[2012] UKFTT 38 (TC)
TC01736
Appeal number
TC/2011/05981
Strike
out –jurisdiction - proportionality
FIRST-TIER TRIBUNAL
TAX
Westward
Group Limited Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
Rachel Short (TRIBUNAL JUDGE)
Henry
Russell OBE (MEMBER)
Sitting in public at Vintry
House, Wine Street Bristol on 6 October 2011
Having heard David Lewis,
instructed by the General Counsel and Solicitor to HM Revenue and Customs, for
the Respondents, and the Appellant not being present at the Hearing,
© CROWN COPYRIGHT
2011
DECISION
1. The
Tribunal concluded that this application should be DISMISSED.
2. In
accordance with s 8(2) Tribunal Procedure (First-tier Tax Tribunal)(Tax
Chamber) Rules 2009 (the “Tribunal Rules”) the Appellant has been notified of
this application and given the opportunity to make representations.
3. The
Appellant’s representative was contacted on the day of the hearing but the Appellant
did not attend the hearing.
Facts
4. This
case concerns an appeal against a VAT surcharge under s 59 Value Added Tax Act
1994 (“VATA”) in an amount of £2,810.70 in respect of the March 2011 VAT
period. The rate at which the surcharge has been applied is 15%.
5. The
VAT payment was due on 7 May 2011 but was not received until 10 May 2011, three
days late.
6. The
Taxpayer, Westward Group Limited (“Westward”) have appealed to this Tribunal
against this surcharge on the basis that it is unfair and does not fit the
crime. No other defence is being raised in this case.
7. HMRC
have appeared before us to argue that the appeal should be struck out under s
8(2) of the Tribunal Rules on the basis that the Tribunal does not have
jurisdiction to consider the appeal.
Arguments
8. HMRC’s
basis for requesting that the case be struck out is that:
(1)
Westward is attempting to argue that the VAT penalty is disproportionate.
(2)
That is an argument concerning HMRC’s administration of the law.
(3)
Any arguments concerning administration of the law should be made by way
of judicial review.
(4)
The Tribunal cannot consider judicial review cases.
(5)
In this particular case, proportionality cannot be argued because of the
restrictions in s 59(7) VATA which prevent this Tribunal from mitigating a
surcharge penalty.
Decision
9. Taking
each of these arguments in turn:
Is Westward’s argument based on
“disproportionality” and administrative law principles ?
10. Westward’s
appeal notice does not refer to the Human Rights Act 1998, the Convention for
the Protection of Human Rights ( the “Convention”) or to the concept of
proportionality, but does request that the VAT penalty should be adjusted
downwards to reflect the small number of days for which Westward was in
default.
11. Westward say in
their Notice of Appeal “I accept that we were late but did not feel that 2
days late warrants the maximum penalty of 15% and that the punishment does not
fairly fit the crime”
12. The Tribunal is
accepting that for these purposes this can be treated as an argument based on
“proportionality” as set out in the Human Rights Act and the Convention,
although that principle has not been specifically cited by Westward. The
Tribunal is accepting that this case does concern issues of administrative law,
but it is worth pointing out that HMRC should not automatically assume that any
reference to unfairness in a taxpayer’s appeal should trigger considerations of
proportionality and the Human Rights Act.
Can this Tribunal consider administrative law and
judicial review cases ?
13. As to whether
the Tribunal has jurisdiction in these cases, HMRC referred to a number of
First Tier Tribunal decisions, including Enersys Holdings Limited, ([2010] SFTD 387) a decision which they said they did not accept.
14. In putting their
case HMRC also referred to Saint Gobain Building Distribution Limited (TC
2011/099270), Total Technology (Engineering) Limited (TC 2010/01291) and
Crane Limited (TC/2010/02801). While each of these decisions concern the
proportionality or otherwise of penalties imposed by HMRC and do apply public
law arguments, none deal in any detail with the prior question of whether the Tribunal
has jurisdiction in the first place. In fact, since the Enersys decision
numerous Tribunal decisions have considered these arguments on the assumption
that the Tribunal does have jurisdiction to hear them.
