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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> BUPA Purchasing Ltd. & Ors v HM Revenue and Customs [2005] EWHC 2117 (Ch) (08 October 2005) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2005/2117.html Cite as: [2005] EWHC 2117 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		Date: 08/10/2005

Mr Justice Park:

Abbreviations, etc.

1. In the table which follows and elsewhere in this judgment 'my previous judgment' means the judgment which I delivered in this case on 31 July 2003, and which is reported at [2003] STC 1203. The neutral citation number of that judgment is [2003] EWHC 1957 (Ch). Abbreviations, etc, used in this judgment are as follows.

Act, the	The Value Added Tax Act 1994
BHL	BUP A Hospitals Limited
BPL	BUP A Purchasing Limited; one of three nominal appellant companies,
	but effectively the sole appellant for this judgment.
BUPA	The British United Provident Association Limited
Ridgeons Bulk	Ridgeons Bulk Ltd v C & E Commissioners [1994] STC 427, a decision of Popplewell J
s. or section	Unless otherwise indicated, a reference to a section is a reference to a section of the Act. Thus, for example, s.73 is section 73 of the Value Added Tax Act 1994.
Sooner Foods	C & E Commissioners v Sooner Foods Ltd [1983] STC 376, a decision of Forbes J
Tribunal, the	The VAT and Duties Tribunal
VAT	Value Added Tax

Introduction and Overview

2. On 31 July 2003, some two years ago now, I delivered judgment in a case between BUPA Purchasing Limited and two other associated companies of the one part and Customs & Excise of the other. The case was an appeal from the main part of a decision of the Tribunal released on 26 September 2002. My judgment decided a question of principle which arose in connection with a V AT avoidance scheme adopted by the BUP A group. I decided the question in favour of Customs & Excise, affirming the decision of the Tribunal. There has been no appeal from my decision. The Tribunal had said that four main issues arose. Its decision dealt with all four, but my 2003 judgment was concerned only with what the Tribunal had called the principal issue. It referred to the other three issues as the subsidiary issues, and addressed them in the closing paragraphs of its decision (paragraphs 85 to 100). In paragraph 2 of my previous judgment I wrote (referring to the subsidiary issues): 'There are, however, certain technical points about the machinery of VAT assessments which are also subject to appeal. Those points have not yet been argued, and in this judgment I deal only with the question of principle.' The technical points have now been argued. One of the three has not been pursued, and this judgment relates to the other two.
3. There were three appellants affected by the previous decision, of which BPL was the foremost and the appellant by reference to which I wrote my judgment. It was common ground that my decision in principle as regards BPL would govern the identical principle which arose also in the cases of the two other appellant companies. The technical issues which were left over on that occasion and have been argued now arise only in the case of BPL. Thus, although all three companies are still nominally appellants, BPL is the only effective appellant so far as this judgment is concerned. The other companies in the BUP A group to which I will need to refer from time to time are BUPA itself and BHL (see the Abbreviations in paragraph 1 above). I understand that they are the main companies in the group which supply medical, surgical and other associated services to patients and other clients or customers.
4. At the time of the events which gave rise to this case and at the time of my previous judgment the Government Department responsible for V AT was HM Customs & Excise. Thus Customs & Excise were the respondents to the appeal by BPL and the other two associated companies (the appeal which was determined by my previous judgment). Recently Customs & Excise and HM Commissioners of Inland Revenue have been merged so as to constitute HM Revenue & Customs. Accordingly the respondents to the present appeal are named as the Commissioners of HM Revenue & Customs. However, for consistency with the history of the case I shall refer to Customs & Excise in the text of this judgment.'
5. I will give more details in later sections of this judgment, but in the broadest of outlines the issues which I now have to decide arise in the following way. Because most of the supplies to outside consumers which the BUP A group made were (and still are) classified for VAT as 'exempt supplies', the group suffered the disadvantage of not being able to recover from Customs & Excise more than a small proportion of its 'input tax' - the V AT which its outside suppliers added to the invoiced prices of goods and services supplied to it. With a view substantially to removing that effect the group, over the period from 1992 to 1996, carried out a scheme, generally referred to as a 'group exit scheme'. BPL was a vital participant in the scheme. It bought in goods and services from outside suppliers, and supplied them on within the group to BUP A itself or to BHL. BUP A and BHL used the goods and services in the performance of the medical, surgical and associated services which it was their business to provide. The idea of the scheme was, first, that BPL would be able to recover from Customs & Excise all the input tax charged to it by the outside suppliers, and, second, that, when BPL supplied the goods or services on to BUP A or BHL, only a very small proportion of the price which it received would be liable to 'output tax' payable to Customs & Excise. Those results were believed to have been brought about by certain· provisions of the Act coupled with the detailed mechanics of the scheme.
6. By now, however, cases which have gone through the courts have established that the scheme did not work, either for goods or for services. But the reasons why it did not work differed as between supplies of goods and supplies of services. I will say rather more about this later (and fuller details can be found in my previous judgment), but in this overview it is sufficient to say that in relation to goods the scheme did not work for reasons affecting output tax, whereas in relation to services it did not work for reasons affecting input tax. BPL received and made supplies both of goods and of services. (The other two appellant companies received and made supplies only of services. )
7. BPL, entirely properly given the advice which it had received, submitted its periodical V AT returns on the basis that there were indeed large reclaims of input tax and small liabilities to output tax. Customs & Excise, considering that the returns were wrong, sought to correct the position by making V AT assessments. Customs & Excise should have made the assessments partly on output tax grounds (affecting output tax on supplies of goods by BPL) and partly on input tax grounds (affecting input tax on supplies of services received by BPL). However, in fact they made assessments solely on input tax grounds. BPL accepts that the assessments are correct in so far as they affect services, but on its behalf Mr Cordara QC contends that they are incorrect (and cannot be enforced against BPL) in so far as they purport to apply to supplies of goods. Customs & Excise accept that the assessments had been made partly on the wrong basis, but they nevertheless submit that it was open to the Tribunal to adjust the amounts and the V AT periods so as to be the correct amounts and periods; having done that the Tribunal should uphold the adjusted assessments. The Tribunal in essence accepted Customs & Excise's submissions.
8. Simply on the basis of the statutory provisions it seems to me that both cases are arguable. However, in my view the critical point with which I am concerned has already been decided in favour of the taxpayer and against Customs & Excise in Ridgeons Bulk (see the Abbreviations, etc, in paragraph 1 above), a decision of Popplewell J. On behalf of Customs & Excise Mr Pleming QC and Mrs Whipple invite me not to follow that case on the ground that it was wrongly decided. They also submit that there is other High Court authority to the opposite effect in the decision of Forbes J in Sooner Foods [1983] STC 376 (again see the Abbreviations, etc, in paragraph 1 above). I will go into this aspect of the case in some detail later, but at this stage I merely say that I do not myself see Sooner Foods in that way. A higher court than the High Court might or might not agree with Popplewell J's decision in Ridgeons Bulk; but I am certainly not prepared to say that the decision was wrong. I intend to follow it, and in consequence I will allow this appeal.

