Lex Service Plc v. Her Majesty's Commissioners of Customs and Excise

The appeal concerned the quantification of non-monetary consideration for value added tax. The court reaffirmed that non-monetary consideration is to be quantified by reference to its "subjective value" as recognised by the parties, and that where the parties have expressly or implicitly attributed a monetary value that attribution will normally determine the taxable amount. The court held that part-exchange prices agreed and documented by the parties, and used in finance documentation, were the appropriate monetary equivalents rather than an internal "true value" entry used for a limited refund purpose. In reaching this conclusion the court rejected the appellant's submission based on the principle of fiscal neutrality that economically equivalent structures must be treated identically for VAT purposes, and emphasised the concurrent importance of legal certainty and the parties' evident attribution of value.

Background and parties: Lex Service Plc and related companies (car dealers) sought repayment of VAT paid on transactions involving part-exchange of vehicles. The dispute turned on whether the monetary equivalent of vehicles taken in part-exchange for VAT purposes was the full documented part-exchange price (as treated by Customs and Excise) or a lower "true value" shown on the dealer's internal form.

Procedural history: The VAT and Duties Tribunal dismissed Lex's claim (26 May 1999), Arden J dismissed an appeal to the Chancery Division (20 July 2000), the Court of Appeal dismissed Lex's appeal (26 October 2001, [2001] STC 1568), and Lex appealed to the House of Lords with leave granted on 4 March 2002.

Nature of claim and relief sought: Lex sought repayment of VAT (£1.8 million disputed) on the basis that the correct monetary equivalent of part-exchange vehicles was the lower 'true value' rather than the higher part-exchange price recorded in sale documents and finance paperwork.

Issues framed: (i) How is non-monetary consideration to be quantified for VAT purposes; (ii) whether the part-exchange price or the internal 'true value' constitutes the appropriate monetary equivalent; (iii) whether the principle of fiscal neutrality required treating economically equivalent structures as the same for VAT if parties chose different contractual forms.

Court's reasoning: The House of Lords applied EU jurisprudence on non-monetary consideration including the requirement that consideration be linked to the supply, capable of being expressed in money and be assessed by reference to its subjective value. Where parties have themselves attributed a monetary value to non-monetary consideration that attribution is normally decisive. On the facts the part-exchange price was the value the parties had adopted and used in documentation and dealings (including by finance companies), whereas the 'true value' on Lex's internal form had a distinct purpose (limiting refunds on returns). The court rejected the submission that fiscal neutrality mandated treating differently-documented but economically similar transactions identically for VAT purposes, emphasising legal certainty and the parties' chosen attribution of value. The court therefore dismissed the appeal.

Appeal dismissed. The House of Lords held that the monetary equivalent of vehicles taken in part-exchange is the value the parties themselves attributed in their transaction documents (the part-exchange price), not the dealer's internal 'true value' used for refund purposes; fiscal neutrality did not require re-characterising the documented transaction.

VAT and Duties Tribunal dismissed Lex's claim (26 May 1999, [1999] V & DR 156). Arden J dismissed Lex's appeal to the Chancery Division (20 July 2000, [2000] STC 697). The Court of Appeal unanimously dismissed the appeal (26 October 2001, [2001] STC 1568). Leave to appeal to the House of Lords was granted on 4 March 2002.