CO 1696/97
Neutral Citation Number: [1998] EWHC Admin 693
IN THE HIGH COURT OF JUSTICE           
QUEEN'S BENCH DIVISION
(CROWN OFFICE LIST)

Royal Courts of Justice
Strand
London WC2

Wednesday, 1st July 1998

B e f o r e:

MR JUSTICE MOSES

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COMMISSIONERS OF CUSTOMS & EXCISE

‑v‑

CHRISTOPHER R MOORISH

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(Computer‑aided Transcript of the Stenograph Notes of
Smith Bernal Reporting Limited
180 Fleet Street, London EC4A 2HD
Telephone No: 0171‑421 4040/0171‑404 1400
Fax No: 0171‑831 8838
Official Shorthand Writers to the Court)
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MRS M HALL (instructed by HM Customs & Excise, New King's Beam House, London SE1 9PJ) appeared on behalf of the Applicant.

The Respondent did not appear and was not represented.

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J U D G M E N T
MR JUSTICE MOSES: This is an appeal from the decision of
Mr Palmer, Chairman of the Vat Tribunal, was dated 1st April 1997.  The issue is whether the reconstruction, reinstatement or rebuilding of a house severely gutted by fire can be described as alteration.
     The Chairman recorded that the house, Fradd's Meadow, is a Grade 2 listed building which dates back to the mid‑18th Century.  He found as a fact that the condition of the building was set out in a report of April 1993:
"The whole of the house has been severely gutted by fire. The damage includes the total destruction of the roof, first floors, and internal timber partitions.  Windows have been generally destroyed and a number of the original timber lintels have also been severely damaged. The enclosing stone walls have to be re‑built in part as a result of the damage to the lintels and of the loss of structural strength caused by the heat of the fire in the north‑east corner...." 
     The legislation relevant to this decision is set out in section 16(2) of the Value Added Tax Act 1983.  By that subsection, supply of goods or services is zero rated if the goods or services are of a description for the time being specified in Schedule 5 to this Act or the supplies are of a description for the time being so specified.
     By Group 8 of Schedule 5, it is provided, under the rubric.  "Construction of dwellings":
"1. The grant by a person constructing a building‑
(a) designed as a dwelling or number of dwellings; or
(b) intended for use solely for a relevant residential purpose or a relevant charitable purpose,
 of a major interest in, or in any part of, the building or its site.
 
2. The supply in the course of the construction of‑
(a) a building designed as a dwelling...." 
 
"3. The supply to a person of‑
   (a) materials; or
   (b) builders' hardwear...
by a supplier who also makes to the same person supplies within item 2 of this Group or Group 8A below of services which include the use of the materials or the instillation of the articles." 
Those items are zero rated under Group 8.  The relevant group under Schedule 5 in this case is Group 8A under the rubric "protected buildings".
"1. The [grant], by a person substantially reconstructing a protected building, of a major interest in, or in any part of, the building or its site.
2. The supply, in the course of an approved alteration of a protecting building, of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity." 
     The notes to those items are, by section 48(6), to be construed with these items.
"(1) 'Protected building' means a building which is designed to remain as or become a dwelling or number of dwellings or is intended for use solely for a relevant residential purpose or a relevant charitable purpose after the reconstruction or alteration and which, in either case, is‑
(a) a listed building...
 
          (2): For the purposes of item 1, a protected building shall not be regarded as substantially reconstructed unless the reconstruction is such that at least one of the following conditions is fulfilled when the reconstruction is completed‑
 
(a) that, of the works carried out to effect the reconstruction, at least measured by reference to cost, are of such a nature that the supply of services (other than excluded services) materials and other items to carry out the works, would, if supplied by a taxable person, be within either item 2 of this Group or item 3 of Group 8 above, as it applies to a supply by a person supplying
 services within item 2 of this Group; and
(b) that the reconstructed building incorporates no more of the original building (that is to say, the building as it was before the reconstruction began) than the external walls, together with other external features of architectural or historic interest;
 
and in paragraph (a) above 'excluded services' means the services of an architect, surveyor or other person acting as consultant or in a supervisory capacity.
 