The structure of the group exit scheme

9. In paragraphs 11 to 13 of my previous judgment I described the group exit scheme by reference to a simplified example, and I will repeat the essence of that description here. In my previous judgment I assumed a supply of services, since the judgment was concerned with the scheme and the application of VAT to it only in so far as it applied to services. In the description which follows here, however, I take account also of the possibility of supplies of goods as well as of services. I assume a case where goods or services were purchased from an outside supplier by BPL and supplied onward within the group by BPL to BUP A. The principles would be exactly the same if the onward supply had been made by BPL to BHL.
10. The description which follows needs to be seen against the background of what was happening before the group put the scheme into effect. Suppose that BUP A needed, for the purposes of its business, to purchase an item of goods or services from an outside supplier. The outside supplier's price was 100 plus 17.5% for VAT. So BUP A paid 117.5, of which 17.5 was 'input tax'. Most traders can recover their input tax from Customs & Excise, but, because most of the supplies which BUP A made were exempt supplies, it could not recover the whole of the 17.5: it could only recover the proportion of its input tax which corresponded to the proportion of its outward supplies (its 'outputs') which were taxable supplies as opposed to exempt supplies. I assumed in my previous judgment that BUPA's proportion of taxable outputs was 7.5%, which meant that of the 17.5 of input tax which it paid to the outside supplier only about 1.3 was recoverable .. The scheme was intended to enable the BUP A group to recover a much higher proportion of its input tax.
11. The stages of the scheme were as follows:

i) At the outset BPL was an indirect 100% subsidiary of BUP A. Further it was a member of the V AT group of which BUP A was the registered member .. (See my previous judgment for statutory references, and for fuller details of the scheme.)

ii) On 1 October 1992 BUP A and BPL entered into an agreement whereby BPL agreed that it would supply goods and services to BUP A over a spread of future years. BUP A made a large prepayment (£30m) to BPL, to be applied from time to time to the cost of those goods and services as they came to be supplied.

iii) A few days later BPL, while continuing to be an indirect 100% subsidiary of BUP A, was removed from the VAT group registration. It therefore became a taxable person in its own right, and acquired its own V AT registration. In future V AT accounting periods it was liable to make its own VAT returns.

iv) Thereafter from time to time BUP A requested BPL to supply specified goods or services to it pursuant to the agreement at (ii) above. When that happened BPL bought in the goods or services from outside suppliers and supplied them on to BUP A. Alternatively, BPL may have already bought in goods and services from outside suppliers in anticipation of being asked to supply them on to BUPA. .

v) Suppose that the outside supplier's charge for an item of goods or services bought in was 100 plus VAT. The outside supplier invoiced BPL for 100 plus 17.5 for VAT. BPL paid 117.5 to the supplier.

vi) BPL supplied the item on to BUP A at an uplift calculated at 1 % on the pre-VAT price. So, VAT apart, BPL supplied the item to BUP A for 101. However, 98% of that 101 (which is 98.98) was taken to have been satisfied out of the prepayment which BUP A had made to BPL at stage (ii). So the pre-V AT amount for which BPL invoiced BUP A was only 2% of the 10 1: that is 2.02.

vii) The group had been advised that BPL was liable to account to Customs & Excise for VAT on the 2.02, but not on the 98.98. So BPL invoiced BUPA for 2.02 plus 17.5% (VAT). The VAT was 0.3535, and the total of the invoice was 2.3735. (The 0.3535 was input tax suffered by BUPA, but because BUPA's recoverable proportion was low - assumed in my previous judgment and in paragraph 10 above to have been 7.5% - it would yield only a negligible recovery from Customs & Excise.)

viii) The foregoing transactions were repeated over the years in relation to various individual supplies of goods and services (in BPL's case goods as well as services, not just services as assumed in my previous judgment) until the original prepayment of £30m had been used up. The scheme had then run its course. That occurred by July 1996.

12. The scheme was intended to have two vital effects, one related to input tax and the other related to output tax. First, when BPL suffered input tax on buying in goods and services from an outside supplier, it should be entitled to recover the full amount of the input tax from Customs & Excise. In the example it should be entitled to recover the 17.5 which (together with the basic price of 100) it paid to the supplier at stage (v). That was the intended input tax effect. Second, when BPL supplied the goods or services onward to BUP A or BHL the output tax which it was liable to pay to Customs & Excise should be 17.5% of only the two percent of the total price which it invoiced to BUP A or BHL. It should not be liable to pay output tax on the 98% of the price which was satisfied out of the prepayment which had been made when it (BPL) was a member of the BUPA VAT group. In the example BPL should be liable to pay output tax on 2.2 (i.e. 0.385), and not on 101 (i.e. not on 17.675). That was the intended output tax effect. If the scheme had indeed achieved both of the intended effects it would have improved the group's VAT position significantly, to the disadvantage of Customs & Excise.
13. Unfortunately for taxpayers like the BUP A group which adopted group exit schemes, the courts have decided that the schemes did not achieve the intended effects. But it is relevant to this judgment that the respects in which the schemes failed to achieve the effects differed as between supplies of goods and supplies of services. The first case to come before the courts concerned supplies of goods. It was C&E Commissioners v Thorn Materials Supply Ltd [1998] STC 725, which is outlined in paragraphs 24 to 26 of my previous judgment. Customs & Excise accepted that the full amount of input tax (corresponding to the 17.5 in my example) was recoverable, but the House of Lords decided that output tax was payable on the full consideration for the onward supply (corresponding to the 101), not on only the small part of it which was invoiced to the associated purchaser (corresponding to the 2.02). So the output tax was not a mere 0.385; it was 17.675. The case which dealt with supplies of services was my own previous judgment in the present appeal by BPL. Customs & Excise accepted that output tax was payable only on the part of the price received which was invoiced (that is, on the 2.02), but they contended and I decided that input tax was recoverable only on two percent of the price paid by BPL to the outside supplier. In the example BPL had suffered input tax of 17.5, but could recover only 2% of that sum (i.e. 0.35). The detailed reasoning which led to the results in those two cases is spelt out in the speeches of the members of the House of Lords and in my previous judgment, and I will not go into it here. I will merely mention that the explanation for the different treatment of schemes relating to supplies of goods and of schemes relating to supplies of services lies in the detailed statutory rules about the times at which supplies are taken to have been made.

BPL's VAT returns

14. BPL became separately registered for V AT when it was removed from the group V AT registration at stage 11(iii) above. Therefore, like every registered VAT trader, it was required to make VAT returns for each V AT accounting period. Most V AT traders have quarterly accounting periods, but in BPL's case each month was a separate VAT period. A V AT return contains a number of boxes. The critical ones (for most cases and certainly for this case) are (a) box 1 in which the trader states its figure of the total amount of output tax for which it is accountable to Customs & Excise for the period, and (b) box 4 in which the trader states its figure of the total amount of input tax for which it claims to be entitled to credit against Customs & Excise for the period. If the amount in box 1 exceeds the amount in box 4 the trader should pay the excess to Customs & Excise. If the amount in box 4 exceeds the amount in box 1 the trader is asserting by its return that the excess is repayable to it by Customs & Excise.
15. BPL's returns showed large amounts of input tax recoverable and only small amounts of output tax payable. In the example which I have been using (and assuming unrealistically but helpfully for purposes of explanation - that there were no other transactions at all in the monthly accounting period) box 1 would show output tax for which BPL was accountable of 0.3535 (i.e. 17.5% of 2.02), and box 4 would show input tax of 17.5. So BPL would have been asserting a claim to a repayment of 17.1465. As BPL saw the effects of the scheme at the time when it submitted its returns, it did not make any difference whether the supplies which it had purchased from outside the BUP A group and supplied onwards to BUP A and BHL were supplies of goods or of services. Either way BPL contended that it was entitled to a net repayment of 17.1465. Predictably the returns which BPL submitted led to a protracted investigation by Customs & Excise and ultimately to BPL's appeal (which is still continuing at least up to the time of delivery of this judgment). I should, I think, make it clear that at all times the BUP A group was completely open with Customs & Excise about what it was doing and why it was doing it. In the end the scheme turns out not to have worked, but it was a lawful operation directed towards legitimate tax avoidance. There was no concealment or anything else of an improper nature about it. I have read some of the correspondence, and it is wholly courteous and forthcoming on both sides.
16. At this stage it is, I think, convenient to break from an account of how Customs & Excise's response to BPL's scheme developed, and to describe the legislation which lies behind the events which took place and the present appeal. So far as this judgment is concerned I need only describe the legislation which deals with matters of machinery and procedure. The provisions which are relevant to the substantive arguments are considered in the speeches of the House of Lords in Thorn EMI and in my previous judgment.

