BRS Automotives Ltd v Commissioners of Customs and Excise
Court of Appeal (Lord Justice Beldam, Lord Justice Swinton Thomas and Lord Justice Pill) 12 November 1998
ON ITS true construction, the purpose of Article 7(2C) of the VAT (Input Tax) Order 1992 as amended by the VAT (Input Tax) (Amendment No 3) Order 1995 was to prevent the same taxable person, by leasing a car to another before 1 August 1995 and by purchasing the car on or after that date, from obtaining the benefit of the different VAT regimes which operated before and after that date.
The Court of Appeal allowed the appeal of BRS Automotives Ltd and restored the decision of the VAT Tribunal that the company might recover as input tax the VAT paid on the purchase of motor cars acquired after 1 August 1995 for the purpose of leasing to others.
Pool Master and MHG, two subsidiaries of a company which BRS supplied with leased cars, set up a scheme to take advantage of the "time of supply" rules in the legislation, by which cars would fall to be treated, as to 95 per cent of their rental cost, as having been "supplied" in July 1995, although Pool Master would not acquire the cars before 1 August.
After 1 August 1995 Pool Master ordered the vehicles from BRS, which in turn purchased them from its supplier. Even though the BRS purchases had taken place after 1 August 1995, the Commissioners declined to permit BRS to recover as input tax the VAT paid to its suppliers, claiming that by virtue of the agreement between Pool Master and MHG, there had been a "supply" of the motor cars before 1 August.
The VAT Tribunal allowed BRS' appeal against the Commissioners' assessment for value added tax, but the Commissioners' appeal was allowed, the judge holding that, by reason of the intervention of Pool Master, the date of supply for input tax purposes had been prospectively set before 1 August 1995, and that the cars notionally so supplied, albeit not physically supplied until much later, were therefore not qualifying vehicles escaping the exclusion from input tax credit. BRS appealed.
David Milne QC and Julie Anderson (Garrett & Co) for BRS; Nicholas Paines QC and Timothy Brennan (Solicitor for the Customs and Excise) for the Commissioners; Rabinder Singh (Treasury Solicitor) as amicus curiae.
Lord Justice Pill said that prior to 1 August 1995 the deduction of input tax paid on the purchase of motor cars acquired for the purpose of leasing to other parties was not allowed, the lessee instead, if himself a taxable a person, being entitled to recover his input tax on the lease rental.
By the amendment of Article 7 of the VAT (Input Tax) Order 1992 by the VAT (Input Tax) (Amendment No 3) Order 1995, the rules were changed from 1 August 1995 to allow the recovery of input tax by businesses which acquired cars for the purpose of "on-supply" by way of leasing, and to block, as to 50 per cent, the recovery of input tax paid on lease rentals.
On its true construction, para (2C) of Art 7 was plainly intended to prevent a taxable person from taking advantage at the same time of both the pre and post 1 August 1995 regimes by supplying on a letting before 1 August a car which was not supplied to him until on or after 1 August.
The paragraph was focused on the supply, acquisition or importation of the motor car which gave rise to the input tax for which credit was being sought, and excluded that tax from credit only if the person receiving the supply, or making the acquisition or importation, had let the car on hire before 1 August 1995.
That construction accorded with Council Decision 95/252, authorising the United Kingdom to apply a measure derogating from the Sixth Council Directive (77/388/EEC) on the harmonisation of laws of member states relating to turnover taxes, and avoided the bizarre conclusion that if any person in the chain of supply had leased a vehicle before 1 August, everyone else in the chain was tainted for tax purposes.