(3) 'Approved alteration' means,‑
 
(a)......
(b)......
(c) in any other case, works of alteration which may not, or but for the existence of a Crown interest or Duchy interest could not, be carried out unless authorised under, or under any provision of....
 
and for which, except in the case of a Crown      interest and Duchy interest, consent has been     obtained under any provision of that Part;
 
and in paragraph (c) above 'Crown interest' and 'Duchy interest' have the same meaning as in section 50 of the said Act of 1979.
 
(4)......
 
(5)......
 
(6) in item 2 'alteration' does not include repair or maintenance..." 
     The Chairman in a lucid and thoughtful decision in which he sought to construe the meaning of "approved alteration" concluded that there was an approved alteration where the works or any part of them were made in a manner which affected the character of Fradd's Meadow as a building of special historic interest.  He reached that conclusion by reference to section 7 of the Planning Listed Building and Conservation Areas Act 1990.  In my judgment, there is no warrant in Schedule 5 for such a construction. 
     Item 2 to Group 8A inquires three conditions if the supply is to be zero rated:  (i) that there should be an alteration; (ii) that the alteration is neither repair or maintenance (the word 'or' to be read conjunctively) and (iii) that the alteration be approved.
     Item 3 to Group A defines what is meant by "approved". Under (c):
"....works of alterations which may not... be carried out unless authorised under, or under any provision of,‑
 