The relevant statutory provisions

17. I preface this part of my judgment by observing that the V AT system aspires to the normal operation of the tax being for each registered trader to submit a correct return for each VAT accounting period. And, if the return shows a net amount of V AT to be payable, the trader should accompany the return with payment of the V AT due. If the return, correctly completed, shows a net amount of VAT to be repayable to the trader Customs & Excise would promptly make the repayment. If that effect was achieved in every case VAT would be a tax which is always self-assessed by the traders who are subject to it, and many of the detailed provisions which I am about to describe would be unnecessary. In particular there would be no need for Customs & Excise to make assessments upon registered taxpayers. However, such an ideal is obviously unattainable: some traders will make mistakes in their returns; others will fail to comply with their obligations to make returns, or at least fail to comply properly; others (like BPL) will in all good faith take a view about what they should put into their returns where (rightly or wrongly) Customs & Excise take a different view. There has to be some machinery to sort out matters where the trader does not submit returns or where, although the trader does submit returns, Customs & Excise consider them (again rightly or wrongly) to be unsatisfactory.
18. The principal section which gives powers to Customs & Excise to deal with such matters is s.73. So far as this case is concerned I need only set out the heading and subsections (1), (2) and (9). (Subsection (2) is in my view irrelevant, but as I will explain later the Tribunal attached some significance to it, so I will reproduce it.) They read as follows:

"73 Failure to make returns etc

(1) Where a person has failed to make any returns required under this Act (or under any provisions 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 V AT, or

(b) as being due to him as a V AT 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 V AT due from him for that period and notify it to him accordingly.

...

(9) Where an amount has been assessed and notified to any person under subsection (1) ... above it shall, subject to the provisions of this Act about appeals, be deemed to be an amount of VAT due from him and may be recovered accordingly, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced."

The part of subsection (1) which is relevant in this case is: ' ... where it appears to the Commissioners that such returns are .. incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.' Subsection (9) is significant in three respects: (i) it provides that where an assessment is made the amount of V AT assessed is in principle payable; (ii) it makes it clear, however, that assessments are subject to appeal under other provisions of the Act; and (iii) it implicitly confirms by the final part of the subsection that Customs & Excise can themselves withdraw or reduce an assessment.

19. Section 77 prescribes time limits within which an assessment must be made. I need not examine them, because it is common ground that the assessments under appeal in this case were made within the time limits. I should add, however, that by the time that Customs & Excise realised that the assessments had been made on the basis that
all of BPL's supplies had been supplies of services, whereas in fact some of its supplies had been supplies of goods, it was too late for new assessments to be made.
20. In paragraph 17 above I referred to the words in s73(9) whereby the liability of a taxpayer to pay V AT charged by an assessment is 'subject to the provisions of this Act as to appeals '. The section which confers the right of appeal is section 83. It sets out a long list of separate matters on which a taxpayer may appeal to the Tribunal. Additional matters are frequently added to the section by annual Finance Acts. Currently there are over thirty. One of them is set out in paragraph (P), and that is the paragraph which is in point in this case. So far as relevant the section provides as follows:

"83 Appeals

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

...

(P) an assessment

(i) under section 73(1) .. in respect of a period for which the appellant has made a return under this Act

or the amount of such an assessment."

21. For the most part the Act leaves the consequences of a decision by the Tribunal on an appeal against an assessment to be inferred. If the appeal is simply dismissed, then the V AT comprised in the assessment is payable. If the appeal is allowed in full the VAT is not payable. If the appeal is allowed in part the VAT will be payable in a reduced amount. (All of these matters are of course subject to any further appeal or appeals to the High Court or beyond, like the present appeal to me.) One matter for which the Act makes specific provision is the possibility of the Tribunal increasing the amount of an assessment. That is dealt with by s.84(5):

"84(5) Where on an appeal against a decision with respect to any of the matters mentioned in section 83(p)-

(a) it is found that the amount specified in the assessment is less than it ought to have been, and

(b) the tribunal gives a direction specifying the correct amount,

the assessment shall have effect as an assessment of the amount specified in the direction, and that amount shall be deemed to have been notified to the appellant."

This subsection gave rise to the third of the three subsidiary questions which were raised before the Tribunal in this case. It is still a live issue before me.

The assessments made upon BPL

22. Customs & Excise made one set of assessments upon BPL but later withdrew them and replaced them by other assessments notified to BPL on 5 June 1997. Those assessments were themselves amended by Customs & Excise, and the amended assessments were notified to BPL on 3 November 1997. Those amended assessments are the subject matter of this appeal. If I have the facts correctly there are sixteen assessments under appeal, each for a period of one month. The first month is April 1995 and the last is July 1996. As I have said earlier, there is no issue about whether the assessments were made out of time. BPL appealed against the assessments, and it was in consequence of the appeals that the assessments came before the Tribunal and now are before me. Customs & Excise's formal notification to BPL (required by s.73(1)) was accompanied by a list of the assessments. The listing of each one . contained the words: 'Type of Assessment: Underdeclaration '. There is also reference to a 'Reason Code', but that merely indicates that an 'Underdeclaration' assessment is one where Customs & Excise consider either that the amount declared was too low (in a case where the taxable person's return declared an amount of V AT to be payable to Customs & Excise), or that the amount claimed was too high (in a case where the return claimed an amount of V AT to be repayable by Customs & Excise). Since all of the returns showed amounts of V AT to be repayable (see paragraph 15 above), all that the notification of the assessments said was that the repayments claimed were too high. The notification and the assessments did not themselves give any indication of why the repayments claimed were too high. The reason might have been that box 1 declared too little output tax as payable, or that box 4 claimed too much input tax as repayable, or a combination of both.
23. In the Ridgeons Bulk case (to which I come in detail later) one of the submissions of counsel for the company was: 'The taxpayer is entitled to be informed of the basis of his assessment in particular so that he may have sufficient information to enable him to decide whether he should appeal.' Popplewell J did not expressly say whether he accepted the submission, but in my view it is implicit in the judgment that he did. I agree with it myself. The present case also suggests that Customs & Excise accept the proposition, at least in a case where the reason for an assessment is not obvious from the notification of it. The officer with responsibility for the inquiry into BPL's group exit scheme, in a letter of 24 April 1997, gave an explanation of the basis of the assessments which Customs & Excise were going to make upon BPL. The letter shows that Customs & Excise were fully aware that BPL had, under the scheme, made supplies, not just of services, but also of goods. It said that the view of Customs & Excise was that, in relation to goods as well as services, the amount of input tax declared to be deductible in BPL's monthly returns should be reduced:

"It is the view of Customs that, in the case of goods and services procured using the pre-payments, input tax should be disallowed in the same ratio as the pre-payment in relation to the full contract price. In other words, as the pre-payment amounted to 97.98% of the contract price, then 2.02% of the relevant input tax is reclaimable as relating to a taxable supply and the remaining input tax is irrecoverable.

Accordingly 1 can advise you that we have raised Notices of Assessment to correct input tax overclaimed by BUP A Purchasing on this tax avoidance scheme in the periods 04/94 to 07/96 .

... The amounts assessed have been calculated as 97.98% of the input tax claimed."

