Stewart & Anor (t/a GT Shooting) v Commissioners of Customs & Excise

For VAT purposes, the transfer of the whole property in goods is a supply of goods even where the recipient acquires them for destruction or another public purpose. In a goods transaction, consumption is effectively presumed from the acquisition of the right to dispose of the goods as owner. The recipient’s motive, intention, status as the State, and the goods’ lack of practical use do not alter that conclusion. A statutory compensation payment may constitute consideration where the scheme creates a legal relationship and a direct link between the transfer and the payment. The distinction between supplies of goods and supplies of services remains important: the more restrictive consumption analysis applicable to services does not prevent a transfer of goods from being taxable.

The appellants, who traded in firearms, surrendered prohibited handguns and ancillary equipment under the compensation scheme made pursuant to the Firearms (Amendment) Act 1997. They received compensation but did not account for VAT. The Commissioners assessed them on the basis that surrendering the property was a taxable supply of goods.

The VAT and Duties Tribunal dismissed the appeal, following the decision of Moses J in Parker Hale Ltd v Commissioners of Customs & Excise [2000] STC 388, which concerned materially identical facts and issues. The central questions were whether title had been transferred, whether the transaction involved consumption for VAT purposes, and whether the compensation constituted consideration.

1. Appeal dismissed. The appellants’ surrender of the firearms and equipment under the statutory scheme transferred the whole property in the goods to the Secretary of State and therefore constituted a supply of goods under paragraph 1(1) of Schedule 4 to the Value Added Tax Act 1994.
2. Article 5(1) of the Sixth Directive defines a supply of goods as the transfer of the right to dispose of tangible property as owner. In a goods transaction, the acquisition of that right constitutes consumption for VAT purposes. Actual use is unnecessary. The fact that most guns would be destroyed, or that a small number might be retained for training or display, was irrelevant.
3. The court adopted the distinction explained in Landboden-Agrardienste GmbH & Co KG v Finanzamt Calau [1998] STC 171: the consumption analysis is especially relevant to identifying a supply of services, whereas a supply of goods is established by the transfer of the owner’s right to dispose of them. The public purpose of the scheme and the recipient’s motive could not remove the transaction from the statutory taxing words.
4. The compensation was consideration for the supply. Once the scheme had been promulgated and acted upon, its beneficiaries could enforce its fulfilment. There was therefore a legal relationship, mutuality and a direct link between the surrender and the payment. Tolsma v Inspecteur der Omzetbelasting Leeuwarden [1994] STC 509, concerning voluntary donations to a busker without such a link, was distinguishable.
5. The court declined to refer the matter to the Court of Justice under Article 234/177 of the Treaty of Rome because the proper resolution was considered plain. Laws LJ delivered the judgment; Thorpe LJ and Morland J agreed.

• Court of Appeal (Civil Division) [2001] EWCA Civ 1988: appeal dismissed with costs.
• VAT and Duties Tribunal: appeal against the VAT assessment dismissed on 4 April 2001.
• High Court: in the materially identical Parker Hale Ltd v Commissioners of Customs & Excise [2000] STC 388, Moses J dismissed the taxpayer’s appeal. That appeal was abandoned before determination.