(i) [Part I of the Planning (Listed Building and Conservation areas) Act 1990]... and for which... consent had been obtained under any provision of that Part." 
     Thus there must both be authorisation inter alia, under Part I and consent.  It is important not to confuse that statutory definition of "approved" with the meaning of "alteration".  There is no statutory definition of what is meant by "alteration" other than it does not include repair or maintenance.
     What then is alteration? In A.C.T Construction Ltd v Customs and Excise Commissioners [1981] 1 WLR 152 Lord Roskill said that the words in the provisions should be given their ordinary meaning.
     In a different statutory context Lord Roskill decided that "alteration" meant "structural alteration".  I should emphasise the different statutory context in that case. Their Lordships' House was dealing with Group 8 in Schedule 4 to the Finance Act 1972 as amended by paragraph 3 of the Value Added Tax (Consolidation) Order of 1976.  Item 2 of  the notes referred to "the supply in the course of the construction, alteration or demolition of any building..." Note 2 stated, "Item 2 does not include, (a) any work of repair or maintenance."
     It will be noted that under the statutory provisions the word "alteration" found its place in between the words  "construction and demolition".  I need not finally decide in the instant case whether, in the new statutory context, "alteration" means "structural alteration", but it probably does.
     This case once again illustrates the danger of using dicta in one case dealing with a different statutory context in another where the words of the statute are not the same.
     Under the same Act, Mr Justice Woolf (as he then was) in Parochial Church Council of St Luke v Customs and Excise Commissioners [1982] STC 856, had to consider a church which was seriously damaged by fire, and whether work to reconstruct the roof amounted to works of repair or maintenance.  The case is authority for the following propositions: 1. The question will primarily depend upon what is happening to the building as a whole (see page 861(a))
2.  The tax treatment of items of work undertaken, which might be described as integral to the whole of a larger project will follow the tax treatment of that larger product, thus if rooms are redecorated in the course of alteration of an existing building that redecoration will  form part of the alteration (see page 861(j)).
3. If a building is extremely badly damaged, then the proper description of the work may be rebuilding or reconstruction.
4.  Reconstruction may incorporate part of the old building.  It is a matter of fact and degree whether what is happening is repair of the old or construction of the new (see page 862).
     Again I stress that the statutory context in that case was different.  All Mr Justice Wolfe was concerned with was the dichotomy between construction and alteration, and repair or maintenance, there was no tertium quid. Construction and alteration were zero rated.  Thus, he was able to identify the statutory purpose as:
"New works which are to be zero rated, and works which are designed to preserve or restore what had previously existed which are to be standard‑rated" (see 862 (b) to (c))." 
     In the light of that statutory purpose, it made sense to consider the condition of the church prior to the fire. In the instant case, however, the statute requires consideration of three categories:  reconstruction, alteration and repair or maintenance.  Only alteration is zero rated under Group 8A.  That is demonstrated by Item (1) and Note 2 which must be read together.  Thus, the statutory purpose is now different.  The principles annunciated by Mr Justice Woolf lead to the opposite conclusion.  If what is happening, viewed as a whole, is supply in the course of rebuilding or reconstruction, then that is not alteration  and it is standard rated.  The purpose of Group 8A is to exclude reconstruction, save where it can be described as alteration which is not repair or maintenance.  The Tribunal's failure to consider whether the supply was a supply in the course of reconstruction was an error of law.
     The Commissioners contend that that which was undertaken here was plainly reconstruction and that, therefore, no remittal is necessary. They rely upon the findings of the Chairman at paragraphs 51 and 52 of his decision.  At paragraph 51 he said:
"Once again the works described as 'fire reinstatement work' in Schedule I need more careful consideration. Looking at the works as a whole I find that they cannot properly be described as repair or maintenance.  It is true that they put Fradd's Meadow back in some ways to the condition and appearance that it had before the fire.  But the degree of the necessary works following the fire were of such a magnitude that I do not believe that anyone would normally say that they had repaired the house, or repaired, for example, the roof. What Mr Morrish [taxpayer] had done was to rebuild the house.  I acknowledge that in many instances the work done to rectify a fire will simply be categorised as repair or maintenance.  But here the degree of work necessary was so extensive and the remains, other than damaged outer walls, so limited that to describe the works as repair ignores the true nature and extent of what happened here.
Mr Brendan‑Cook used the expression 'reinstatement'.  There seems to me, accurate as the use may be, an element of function of the works in such an expression.  The building was reinstated and reinstatement I would think could often include mainly or only repair.  But in my judgment what in fact happened here was, in common language, that Fradd's Meadow was rebuilt using, after repairing, the outer walls.
 
52.  I am strengthened in my conclusion when I consider two of the most significant items of work on their own. I appreciate that I am intended to consider the works as a whole, but it is helpful in my view to test this by reference to the normal description that would be applied to major items of the works.  The stairs were not repaired. After the fire they did not exist. They were rebuilt from scratch.  Similarly the roof was not repaired.  It had been consumed in the fire, fallen shattered to the ground or,  such of it as remained, had to be demolished.  This seems to me a very different situation from the roof that was repaired in Windflower Housing Association, where there was still a roof, albeit very deficient." 
     I should record in this case that the taxpayer did not attend because he had run out of money.  This matter was accordingly argued by the Commissioners as a point of principle.  They contended that there were clear findings (which I have already read in paragraphs 51 and 52) which support the conclusion that the work was that of reconstruction and not alteration.
     The error, in merely considering the dichotomy between alteration and repair and in failing to consider whether there was any alteration at all, may well have been the result of the way the case was argued before him by the Commissioners, who I hasten to emphasis were not at that stage represented by Miss Hall.  It seems clear to me that the taxpayer expects to have another go in the light of my ruling in principle, and the Commissioners were accordingly not opposed to the conclusion, that in the light of my findings as to the principle, it is right to remit this matter to a different tribunal to make findings in accordance with my judgment.
     The second element to the Commissioners' contentions is the contention that there was no building to be altered.
     In the Customs & Excise Commissioners v Lewis (1994) STC 739.  Mr Justice Brooke was considering a derelict Sussex barn with four crumbling walls open to the sky; there  was no existing building.  He was concerned with Group 8 of Schedule 5 to the 1983 Act and not with Group 8A.
By Note 1(a) to that group, "any reference in Item 2 or the following notes to the construction of any building does not include a reference to, (a) the conversion, reconstruction alteration or enlargement of any existing building".  The Commissioners contended in that case that this was reconstruction of an existing building.
     It will be noted under Group 8 that the statute refers to an existing building.  There is no such reference under Group 8A, but I accept that one cannot alter something which cannot be described as a protected building within the meaning of Note 1.  There was, say the Commissioners, no building here at all.
     Because the matter was not considered before the Tribunal, I should not reach any final conclusion as being the only true and reasonable conclusion in relation to that second argument.  That should be argued before the fresh tribunal.
     The question as to whether it is now open to the taxpayer, in the light of my enunciation of the principles, to argue that, in any event, his case is covered by Items (2) and (3) in Group 8 and is therefore zero rated has not been argued before me.
     It is clearly open to the taxpayer to argue the supply is zero rated under Group 8.  The matter has not been argued before me because that question was not raised before the  Tribunal, but I merely mention that neither I nor the Commissioners have forgotten the fact that the end result may prove to be the same in the long run, but I venture no suggestions or conclusions as to whether, the taxpayer will have a successful outcome.
 