24. So the sole reason for the assessments, clearly explained to BPL before they were notified to it, was that its returns had overclaimed-input tax. That reason was only partly correct. It was correct in so far as the amounts which the returns claimed as deductible input tax were input tax attributable to services. It was not correct in so far as the amounts so claimed were input tax attributable to goods. In paragraph 22 above 1 said that an assessment for an 'underdeclaration' could be explained by the taxable person's return stating too little output tax or too much input tax or 'a combination of both'. The explanation for the assessments made on BPL was stated by Customs & Excise to be that too much input tax had been claimed to be recoverable. The correct explanation should have been a combination of both: overclaims of input tax in so far as the amounts claimed were input tax referable to services bought in by BPL from outside suppliers (but not input tax referable to goods bought in from outside suppliers), and underdeclarations of output tax in so far as the amounts declared were output tax referable to goods supplied to BUP A and BHL (but not output tax referable to services supplied to BUP A and BHL).
25. I am not sure when Customs & Excise realised that the assessments had been made in part on a mistaken basis. 1 imagine that the progress of the Thorn-EMI case through the courts may have had something to do with it. As 1 have explained, that was a case about a group exit scheme carried out in relation to supplies of goods, and all the arguments were focused on the output tax side of the scheme, not the input tax side. However, as 1 have mentioned (see paragraph 19 above), in relation to BPL Customs & Excise did not realise about their mistake until after the time limits which prevented them from making new assessments on the correct basis. In 2000, some three years after the assessments which are now under appeal and well after the time limits for new assessments had expired, they were certainly aware of the mistake. The appeal to the Tribunal was shortly to be heard, and in a letter to BUPA's accountants of 29 August 2000 Customs & Excise enclosed a schedule of proposed adjustments to the assessments, culminating with a column headed 'Correct assessment'. The schedule had recalculated the assessments for all of the periods which were under appeal on what 1 referred to in the previous paragraph as the 'combination of both' basis. The schedule of August 2000 was later superseded by another schedule of November 2000, which differed from its predecessor in a few details, but (I understand) not in substance. 1 should explain that the Tribunal considered the arguments by reference to the figures in the November 2000 schedule, but that for some reason that schedule has not been included in the papers before me, so 1 have had to consider the arguments by reference to the figures in the August 2000 schedule. It has been common ground that the questions of principle are the same on either schedule.
26. The case which Customs & Excise presented to the Tribunal was that the appeals should be determined by the assessments being confirmed, not in their original figures or on the incorrect basis on which they had originally been made, but in the revised figures which had been calculated on the correct basis. In Customs & Excise's written Statement of Case which they were required to serve in advance of the hearing in the Tribunal they had written:

"The 1997 assessment was calculated on the basis that input tax was being disallowed. In fact the Commissioners now [I September 2000] accept that, in respect of supplies of goods, input tax is allowable but output tax is due. The Commissioners have therefore recalculated the assessments in each period to reflect this and contend that they are entitled to do so."

With reference to the last sentence, there is of course nothing to stop Customs & Excise making whatever recalculations they like of anything; but if they are suggesting in this case that their recalculations in 2000 of what would have been . correct assessments for them to have made in 1997 had some sort of legal effect by themselves, that goes too far. Customs & Excise could reduce the 1997 assessments (see s.73(9), quoted in paragraph 18 above), but what they could not do was to change incorrect assessments to correct assessments by unilateral action of their own, at least if BUPA contended (as it did) that the reduced assessments were still wrong. (As to this, see further paragraph 37 below). Customs & Excise in my opinion needed a decision of the Tribunal that it (the Tribunal) could alter the assessments to the new figures which appeared in their (Customs & Excise's) recalculations.

27. I add one detail before moving on. In Customs & Excise's Statement of Case (to which I referred in the foregoing paragraph) they wrote that 'the 1997 assessments were made on the basis of information available to the Commissioners at the time and were in best judgment. The Appellant subsequently provided information which suggested that the assessments required amendment '. The Statement of Case explained that the amendments would reflect (i) an downward adjustment to reflect the fact that some input tax was in fact deductible, and (ii) an upward adjustment to reflect the fact that some output tax had in fact been underdeclared. The clear implication of the Statement of Case (especially the word 'subsequently' in the second of the two sentences which I have quoted) was that BPL had not informed Customs & Excise that some of the supplies which it made in the operation of the group exit scheme were not supplies of services but were supplies of goods. That implication was not correct. It was made clear to Customs & Excise by BPL from its first letter back in December 1992 (when it provided an outline of the scheme) that BPL was supplying to BUPA and to BHL 'various goods and services'. When Customs & Excise made the assessments in 1997 they were fully aware that BPL had supplied goods as well as services, as the letter quoted in paragraph 23 above makes clear. I do not know whether the Tribunal may have been influenced by a belief that it was somehow BPL's fault that Customs & Excise made the 1997 assessments on the incorrect basis that all of BPL's supplies had been supplies of services. But Customs & Excise's Statement of Case impliedly encouraged the Tribunal to form that belief, and it was not correct. Customs & Excise could fairly have observed in their Statement of Case that in 1997, when they made the assessments, the Thorn EMI case had not been decided, so that the correct form for the assessments on BPL to have taken was not yet clear in law .. However, that was not what they said, and (though it would have been true) it would not have made any difference to the result if they had said it.

The Tribunal's decision

28. The Tribunal, in its decision released on 26 September 2002, first disposed of BPL's contention that the assessments had not been made to the 'best judgment' of the Commissioners. Notice of appeal against that aspect of the decision was given, but the argument is no longer pursued. It was the first of what the Tribunal described as. the three subsidiary issues. The Tribunal then turned to the other two subsidiary issues. They are the issues which are still disputed and to which this judgment is directed. The Tribunal rejected BPL's submissions. To a considerable extent the rejection seems to me to have proceeded on a view that Customs & Excise's recalculations of 2000 had some sort of definitively valid status in themselves. The Tribunal referred to 'the amendments made in November 2000' (paragraph 90 of the decision), and said t ••• it would seem clear to us that the November 2000 amendments and the assessments in their amended form are valid.' I disagree with this approach, but I will explain my reasons in the next section of this judgment. The Tribunal then referred to s.73(2) as supporting its conclusion. Again I disagree, but I will explain why later.
29. The Tribunal then referred to the two earlier High Court decisions which I mentioned in the Overview at the beginning of this judgment: Ridgeons Bulk and Sooner Foods. It could not believe that Popplewell J's decision in Ridgeons Bulk covered this case, and found authority for the opposite legal analysis in Sooner Foods. Again I respectfully disagree, but I will set out my view on those two authorities later.
30. The Tribunal concluded on this part of the case (in paragraph 97):

"Taking into account all these factors we are satisfied that the assessments, as amended by the reductions notified in November 2000, are valid, subject only to the request by Customs & Excise that they be increased by the Tribunal under our powers in section 84(5) V ATA 1994."

It then moved to s.84(5), which it described as the third subsidiary issue. For six of BPL's sixteen monthly V AT periods which were under appeal Customs & Excise requested the Tribunal to exercise its power under the subsection and to increase the assessments to the higher figures which, on Customs & Excise's recalculations, were appropriate for those months. The Tribunal agreed and increased the assessments accordingly.

The submissions on this appeal

31. BPL has appealed against the decision on what the Tribunal described as the three subsidiary issues. The first subsidiary issue was whether the assessments had been made to the best of the Commissioners' judgment, and, as I have said already, that argument is no longer pursued by Mr Cordara. He submits, however, that the Tribunal was wrong on the. other two subsidiary issues. Mr Pleming and Mrs Whipple invite me to uphold the Tribunal's decision on those issues. I believe that in the discussion in the next section of this judgment I should be able sufficiently to indicate the nature of the submissions which were made to me, and therefore I will not summarise them here.

