Teleos Plc & Ors, R (on the application of) v Customs and Excise

Where the correct interpretation of Community VAT provisions governing intra-Community supplies is genuinely uncertain and requires uniform application, the issue should be referred to the European Court of Justice. The legality of domestic assessment, and any public-law challenge based on unfairness or abuse of power, may depend on that interpretation and should not be finally determined beforehand.

A trader’s liability cannot depend on a qualitative assessment of how scrupulously it conducted the transaction. The court found that the traders had made reasonable enquiries and could not practically have discovered the false transport particulars, but left the ultimate assessment issue open pending the European Court’s ruling.

The claimants, wholesale mobile-phone traders, supplied goods to a Spanish VAT-registered customer on mainly ex works terms. They zero-rated the supplies and relied on signed and stamped CMR notes indicating delivery to France or Spain.

HM Customs and Excise later concluded that the CMR particulars were false and that the phones had remained in the United Kingdom. It assessed the claimants to VAT, although it accepted that they were innocent and uninvolved in fraud.

The central issue was whether Article 28c(A)(a) of the Sixth Directive required actual removal of the goods from the Member State of supply, or merely a genuine dispatch intended for another Member State. Related issues concerned public-law fairness, sections 30(10) and 81(3) of the Value Added Tax Act 1994, and the appropriate forum.

1. Reference to the European Court of Justice. The court held that the interpretation of Article 28 of the Sixth Directive was not beyond sensible argument and required a uniform ruling applicable throughout the Community. The reference was essential because the answer determined whether exemption depended on actual physical removal, when the supplier’s status crystallised, and whether a later investigation could unravel the transaction.
2. Public-law challenge. The court made no concluded determination whether the assessments constituted an abuse of power or substantial unfairness. That issue depended on the proper interpretation of Article 28. The claimants had reasonably and honestly relied on the CMRs. Their enquiries into the customer and freight forwarder were reasonable and thorough, and there was no practical means by which they could have discovered the falsity of the destinations, vehicles or carriers.
3. Liability could not depend on the Commissioners’ qualitative view of how scrupulously the traders had conducted their transactions. The assessment decision was based on the alleged falsity of the CMR particulars, not on non-compliance with the memorandum of understanding. The CMRs were not invalid documents; their evidential particulars had subsequently proved false.
4. The court expressed no concluded view on section 30(10), the set-off under section 81(3), or the extra-statutory concession. Those matters should await the European Court’s interpretation of the Directive.
5. Judicial review was appropriate in the circumstances because the Commissioners accepted that certain public-law issues could properly be raised in that way and a single reference would provide an economical resolution. Ordinarily, however, the statutory tribunal appeal procedure was the appropriate route for determining VAT liability.

First-instance judicial review proceedings. The court referred the Community-law interpretation issue to the European Court of Justice and left several domestic issues undetermined pending that ruling.