Courts Plc v Customs and Excise

Factual and Procedural Background

This case concerns an appeal by Company A ("Courts") against an order dismissing its appeal from the Value Added Tax and Duties Tribunal's decision regarding the validity of a purported VAT assessment made by Her Majesty's Commissioners of Customs and Excise ("the Commissioners"). The appeal raises the question of what constitutes an 'assessment' under the Value Added Tax Act 1994 ("the 1994 Act"), specifically the validity of a 'protective assessment' made pending the outcome of a related appeal in the Primback litigation. The sum involved exceeds £5 million.

Company A operated as a retailer offering "interest free credit" to customers via a finance company, which deducted a finance charge. Following the Court of Appeal's decision in Primback, Company A accounted VAT on the sale price less the finance charge. The Commissioners, seeking to preserve their position pending appeal outcomes, made a protective assessment in December 1999 by completing a VAT641 form but did not process it to generate a VAT655 notice. Instead, a letter was sent to Company A notifying them of the assessment and the pending appeal.

Subsequently, in May and June 2000, the Commissioners made further assessments following discovery of errors in Company A’s VAT returns, following normal procedures including processing the VAT641 and generating VAT655 notices. Company A paid these assessed sums. After the European Court of Justice ruling in May 2001, the Commissioners completed and processed another VAT641 in November 2001, generating a VAT655 notice which was later withdrawn due to procedural confusion. Company A appealed the purported December 1999 assessment, challenging its validity and contending it was withdrawn or superseded by later assessments.

The procedural history includes the Tribunal’s decision upholding the validity of the December 1999 assessment, the judge’s judgment dismissing Company A’s appeal, and this further appeal by Company A. Permission for a second appeal was granted in December 2003.

Legal Issues Presented

1. Whether the VAT641 form completed on 16 December 1999 constituted a valid 'assessment' under section 73 of the 1994 Act, despite being a so-called 'protective assessment' and not processed to generate a VAT655 notice.
2. Whether, if the December 1999 VAT641 constituted a valid assessment, it was subsequently withdrawn or superseded by later assessments made in May/June 2000 and/or November/December 2001.

Arguments of the Parties

Appellant's Arguments

• There is no statutory power under section 73 to make 'protective assessments'; such assessments fail to create an immediate and enforceable debt and are thus invalid.
• The December 1999 VAT641 did not constitute an assessment because no decision to assess was made; the assessing officer merely followed advice and did not apply his own judgment.
• The assessment process includes processing the VAT641 to generate a VAT655 notice; since this did not occur in December 1999, no assessment was made.
• The December 1999 assessment was conditional on the success of the Commissioners' appeal and thus too uncertain to constitute a valid assessment.
• The December 1999 assessment was not posted to Company A's ledger account, further evidencing that it was not effective.
• Subsequent assessments in May/June 2000 and November/December 2001 either withdrew or superseded the December 1999 assessment.
• The May/June 2000 assessments were not valid 'alternative assessments' as contended by the Commissioners.
• The November/December 2001 assessments superseded the December 1999 assessment, contrary to the judge's conclusion.
• Cumulative assessments for the same periods are not permissible; any later assessment discharges the earlier one.

Respondent's Arguments

• The December 1999 letter and VAT641 form demonstrate a clear decision to make an assessment on that date.
• No statutory procedure prescribes how an assessment must be made; the generation of a VAT655 is part of notification, not the assessment itself.
• Computer checks and generation of VAT655 are ministerial and clerical, not part of the exercise of 'best judgment' required for assessment.
• The Commissioners were entitled to depart from normal procedures in making a protective assessment.
• The May/June 2000 assessments were valid alternative assessments, payable regardless of the Primback litigation outcome.
• The Tribunal's finding that no new assessment was made in November/December 2001 is a factual finding not open to appellate interference.
• Even if a later assessment was made in November/December 2001, it does not automatically supersede the December 1999 assessment; the validity of the later assessment would be subject to scrutiny.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by emphasizing the statutory distinction between the making of an assessment and its notification, noting that the 1994 Act does not prescribe a specific procedure for making an assessment, leaving it an internal matter for the Commissioners. The court found that the December 1999 VAT641 form, signed by the assessing officer and accompanied by a letter notifying Company A, objectively constituted a decision to make an assessment, despite being described as 'protective' and not processed in the usual manner.

The court rejected the appellant's argument that no assessment was made because the assessing officer merely followed advice without exercising independent judgment. It held that the officer did exercise best judgment as required by section 73(1) and that the 'protective' nature of the assessment does not invalidate it.

The court further analyzed the procedural steps and concluded that the processing of the VAT641 to generate a VAT655 notice is ministerial and clerical, not part of the assessment itself. Therefore, the absence of processing in December 1999 did not prevent the making of a valid assessment.

Regarding the May/June 2000 assessments, the court agreed with the Tribunal and judge that these were valid alternative assessments payable regardless of the outcome of the Primback litigation. The court also considered the November/December 2001 VAT641 and accompanying letter, concluding that these steps did constitute assessments for subsequent periods and likely for the earlier periods as well. However, the court agreed that the December 1999 assessment was not withdrawn or superseded by these later assessments, given the clear communication to Company A that the earlier assessments remained valid.

The court rejected the appellant's contention that cumulative assessments for the same periods are impermissible and held that the validity of later assessments would be subject to scrutiny but do not automatically discharge earlier valid assessments.

Overall, the court found no merit in the appellant's technical challenges, emphasizing the Commissioners' intention and the objective effect of their actions in making the assessments.

Holding and Implications

The court DISMISSED the appeal by Company A.

The direct effect of this decision is that the December 1999 VAT641 form, despite being a 'protective assessment' and not processed in the normal way, constituted a valid and enforceable VAT assessment under section 73 of the 1994 Act. Subsequent assessments made in 2000 and 2001 did not withdraw or supersede this assessment. No new legal precedent was established beyond affirming the validity of protective assessments and clarifying the procedural distinction between assessment and notification within the Commissioners' internal processes. The decision underscores the necessity for clarity and proper documentation in the Commissioners' assessment procedures to avoid confusion for taxpayers.