Analysis and discussion

32. I will begin by saying something about the relationship, or in some respects the substantial lack of relationship, between the amounts of the assessments which Customs & Excise made upon BPL in 1997 and the revised figures to which the Tribunal's decision caused the assessments to be altered. The case is, in my view, not at all as might be' supposed from the way in which Mr Pleming's and Mrs Whipple's skeleton seeks to encapsulate the question. It says that the short question can be put simply as follows: 'Can the Commissioners maintain an assessment where the sum claimed is right, but for the wrong reasons '. That gives the impression that, when in 2000 Customs & Excise wrote to BPL giving details of what the assessments should be if they were recalculated on the correct basis, the notification was to the effect that the assessments were the same as before, but now for different reasons. But in fact for each of the monthly accounting periods the revised assessments were significantly different. The differences must, I think, reflect two matters as respects the supplies of goods: first that V AT calculated on the outputs from BPL to BUPA or to BHL would be slightly greater than the V AT calculated on the input to BPL from outside suppliers; second, and more significantly, the period in which input tax on a particular item of goods was deductible may well have been different from the period in which output tax on the same item was chargeable, Indeed, if I have understood Customs & Excise's recalculations correctly, they have assumed in relation to all the items of goods that the inputs and outputs did indeed occur in different periods.
33. I can illustrate the point by taking two monthly VAT accounting periods as examples.

It is, I think, best to avoid the first and the last of the 16 months, because in their cases the assumed difference between the month of input and the month of output for the same item of goods unduly distorts the figures. So I will take two other months: April 1996 and May 1996.

i) April 1996. The original 1997 assessment, made on the basis that 97.98% of all input tax, whether referable to services or to goods, had been incorrectly deducted so that the overdeduction should be corrected by assessment, was £226,865. Customs & Excise recalculated that the assessment for overdeduction of input tax (this time the input tax referable to services only) ought to have been lower by £16,352: that is it ought to have been £210,513. But there had also been supplies of goods to BUPA and BHL in the period, and Customs & Excise calculated that output tax of £38,812 ought to have been paid on those supplies. So they say that the correct assessment for the month should have been £210,513 plus £38,812 (a 'combination of both', as I described it at the end of paragraph 22 above), making a total of £249,325. Therefore, as respects the April 1996 period Customs & Excise submitted to the Tribunal, first that the original 1997 assessment of £226,865 should not be reduced, and second that the Tribunal should exercise its power under s.84(5) to increase the assessment to £249,325, an increase of £22,460. Both of those things are what the Tribunal did. BPL's submission for the period was, and is, that the 1997 assessment in the amount of £226,865 should be reduced by £16,352 to £210,513.

ii) May 1996. The original 1997 assessment, made on the same basis as described in the previous subparagraph (i.e in an amount equal to 97.98% of all the input tax deducted for the period), was for £223,288. Customs & Excise recalculated that the assessment for overdeduction of input tax should have been lower by £37,978: that is it should have been £185,310. But there had also been supplies of goods to BUP A and BHL in the period, and Customs & Excise calculated that output tax of £22,943 ought to have been paid on those supplies. So they say that the correct assessment for the month should have been £185,310 plus £22,943, making a total of £208,252 (£1 has disappeared because of roundings of odd sums of pence.) Customs & Excise's case for the May 1996 period is that the assessment should be reduced from the original £223,288 to £208,252. That is what the Tribunal did. BPL's case is that the assessment should be reduced to £185,310.

34. The examples in the foregoing sub-paragraphs could be repeated for all of the sixteen periods. For all of them the amounts for which Customs & Excise contended and which the Tribunal accepted differed, sometimes substantially, sometimes not, from the amounts comprised in the original 1997 assessments, thus demonstrating that Mr Pleming's and Mrs Whipple's assertion that the amounts of the assessments were right, but for the wrong reasons, is not correct. It may be true that, taking all of the monthly periods together, the aggregate of all of the correct assessments is quite close to the aggregate of all the incorrect assessments, but in my judgment the correctness of the assessment for anyone period has to be ascertained by reference to that period alone. (Popplewell J makes essentially the same point in a paragraph in his judgment in the Ridgeons Bulk case, which I quote in paragraph 45 below. He observes that, if an assessment is shown on appeal to be wrong for the period for which it is made, the Tribunal cannot uphold it on the ground that it would have been correct if it had been made for a different period.)
35. For all of the sixteen periods the original assessments included sums to recover deductions of input tax referable to goods. It is common ground that those particular sums ought not to have been assessed. They were assessed on the basis that the input tax had been wrongly deducted in BPL's VAT returns, but, as the House of Lords decision in the Thorn EMI case showed, it had been correctly deducted. BPL's case is that the assessments should all be reduced by those amounts of incorrectly assessed input tax. The aggregate reductions would, on the figures in Customs & Excise's August 2000 schedule, be £515,284. I do not know what they would be on the November 2000 schedule, but I doubt that they would be markedly different. Customs & Excise agree that the amounts of input tax referable to goods should be removed from the assessments, but they say that the assessments as reduced by the removed input tax should then be increased by output tax referable to supplies of goods to BUP A and BHL. If the increases would take the assessments above the amounts in which they had originally been made in 1997, the Tribunal should, under s.84(5), increase them to the new higher figures. According to Customs & Excise's August 2000 schedule the 1997 assessments would be subject to net reductions in the case often of the sixteen months and to net increases in the case of the other six. The combined result would be an overall reduction of £ 17 5,191. Comparing that figure with BPL's contention for an overall reduction of £515,284 shows that a little over £340,000 is at stake on this appeal.
36. I will now move on and examine two reasons which the Tribunal gave for its conclusion. I have already referred to its view (or at least it seems to me to have been its view) that Customs & Excise's recalculations of August 2000, superseded by revised recalculations of November 2000, operated as amendments to the 1997 assessments (see paragraphs 26 and 28 above). In my view the recalculations could only operate as indications of the amounts to which Customs & Excise invited the Tribunal to alter the assessments. The Tribunal, however, seems to have thought that Customs & Excise had altered the assessments in 2000, and that all that the Tribunal needed to do was to confirm that Customs & Excise had power to make those alterations. At least that appears to have been the Tribunal's view in the case of the ten monthly periods where Customs & Excise's recalculations produced assessments which were lower than those made in 1997. As respects those ten periods the Tribunal coupled its view that Customs & Excise had amended the assessments with the fact that the amendments produced reductions, and concluded that therefore the reduced assessments were valid. It referred to s.73(9), the closing words of which refer to an assessment which 'has been withdrawn or reduced'. It then wrote (in paragraph 92):

"In November 2000 Customs & Excise reduced the assessments to take account of the newly known decision of the House of Lords in Thorn. Those reductions took account of the new calculation of the extent to which the original returns had been, and remained, incorrect and the extent to which VAT remained due. The reduced amended assessments, therefore, seem clearly validly made in accordance with Thorn and a straightforward reading of the relevant statute."

