleton Argument was in conventional form. It essentially argued that the assessment in question there, had, as a matter of law, been made for the wrong period. This was on the basis of the legal submissions contained in the Skeleton Argument (see paragraph 16 of the Skelton Argument). It did not specify the period in which the supply had been made. Very properly it was directed to matters of law on which the Appellant relied. It was not a Statement of Facts agreed or otherwise. We find this as a fact.
25.	Unsurprisingly, no evidence was lead as to its purpose. We assume that it was to comply with the Directions in the case and to inform the person hearing the case of the Appellant’s legal arguments in skeleton form. It was essentially a document setting out succinctly in numbered paragraphs the legal arguments the Appellant wished to make. To the extent we need to do so we find this as a fact. We do not consider that it had the factual character of a witness statement or a statement of agreed facts. We consider that it had a nonfactual character and we so find. 
26.	We find DFS very useful in this context. We remind ourselves that Jonathan Parker LJ giving the judgment of the Court of Appeal said:
“[44] In our judgment if the word 'facts' in s 78A(2) is given its natural meaning, regardless of context, it plainly will not include the legal effect of either a statute or a judicial decision. The enactment of a statute, or the pronouncement of a judicial decision, are undoubtedly facts, as are the form which they take and the words in which they are expressed; but, without entering into any kind of philosophical discussion, their legal effect seems to us to be of an entirely different, non-factual, character.
[45] The inclusion of the words 'evidence of', so that the whole expression becomes 'evidence of facts', only serves to reinforce this prima facie conclusion….
[51] Secondly, the practical consequences of such an extended interpretation of the expression 'evidence of facts' in s 78A(2) would be far-reaching and, in our judgment, highly undesirable. If the perceived legal effect of a decision of the Court of Justice were to be regarded as a 'fact' for this purpose, we are unable to see why the perceived legal effect of any other judicial decision, at whatever level, should not equally be a 'fact'. So also, we would suppose, would be the expression of an opinion as to the current state of the law by, for example, leading counsel or a distinguished academic. Given that judicial decisions by even the most eminent courts, and opinions expressed by even the most eminent leading counsel and academics, may later come to be perceived as erroneous by superior courts or by other leading counsel or academics, the consequence of (in effect) treating opinion as fact for the purposes of s 78A(2) would be that claims by the Commissioners in respect of excessive repayments would not in practice be subject to any effective limitation period, in that the Commissioners would be in a position to revisit such claims at any time in the future on the basis of a judicial decision or expression of opinion to the effect that the law at the relevant date was not as the Commissioners had believed it to be. In our judgment that plainly cannot have been Parliament's intention when enacting s 78A(2).”
27.	We consider that notwithstanding that DFS concerns section 78A and not section 73 VATA it shows how the word “facts” is to be interpreted and the significance of the inclusion of the words “evidence of”.
28.	We see no reason not to give the word(s) their natural meaning here and we respectfully adopt the words of the Court of Appeal set out above. We note that the Court of Appeal was referred (inter alia) to Pegasus Birds and took notice of section 76 VATA in its judgment.
29.	Following the Court of Appeal we have to ask  whilst the existence and form of the Skeleton Argument and the words in which it is expressed “are undoubtedly facts” whether the effect of the Skeleton Argument is of a different, non-factual, character.
30.	 The Respondents do not seem to have accepted what the Appellant said in the Skeleton Argument as the case continued. Whilst the Respondents became aware as a fact of the Appellant’s legal argument as to the assessment being for the wrong period that does not seem to us to be “evidence of facts” to justify the making of an assessment. It is of “a different, non-factual, character” as the Court of Appeal used that expression in DFS. We find this as a fact.
Conclusion
31.	We have found that the Skeleton Argument is of “a different, non-factual, character” as the Court of Appeal used that expression in DFS. It is therefore not “evidence of facts”. Consequently, as is common ground the assessment is out of time.
32.	Accordingly, the appeal is allowed with costs.

ADRIAN SHIPWRIGHT
          CHAIRMAN
           RELEASE DATE: 1 November 2007

LON/2005/0435