Customs & Excise v DFS Furniture Company Plc

A statutory agreement settling a VAT appeal requires a genuine consensus between the taxpayer and the Commissioners. The court should apply ordinary principles of offer and acceptance, viewed objectively. A taxpayer’s request for repayment, coupled with an indication that an appeal will be withdrawn after payment, does not necessarily constitute an offer to settle the appeal.

Payment following the reversal of an unlawful administrative policy may be explained as unilateral compliance with a legal obligation, rather than contractual settlement. The subsequent withdrawal of an appeal does not itself establish a prior agreement under Value Added Tax Act 1994, section 85.

DFS appealed to the VAT Tribunal against the Commissioners’ refusal or delay in repaying approximately £6.2 million of overpaid VAT. Following a High Court decision declaring the Commissioners’ deferral policy unlawful, the Commissioners authorised and paid the refund. DFS then withdrew its tribunal appeal, but the Commissioners later made a recovery assessment under section 80(4A) of the Value Added Tax Act 1994.

DFS argued that the correspondence and subsequent payment constituted an agreement under section 85, with the same effect as a tribunal determination. Moses J accepted that argument and ordered repayment on judicial review. The Commissioners appealed. The central issue was whether the parties had come to an agreement settling the VAT appeal.

1. Appeal allowed on the agreement issue. The remaining issues, including those arising under Community law and the Convention, were adjourned.
2. The letter of 11 November 1996 did not contain an offer, or an invitation to agree, capable of acceptance by the Commissioners. It asserted DFS’s legal entitlement to repayment, sought confirmation of an extension of time, and stated that the appeal would be withdrawn once payment was received. It did not propose that the decision under appeal be treated as discharged or cancelled.
3. Under section 85 of the Value Added Tax Act 1994, the parties must have reached a mutual consensus. The court approved the approach in Schuldenfrei v Hilton [1999] STC 821, that the statutory expression “come to” an agreement invokes common law principles of offer and acceptance.
4. There was also a separate contextual reason for rejecting DFS’s case. The refund followed the Commissioners’ unilateral reversal of their deferral policy after R v Commissioners of Customs and Excise ex parte Kay & Co Ltd [1996] STC 1500, in which the policy had been declared unlawful. The Business Brief issued on 22 November 1996 showed that the Commissioners had already decided to pay deferred claims. Payment therefore did not require a negotiated settlement.
5. The VAT appeal was neither judicially determined nor settled by agreement. DFS withdrew it because it had ceased to have practical significance after payment. The section 85(3) issue therefore did not arise.

• Court of Appeal (Civil Division): appeal from the order of Moses J was allowed on the question whether the parties had settled the VAT appeal by agreement. The remaining issues were adjourned.
• Administrative Court, Queen’s Bench Division: Moses J allowed DFS’s judicial review claim, quashed the Commissioners’ refusal to repay £6.2 million, and ordered repayment with interest.