37. I cannot agree with that way of viewing the matter. Take the example of the May 1996 VAT period, which I described in paragraph 33(ii) above. The original assessment made in 1997 was for £223,288. It is true that on the basis of Customs & Excise's recalculations it was reduced to £208,252, but to say that, because Customs & Excise have power to reduce assessments, every assessment which they have reduced (or purported to reduce) is thereafter valid in its reduced amount and cannot be contested on appeal cannot be right. As respects the May 1996 period BPL's contention was that the assessment should have been reduced, not to £208,252, but to £185,310. If Customs & Excise had notified BPL that they were reducing the assessment to £185,310 BPL would have had nothing to appeal against. But when the notification was that the reduction was to be only to £208,252 BPL was plainly entitled to pursue its appeal and to contend that the assessment should be reduced further. It could not be an answer to the appeal simply to say that the amount about which BPL was complaining (£208,252) was already a reduction from the originally assessed sum of £223,288. Yet that appears to me to be in essence what the Tribunal says in paragraph 92 of its decision (quoted in the previous paragraph). The Tribunal says other things as well, but this particular part of its reasoning cannot in my view stand. The question remains: even if Customs & Excise are seeking to uphold an assessment of £208,252 and not one of £223,288, was a VAT liability in that amount validly assessed by Customs & Excise? BPL's submission was and remains that the original assessment was valid only to the extent of £185,31 O. BPL cannot be shut out from advancing that submission by the fact that Customs & Excise have already reduced to some extent the amount which they are claiming.
38. A second reason which the Tribunal gives as part of the reasoning which leads it to its conclusion involves reliance on s.73(2). I have not yet referred to that subsection, because in my view it has no application to the facts of this case. It is not relied on by Mr Pleming and Mrs Whipple in their skeleton, and I do not recall it being relied on in the oral submissions. I set out the subsection in -paragraph 18 above, but for convenience I repeat it here:

"(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 V AT, 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 V AT due from him for that period and notify it to him accordingly."

The Tribunal says in relation to the subsection:

"Section 73(2) makes it clear that where an amount has been paid or credited to a taxpayer that ought not to have been paid or credited that amount my be assessed as being VAT due from him. It is thus irrelevant whether an assessment of the amount due is for unpaid V AT due or for repayment of V AT incorrectly credited and repaid to the trader by Customs & Excise. In both cases there is an amount of V AT due from him. There was accordingly a substantial amount of V AT due from BPL for the purposes of section 73(1 )."

39. The fault may be mine, but I do not understand that passage, or how it is said to have any bearing on this case. S.73(1) specifies some circumstances in which Customs & Excise can make assessments to V AT, and s.73(2) specifies some different circumstances in which they can also make assessments to VAT. S.73(1) applies in circumstances where there is (or is thought to be) something wrong with the way that the taxpayer made its VAT returns. S.73(2) applies in circumstances where Customs & Excise have already made to the taxpayer a repayment or refund or allowed to the taxpayer a VAT credit, but they form the view that they ought not to have done so: they can make an assessment to recover the repayment or refund or credit. Customs & Excise did not respond to BPL's V AT returns by making to it a repayment or refund, or allowing to it a V AT credit, and it seems to me that s.73(2) has nothing to do with this case.
40. I move now to the arguments of principle which do seem to me to be at the heart of the case. When Customs & Excise make an assessment under s. 73(1) they must 'assess the amount of V AT due from' the taxpayer, and must do so 'to the best of their judgment '. It is obvious that in exercising their best judgment as to what amount of VAT is due from the taxpayer they must have reasons for what they consider that amount to be. They then have to notify 'it' to the taxpayer. By the syntax of the subsection 'it' is the amount which Customs & Excise have assessed to be 'the amount of VAT due' from the taxpayer. On that basis it is submitted by Mr Pleming and Mrs Whipple that the 'assessment' is only an amount, and, although reasons lie behind the selection of one amount rather than any other amount, the reasons are not part of the assessment. They accept in paragraphs 130 and 131 of their skeleton that, on principles of natural justice, the taxpayer is entitled to be told what the reasons are. Nevertheless the assessment itself is only an amount. If Customs & Excise later form the view that the assessment is appropriate but for different reasons, the assessment remains valid even though the reasons have changed. There is no need for Customs & Excise to make a new assessment, and, as long as the original assessment was made in time, it remains valid (though subject to the powers of the Tribunal on an appeal against it).
41. To the opposite effect Mr Cordara submits that the making of an assessment is a process which involves reasoning, and that the amount assessed cannot be regarded as in some way independent of the reasons on the basis of which the assessment was made and the amount was quantified. When the taxpayer has an assessment made upon it Customs & Excise are saying that it owes them an amount of money, and plainly the taxpayer is entitled to be told why. Mr Cordara then says in paragraph 279 of his skeleton: 'If the Commissioners had the freedom to change the basis of an assessment at will, then the taxpayer would be in the same position as if he had been given no reasons; i. e. the Commissioners would be able to uphold an assessment by reference to matters about which they had not told the taxpayer when it was made.' It follows that, if Customs & Excise have made an assessment for one reason and have told the taxpayer what the reason was (as they did - and properly so - in the present case), but later it is discovered that the reason was unsound, Customs & Excise cannot seek to uphold the assessment by relying on different reasons. Still less can they rely on different reasons to uphold a different assessment (in the sense of an assessment for a different amount of V AT claimed to be due). Their recourse is to make a new assessment for the right amount, and to make it for what they now consider to be the right reasons. But they can only do that if the new assessment is made in time.
42. I can see strengths in each of those two opposing arguments. If the matter was free from authority I am not sure which argument I would prefer, although on the facts of this case I think that I would lean in favour of Mr Cordara's submissions. However, as I said in the Overview at the beginning of this judgment, in my opinion there is an authority exactly in point. It is the decision of Popplewell J in Ridgeons Bulk. (The reference to the case is in the Abbreviations, etc, in paragraph 1 above.)
43. The appellant company (referred to in the report and in this judgment as 'Bulk') took a lease of a sawmill from the freeholder, and agreed with the freeholder to carry out works to it, in view of which it was agreed that Bulk would have the benefit of a rent free period. Bulk made a contract with a building contractor for the works to be done, and paid the contractor's invoice for the cost of the works plus VAT of £51,598. Bulk claimed the £51,598 as deductible input tax, and in the first instance Customs & Excise allowed the deduction. Later Customs & Excise formed the view that the input tax was not deductible, and made assessments for two V AT periods claiming an aggregate of £51,598 from Bulk. (I assume, though the report is silent on the point, that the assessments were made under the provision which is now s.73(2), referred to in paragraphs 38 and 39 above.) Customs & Excise specifically explained that the reason for the assessments was to recover input tax which was not properly deductible. Later Customs & Excise accepted that they were wrong, and that the input tax was deductible after all. However, they then argued that Bulk was liable to pay output tax instead, because it had made a supply of services to the freeholder by causing works to be done to the freeholder's sawmill in return for a rent-free period. A VAT Tribunal and Popplewell J considered that this new argument by Customs & Excise was correct in principle.
44. However, it was too late for Customs & Excise to make new assessments for output tax. They calculated the output tax as being, not £51,598 (which was the amount of the input tax assessments), but £54,782. They did make an output tax assessment for the difference, which was £3,183, but the report indicates that that assessment was later discharged as it was out of time. Customs & Excise's main case was that they had made assessments of £51,598 which had been made in time. It was true that the assessments could not be supported on the grounds for which they had been made, but (so Customs & Excise submitted) they could be supported and upheld on different grounds altogether. The Tribunal agreed with Customs & Excise on that point, and Bulk appealed to the High Court. It seems to me that the point of principle is in all essential respects the same as that in the present case.
45. Popplewell J, in a careful reserved judgment, summarised the effect of the Tribunal's decision on this point: the Tribunal had held that the assessment for £51,598 'was not out of time ... by reason of the fact that it was not a new assessment but merely an amendment of an earlier assessment made in time '. And the Tribunal had held 'that it was open to the Commissioners to avoid the application of a statutory time limit by amending and maintaining the original assessment and not requiring them to make a fresh assessment.' (Strictly I think that the judge should have referred to assessments in the plural, because there had been, not one assessment, but two for successive VAT periods, but throughout he referred to an assessment for £51,598 in the singular. Nothing turns on this detail.) The learned judge summarised the arguments, and referred to several authorities which had been cited to him (including Sooner Foods). He then stated his conclusion in two paragraphs which I will reproduce in full:

"I turn back to the 1983 Act itself. I find no basis for the Commissioners' contention that where an assessment for overclaimed input tax cannot be supported it is open to them on fresh evidence to seek to treat that assessment as an assessment for underdec1ared output tax for a different amount and maintain it. Their proper course is to issue a new assessment relying on the proviso.

