Customs & Excise v National Westminster Bank Plc

In a claim for repayment of overpaid VAT, the Commissioners bear the legal burden of establishing unjust enrichment. There is no presumption that tax was passed on, but the tribunal may draw reasonable inferences from all available evidence. Passing on need not be express or separately identified in an invoice. The relevant loss must be caused by the mistaken VAT treatment; unrelated commercial losses are immaterial.

A VAT tribunal’s appellate jurisdiction concerns the legality of the repayment decision under the statutory scheme. It does not confer a general supervisory jurisdiction over the Commissioners’ conduct or unequal treatment of taxpayers. Unequal treatment does not require repayment where objectively justified reasons explain why an administrative mistake is not perpetuated.

The Commissioners appealed from a decision of the VAT and Duties Tribunal dated 30 December 2002. The Tribunal had allowed National Westminster Bank plc’s appeal concerning a claim for repayment of VAT relating to manufacturers’ bonuses on vehicles purchased for leasing.

The Tribunal held that the Commissioners had breached EU principles of effectiveness and equality of treatment, and that unjust enrichment had not been established. The High Court considered whether the evidence established passing on of the VAT cost, and whether the Tribunal had jurisdiction to determine the alleged unequal treatment.

1. Unjust enrichment. Section 80 of the Value Added Tax Act 1994 gives a right to repayment of VAT not due, subject to the defence in section 80(3). The Commissioners bear the burden of establishing that repayment would unjustly enrich the claimant. There is no presumption that the tax was passed on, but reasonable inferences may be drawn from the available evidence.
2. Passing on does not need to be express or separately itemised. The question is whether repayment would unjustly enrich the claimant, assessed on all the facts. The fact that the cost formed only one element of a rental calculation, and that the onward supply was characterised as services, did not prevent passing on.
3. The relevant loss or damage must result from the mistaken VAT treatment. Commercial losses unrelated to the overcharged tax cannot be brought into account. The Tribunal’s reasoning treated express passing on as necessary, relied on an immaterial distinction between goods and services, and failed to determine what Lombard’s financial position would have been without the undue tax. That was an error of law.
4. On the evidence, the only reasonable inference was that Lombard intended to pass the cost to its customers and had done so. Lombard had not shown a reduced market share, reduced sales volume, or economic loss caused by the tax. Repayment would therefore unjustly enrich it. The matter was not remitted because Lombard had already had a fair opportunity to establish a genuine economic loss.
5. Jurisdiction and unequal treatment. The Tribunal had jurisdiction over the statutory repayment claim, but no general supervisory jurisdiction over the Commissioners’ conduct. Section 83(t) did not cover a complaint that repayment should be ordered merely because other taxpayers had been repaid. Section 84(10) applied only where the decision under appeal depended on a prior decision; the unjust-enrichment and unequal-treatment issues were independent.
6. Unequal treatment did not itself require repayment. The Commissioners were entitled to decline to perpetuate an administrative mistake where objectively justifiable reasons existed, including the complexity of VAT law and the scale of the administrative system. The appeal was allowed.

1. High Court (Chancery Division): Appeal from the VAT and Duties Tribunal allowed. The Tribunal’s decision was reversed.
2. VAT and Duties Tribunal: Decision dated 30 December 2002 allowing National Westminster Bank plc’s appeal against the Commissioners’ refusal of repayment.