MISS HALL: I am obliged, my Lord.
 
MR JUSTICE MOSES: There is one matter I wanted to raise, it was not before me in the judgment and that is:  is it open to this taxpayer now to argue ‑ if you are right that there was no building and if this was not alteration, this is just construction under Group 8 and, therefore, at least I get some of it, perhaps all of it, under Items 2 and 3 of Group 8.
 
MISS HALL: It is open to him so to argue, my Lord.
 
MR JUSTICE MOSES: Might the result be that he gets zero rated anyway?
 
MISS HALL: He may well.
 
MR JUSTICE MOSES: Do you want me to say something about that in the judgment, otherwise people will think, 'what is all this about'?
 
MISS HALL: In principle, that is right, my Lord, there is this dreadful question of capping as to whether or not he is effectively time barred.
 
MR JUSTICE MOSES: Is that because it is too late for him to argue Group 8?
 
MISS HALL: That may be right.
 
MR JUSTICE MOSES: That is a bit harsh.
 
MISS HALL: As a matter of principle, your Lordship is quite right.
 
MR JUSTICE MOSES: If the Commissioners did not point out to him then, it is not zero rated under 8A, should they not have said, "it does not really matter, as it is Group 8"?
 
MISS HALL: That is a matter for argument ultimately.
 
MR JUSTICE MOSES: I am unhappy about that.  I was wondering  if there was going to be a new argument which was not before me and that is:  if it comes under Group A because it was a protected building, then that is, in effect, a substantial reconstruction or rebuilding and not construction from scratch, but it is outwith Group 8 anyway.  You do not take that point which is a wholly different argument that has not been before me.
 
MISS HALL: It is, my Lord.
 
MR JUSTICE MOSES: The Commissioners might say, once you have a protected building, even if it is burned to the ground apart from a few walls open to the sky, it falls under Group 8A (it is not under Group 8) even though it is not alteration, it is reconstruction.
 
MISS HALL: My Lord, what I can say at this point is, it is open to this taxpayer to argue quite forcefully, I would say‑‑‑‑
 
MR JUSTICE MOSES: Just leave it there and not say any more about it because you may want to take that other point. Should I say something about that in the judgment?  Because someone might read this and say, you cited Group 8 what on earth is this all about?
 
MISS HALL: Group 8 was cited because it was only by Item 3 of Group 8.
 
MR JUSTICE MOSES: It was also important, because it showed the distinction between alteration and construction.  I wonder if I ought to put in a sentence at the end.
 
MISS HALL: My Lord, I am in your hands.  I am obliged, my Lord.