It has been said in argument and was said by the Tribunal that this is an argument which is purely technical in nature and that Bulk has not suffered any prejudice. To that, in my judgment, there are two answers. It is clear from the authorities that if for instance the wrong period is assessed the assessment cannot stand even though the figures are the same and there is no prejudice to the taxpayer. Second, all cases involving time limits are in one sense technical. If a writ in a Queen's Bench action is not issued within the statutory time limit the action cannot proceed. Provision is made in various Acts of Parliament or by rules of court to enable the court where time limits are concerned to exercise a discretion. No such power appears in the 1983 Act. Finally the argument that there is some discretion if there is prejudice finds no support in my judgment either from the decided cases or from the Act itself. The argument that the Commissioners could have issued a valid new assessment in time is irrelevant because they did not in fact issue their new assessment, in relation to the £3,183, in time, and the effect of maintaining the existing assessment was to prevent the taxpayer from taking a limitation point. I do not therefore, with respect, agree with the reasoning of the Tribunal nor with the result and I shall allow Bulk's appeal on this aspect of the case. "

46. In my judgment, if what Popplewell J said in those two paragraphs accurately states the law, the Tribunal's decision on this aspect of the present case was wrong, and the appeal should be allowed. There is no difference in principle between the point which he decided and the point which falls for me to decide. This case, like the Ridgeons Bulk case, was one in which assessments were made for overclaimed input tax but cannot be supported on that basis (or in this case they cannot be supported in full on that basis). Customs & Excise are trying, not even on fresh evidence (which was at least a point which Customs & Excise sought to advance in their favour in Ridgeons Bulk), to support the assessments as (in part) assessments for underdeclared output tax for different amounts. On the basis of Popplewell 1's decision it is not open to them to do that. Their proper course (if they had acted in time) would have been to issue new assessments, relying not on 'the proviso' to which Popplewell J referred (which covered cases where new facts had come to their attention), but rather relying on the legally correct justification for assessments made on the basis of the facts which they had known all along.
47. Mr Pleming and Mrs Whipple in essence say two things in response to Mr Cordara's reliance on the decision in Ridgeons Bulk. First they say that the decision was wrong. Second they say that I should prefer to follow the guidance of Forbes 1's decision in the Sooner Foods case.
48. As regards the first point, although I am not strictly bound by the decision in Ridgeons Bulk, I consider that it would not be appropriate for me to decline to follow the considered and reasoned decision of another High Court judge. It might, I suppose, be different if it appeared to me that Popplewell J had obviously overlooked some critical point, or that he had in some other way fallen into a manifest error; but that is not by any means how it appears to me. Customs & Excise may seek to renew their argument that his decision was wrong before the Court of Appeal (if they apply for and are granted permission to appeal), but I believe that the right course for me is to follow the decision.
49. As regards the second point, I do not accept that Sooner Foods provides authority which effectively contradicts Ridgeons Bulk. Nor did Popplewell J. Sooner Foods was one of the cases which he reviewed in his judgment, and plainly he did not see it as supporting a proposition that an assessment, made for one reason which is now accepted to have been wrong, can be maintained by Customs & Excise on the basis that it (or another assessment for a different amount) would have been right if it had been made for a different reason. Sooner Foods is in my view an unsatisfactory case in some respects. The point of principle involved in the dispute between Customs & Excise and the taxpayer company would now be decided quite differently anyway, given the subsequent decision of the House of Lords in C&E Commissioners v Redrow Group Ltd [1999] STC 161. The Tribunal and the judge seem to have thought that the facts which underlaid the case may have involved some sort of deception of the public, which I cannot see at all. There seems also to have been a possibility of an issue arising under some obscure provisions about trading stamp schemes.
50. Generally I find it hard to get to the bottom of the Sooner Foods case. It had involved a three-cornered sales promotion scheme whereby Sooner Foods supplied its products to retailers, and a third party ('the administrator') supplied gift goods to the retailers or to their employees in consideration of payments made to it by Sooner Foods. The administrator issued invoices to Sooner Foods for its charges plus VAT, and Sooner Foods paid them. Sooner Foods claimed to recover the V AT content of the administrator's invoices as input tax. Customs & Excise accepted that the input tax was recoverable, but assessed Sooner Foods for output tax on the basis that it had made taxable supplies of the goods to the retailers or their employees. Sooner Foods appealed against those assessments, and its appeal succeeded before the Tribunal. That might have seemed to exhaust the Tribunal's jurisdiction, but the Tribunal, having allowed the appeal which had been made to it, added a curious direction 'that in re-examining the assessment for the purpose of eliminating therefrom any sum or sums included therein for output tax in respect of the gift goods, no further sums are to be introduced in respect of input tax for the reason that such sums were not an element of the assessment which was the subject matter of the appeal.' Customs & Excise appealed against the direction.
51. Forbes J proceeded on the basis that it was certainly within the power of the Tribunal to make the direction. That in itself seems highly dubious to me. The Tribunal had power to determine the questions brought before it on appeal. I am not aware of any basis on which it could in addition give free-standing directions to Customs & Excise as to how they should deal with the VAT affairs of an appellant after the appeal had been decided. It is also not clear exactly what prompted the Tribunal to say what it did, and examining the full decision of the Tribunal (copies of which Mr Cordara helpfully obtained) does not make the matter much clearer. However that may be, the. Tribunal seems to have thought that, after it had allowed the appeal against the assessment, Customs & Excise could, so to speak, go away with the assessment and consider what they should do to it - a misconceived notion, in my view. On that basis one view of the direction is that the Tribunal was spelling out to Customs & Excise that, the assessment having been made on the basis of output tax on alleged supplies of gift goods by Sooner Foods, it was not open to Customs & Excise to modify it so that it would instead become an assessment to recover allegedly overdeducted input tax. There would be nothing in that which could be seen as inconsistent with the view of Popplewell J.
52. It is true that Forbes J allowed Customs & Excise's appeal against the direction, but I do not read his judgment as indicating that in his view Customs & Excise could alter the existing assessment so as to convert it from an assessment for output tax into an assessment for recovery of input tax while it still continued in theory to be the same assessment. Rather he appears to have perceived the Tribunal's direction as having the effect of preventing Customs & Excise from making a new assessment on Sooner Foods for the recovery of input tax. Thus he said (at p.379h): 'This direction ... has the effect of precluding the Commissioners from making any further assessment on Sooner claiming these amounts as input rather than output tax .... ' (My underlining.) I have to add that, since it was too late for Customs & Excise to make a new assessment by the time of Forbes 1's judgment (although it would not have been at the time of the Tribunal's decision), it is unclear to me what the practical effect of the judgment was thought to be. But I cannot find in this puzzling and in some respects obscure case any principle inconsistent with my views that the point in the present appeal has been decided by Popplewell J in Ridgeons Bulk and that I should follow his decision.
53. In any case I repeat that Ridgeons Bulk was decided after Sooner Foods. Sooner Foods was cited to Popplewell J, who nevertheless considered that Ridgeons Bulk should be decided in favour of the taxpayer. Thus one detailed proposition for which, as it seems to me, I can and should follow Popplewell J is that Sooner Foods did not affect the principle with which he was concerned in Ridgeons Bulk, and with which I am (in my opinion) concerned in this case.
54. There is one more point to make about Ridgeons Bulk. The case was cited to the Tribunal. It dealt with it in paragraph 95 by saying: 'We cannot believe that Popplewell J was attempting to lay down a rule that a fresh assessment is always required when an assessment is upheld in part because tax initially thought to be due wholly or partly because of over-declarations of input tax is found correct because of equivalent under-declarations of output tax.' Whether the Tribunal can believe it or not, that does seem in essence to be what Popplewell J decided, though he pointed out a further feature of the facts in Ridgeons Bulk (which is also present in this case) that the revisions to the assessments which Customs & Excise wished to make would change the amounts of the assessments ('treat that assessment as an assessment for underdeclared output tax for a different amount' - words appearing in the first of the two paragraphs which I quoted in paragraph 45 above; my underlining of 'different'). The Tribunal also said in paragraph 97 that it distinguished Ridgeons Bulk from the situation in the BPL's appeal. I can only say that the factors which the Tribunal mentions do not seem to me to distinguish the case in any relevant particular.
55. Ridgeons Bulk and Sooner Foods are the only authorities which I consider it necessary to examine in any detail. Some other reported cases were cited to me, but I have not found them of assistance. One case to which that applies, but to which both counsel attached some significance, was C&E Commissioners v Pegasus Birds Ltd [2004] EWCA Civ 1015, [2004] STC 1509. That is an important case in its own field, but it is very different from this case. The taxpayer company had not declared the true takings of its business in its VAT returns. Customs & Excise made an assessment on the company, estimating what the true takings had been. The company challenged the assessment (unsuccessfully) on the ground that it had not been made to the best judgment of the officers of Customs & Excise. Best judgment is no longer an issue in this case, and the specific grounds on which the High Court and the Court of Appeal decided Pegasus Birds are of no particular assistance on this appeal.
56. Mr Pleming relies on observations, particularly on the part of Chadwick LJ, that the underlying purpose is to secure that the taxable person accounts for the correct amount of VAT. That point is made in the specific context of attempts by taxpayers to get out of their correct liabilities by challenging assessments on 'best judgment' grounds. Further, for VAT to become payable by virtue of an assessment the statutory requirements for a valid assessment have to be fulfilled. Following the principles applied by Popplewell J in Ridgeons Bulk I consider that in this case, although the requirements have been fulfilled in relation to services supplied under the group exit scheme, they have not been fulfilled in relation to goods supplied under the scheme. It is true that a result is that BPL ends up in a fortuitous position where it pays less than its full liability under the statute ought in principle to have been. However, I refer again to Popplewell J's judgment. His observations in the second of the two paragraphs which I set out in paragraph 45 above are, in my view, very much in point. As he said, all cases involving time limits are in a sense technical. Where a defendant in civil proceedings would have lost on the merits but successfully raises a limitation defence, he does not have to pay what his legal liability in principle was. A valid limitation point is available to BPL in this case, and BPL should not be deprived of it through Customs & Excise maintaining on grounds of output tax assessments which were made on grounds of input tax and which for all of the periods concerned claimed different amounts of input tax from the amounts of output tax which Customs & Excise now wish to charge by virtue of them.

