18957
VAT — motor dealer —application for recovery of output tax on demonstrator
bonuses and on margin on sales of demonstration cars following ECJ decision in
Marks & Spencer that retrospective introduction on three year cap on
recovery claims contrary to effectiveness of EC Community rights and
legitimate expectations — finding that appellant would not have made claim to
recover tax overpaid on demonstrator bonuses by 30 June but would have done so
on sales of demonstration cars — appeal allowed in part
MANCHESTER TRIBUNAL CENTRE
F TROOP & SON Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: Mr J D Demack (Chairman)
Sitting in public in Birmingham on 9 February 2005
Mr A Taylor of Messrs Streets, chartered accountants of Lincoln, for the
Appellant
Mr James Puzey of counsel instructed by the Solicitors office of HM Customs
and Excise for the Respondents
© CROWN COPYRIGHT 2005
DECISION
- On 27 June 2003, the Appellant motor dealer
partnership, F Troop & Son ("Troop"), submitted a claim for repayment of
overpaid tax covering the period between December 1973 and 30 November 1996.
Part of the claim related to output tax wrongly accounted for on the receipt
of demonstrator bonuses from manufacturers, and the remainder on the margin
made on its sales of demonstration cars. The claim was based on two judgments
of the Court of Justice of the European Communities ("the ECJ"), namely
Elida Gibbs v CCE [1996] STC 1387, and EC Commission v The Italian
Republic [1997] STC 1062. In the former case, the effect of the ECJ
decision was that bonus payments made by a motor car manufacturer, typically
on the sale of a demonstration car on which input tax recovery had been
blocked, were to be treated as a discount on the sale price of the car.
Consequently, in contrast to the position in UK law, a motor dealer was not
required to declare output tax on such bonuses. In the latter case, the ECJ
held that where input tax on the purchase of a motor car could not be
recovered by a motor dealer, its onward sale of the car would be exempt from
VAT. That contrasted with the UK legislative requirement that motor dealers
declare output tax on the profit margin. In each case, UK law was subsequently
amended in accordance with the ECJ's decision.
- On 3 December 1996, to deal with claims made by
motor dealers following the decision in the Elida Gibbs case, pursuant
to the Provisional Collection of Taxes Act 1968, the UK Parliament resolved
that a three year time limit on the recovery of overpaid VAT should be imposed
with effect from 18 July 1996, ie retrospectively. That resolution was later
enacted, and the enactment now forms section 80(4) of the Value Added Tax Act
1994. The retrospective effect of that legislation, which was of course
equally applicable to claims made following both the two European cases, was
tested in Marks & Spencer plc v CCE [2002] STC 1036, when the ECJ
held that the retrospective introduction of the three year cap on recovery
claims was contrary to the principles of the effectiveness of Community rights
and legitimate expectations. Consequently, in Business Brief 22/2002, the
Commissioners introduced a transitional period between 4 December 1996 and 31
March 1997 (later extended to 30 June 1997) in which existing capped claims
might be extended and new claims might be made. That enabled traders who had
made capped claims before 30 June 1997 to re-submit their claims for the full
period of any overpayment, and allowed traders who had chosen not to make a
claim because of the capping provisions and who could demonstrate that they
were aware of the overpayment prior to 30 June 1997 to make new repayment
claims, in each case by 30 June 2003.
- Troop fell into the latter category, and submitted a
new claim on 27 June 2003. The Commissioners did not accept that, but for the
three year cap introduced in December 1996, it would have made a claim before
30 June 1997. They therefore rejected the claim. Troop's appeal is effectively
against that rejection.
- Troop accepted that it had no documentary evidence
to support its claim, so that my decision must rest on the parol evidence of
its two witnesses, Mr Robert Troop, a partner in Troop, and Mr David Wright,
Troop's in-house accountant from 1990 until June 1997.
- In evidence, Mr Troop explained that he had been a
partner in Troop since 1968. At that time the firm was based in Lincoln and
had some dealings with the Vauxhall motor company. Subsequently it became a
Vauxhall main dealer. It prospered and expanded, acquiring Vauxhall
dealerships in both Newark and Grantham. Following the acquisitions, it
centralised its administration, despite many administrative functions not
being computerised. In line with Vauxhall requirements, Troop always had
demonstration vehicles available at all three dealerships. Many vehicles in
stock were available for use by and were in fact used by Troop's employees.
They were constantly moved from site to site in order to meet customers'
requirements.
- Mr Troop recalled seeing many articles in 1996 trade
papers about the VAT liability on sales of demonstration vehicles, and the
possibility of VAT recovery, albeit subject to capping. At the time he was a
member of the Vauxhall Dealer Council, and claimed to know something about VAT
recovery claims being made by larger dealerships. However, he added, both
Vauxhall and the Motor Agents Association urged caution in making claims
because of potential problems that might arise from the private use of
demonstration vehicles, and the method of dealing with margins.
- An important factor influencing Troop's decision not
to make a claim in 1996, as explained by Mr Troop, was its inability, due to
its only having manual record systems, constantly to monitor the whereabouts
and extent of private use of demonstration vehicles. That problem was
exacerbated at the time by the firm having only recently acquired its third
Vauxhall dealership. Considering the amount of work involved in making a claim
that would in any event cover only a three year period, Mr Troop said that the
firm concluded that the time, expense and effort necessary to formulate a
claim could not be justified. He added that had the firm known that the claim
could go back to 1973 different considerations would have applied. He did,
however, admit that Troop made no changes in dealing with demonstrator bonuses
in its VAT returns until it disposed of its dealerships in 2000.
- As my decision relates only to factual matters, I do
not find it necessary to rehearse the submissions of the parties
representatives.
- Mr Troop's evidence was in large part confirmed by
Mr Wright. The latter emphasised that problems faced by Troop about 1996 as a
result of its only having manual recording systems in place were further
complicated by the firm having no supervision or administration facilities at
Newark and Grantham, and by the fact that some demonstration vehicles were
used by employees of Troop and others by employees of a limited company owned
by the firm. He admitted being unable to recall Troop making any changes or
doing any detailed work in quantifying a claim on demonstrator bonuses.
- I found Mr Troop and Mr Wright to be honest and
credible witnesses, and accept their evidence in its entirety. In view of Mr
Troop's admission that Troop failed to make changes in its accounting for
demonstrator bonuses until 2000, I am unable to accept that it would have made
a claim to recover output tax on such bonuses by 30 June 1997. I do, however,
accept that it would have made a claim to recover the tax on its margins on
sales of demonstration vehicles. .
- To the limited extent I have indicated, I allow
the appeal. If there proves to be any difficulty in quantifying the amount of
Troop's claim, I direct that either party shall be at liberty to apply to the
tribunal for a direction that the appeal be listed for determination of that
matter.
DAVID DEMACK
CHAIRMAN
Release Date: 24 February
2005
MAN/04/79