The s.84(5) issue

57. This is the last matter which I need to address. I set out s.84(5) in paragraph 21 above. It is the subsection which gives power to the Tribunal to increase an assessment if it considers that the assessment was lower than it ought to have been. Customs & Excise invited the Tribunal to apply the subsection for six of the sixteen monthly accounting periods which were before it on this appeal. The Tribunal treated this as the third subsidiary issue, distinct from the second subsidiary issue.
58. To state the position more precisely: in the case of ten of the original assessments Customs & Excise requested the Tribunal first to reduce the assessments by removing from them the amounts which had represented allegedly overc1aimed input tax relating to goods, but secondly to increase them by adding amounts representing output tax relating to goods; because (in the case of those ten assessments) the reductions were greater than the additions the net result was that the ten assessments were reduced (but not by as much as BPL contended they should have been reduced by). Whether it was correct to do that was the second subsidiary issue. As respects the other six assessments Customs & Excise first invited the Tribunal not to subject them to any net reduction, because the amounts deducted from them in respect of input tax which had been originally included were lower than the amounts to be added to them for output tax; thus far that was still the second subsidiary issue. Then as respects those six assessments Customs & Excise secondly invited the Tribunal under s.84(5) to increase them by the excess of the addition for output tax over the reduction for input tax. Whether it was correct to do that was the third subsidiary issue. I can illustrate the foregoing by reference to the two months which I described in subparagraphs (i) and (ii) of paragraph 33 above. It is clearer if I take them in reverse order. This involves me repeating figures which I have already given in that paragraph, but I think that it may be helpful for me to do so.

i) For May 1996 the original assessment was for £223,288. Customs & Excise invited the Tribunal to reduce it by £37,979 to eliminate the input tax element relating to goods, but then to increase it by £22,943 on account of output tax relating to goods, making a revised assessment of £208,852. The net result was a reduction of £15,036. 8.84(5) did not enter into the matter for that month. The Tribunal, in accordance with Customs & Excise's submissions, determined the assessment at £208,852. (At least it would have done if Customs & Excise's November 2000 schedule, on the basis of which the Tribunal proceeded but which I do not have, contained the same figures as their August 2000 schedule, which I do have, and which I have used for this illustration. )

ii) For April 1996 the original assessment was for £226,865. Customs & Excise first invited the Tribunal to reduce it by £16,352 to eliminate the input tax element, but then to reinstate it to at least its original amount of £226,865, because the amount to be added for output tax was greater than £16,352. The output tax was calculated to have been £38,812, which exceeded the reduction by £22,460. Customs & Excise secondly invited the Tribunal to increase the assessment under s.84(5) by £22,460, which the Tribunal did. (What I say there is subject to the same qualification that I have used the figures in Customs & Excise's August 2000 schedule, which mayor may not have been the same as those in its November 2000 schedule, which the Tribunal used.)

59. As I have said, the Tribunal treated the s.84(5) issue as the third subsidiary issue, and as separate from the issue of how the assessments should be determined before the application of the subsection (that having been the second subsidiary issue). Analytically the two issues are indeed separate, but my view (with which I think the Tribunal would be in agreement) is that the positions of the parties to the case on the two issues stand or fall together. If for April 1996 I agreed with the Tribunal that, before s.84(5) is considered, the assessment should (after the two stage process of reduction to eliminate the input tax element and addition for output tax) have been confirmed at its original amount (i.e. £226,845), I would agree with them that it was also appropriate to use s.84(5) to increase the assessment to the greater amount for which Customs & Excise contended (i.e. to £249,325). Since, however, I do not agree with the Tribunal that the assessment should, apart from s.84(5), be confirmed at its original amount, I also do not agree with it that the assessment should be increased under that subsection. The same applies to the assessments for the five other monthly V AT periods as respects which the Tribunal was invited to give effect, and did give effect, to s.84(5).

Conclusion

60. I have no other points to make on the substantive issues which I need to address in this judgment. For the reasons which I have explained in this judgment, I will allow the appeal in principle. As to the consequential order I tentatively suggest that the decision of the Tribunal be varied by confirming assessments for the sixteen periods, not in the amounts directed by the Tribunal, but in amounts equal to their original amounts reduced by eliminating elements which were intended to recover alleged overclaims of input tax in respect of goods. I wm, however, welcome assistance from counsel on this aspect of the matter.