15. Aside from
referring to these decisions, HMRC did not produce any detailed arguments
concerning the Tribunal’s jurisdiction.
16. HMRC have
requested a full decision in this matter. The correct starting place for this
analysis is the High Court decision in Oxfam (2009 EWHC 3078) and the
judgment of Mr Justice Sales, which was not referred to by HMRC in their
arguments.
17. The Oxfam
decision does not give a definitive view as to where the correct jurisdiction
for cases such as this lies, but does give the clearest available guidance
about the remit of this Tribunal’s jurisdiction.
18. The Oxfam
case also concerned VAT, but not the default surcharge provisions. Nevertheless
many of the general points made by Sales J are relevant here. Two significant
points were made about this Tribunal’s jurisdiction as far as public law is
concerned, the first of which was an entirely practical one. Sales J stressed
the importance of the “Tribunal having jurisdiction to hear such claims so
that unattractive, costly and potentially time consuming proliferation of
applications to different bodies can be avoided” and, perhaps more
importantly that “the Tribunal is in a position to consider all of the
relevant points on the same issue at one hearing”.
19. From the
perspective of cost efficient and timely provision of justice, the implication from
Sales J is that there is every advantage in interpreting the jurisdiction of
the Tribunal widely.
20. Secondly the
Judge in Oxfam made clear that he was not intending to give carte
blanche to the Tribunal to consider all and every issue of public law. The Tribunal
can consider such issues only to the extent that it is clearly related to a
matter over which the Tribunal does have jurisdiction, which will usually be a
matter to which an appeal can be made to the Tribunal.
21. In the Oxfam
case it was made very clear that what gave the Tribunal jurisdiction was the
basis of Oxfam’s appeal in the VAT legislation (in that case s 83(1) VATA) and
the Tribunal could consider any public law issues which arose in respect of
that appeal.
22. This point is
put most succinctly at para 67 of the Oxfam judgment “in my view it does not
follow from this that the Tribunal will never have jurisdiction to consider
issues of general private and public law where it is necessary for it to
determine the outcome of an appeal against a decision of HMRC ……”.
23. That is not to
say that it impossible to envisage circumstances in which the Tribunal could be
asked to look at a public law issues and decide that it was proper to strike
the application out for lack of jurisdiction because one of the fundamental conditions
of Oxfam was not met.
24. HMRC are arguing
in this case that because the only appeal which is being made to the Tribunal
is on the basis of public law and not, as has often been the case (as in Enersys
for example) as part of an appeal on the basis of “reasonable excuse”, that the
Tribunal cannot consider the “proportionality” appeal as a stand alone issue.
25. I do not
consider that the decision in Oxfam limits the Tribunal’s jurisdiction
to that extent. The first question to ask is whether in this case there is an
appeal in respect of which the Tribunal has jurisdiction, to which the answer appears
to be yes; s 83(1)(n) VATA sets out a right of appeal to the Tribunal in
respect of penalties under s 59 ( the default surcharge) and that is the basis
of Westward’s appeal.
26. It follows from Oxfam
that as long as the public law issue is related to the tax matter which is
being appealed, the Tribunal has jurisdiction. This appeal relates to the
penalties levied by HMRC under s 59 VATA and so does on the face of it, fulfil
that condition.
Can the Tribunal hear a “disproportionality” appeal
under s 59 VATA ?
27. HMRC state however,
that because the Tribunal cannot mitigate the amount of the default surcharge,
but can only either enforce it or reduce it to nil under s 59(7) VATA, the question
of proportionality cannot be relevant and so the Tribunal does not have
jurisdiction to consider this case.
28. Firstly, the mere
fact that the Tribunal has no choice about the level of the surcharge to be
levied, does not seem to me to mean that the penalty is not subject to appeal
under s 83, given that it is always open to the Tribunal to reduce the level
of the penalty to nil.
29. However, HMRC’s
contention is that even if it is accepted that in some circumstances the
Tribunal might be able to consider public law issues, that cannot be the case
when the appeal in question relates to the default surcharge because the VAT
legislation specifically rules out the possibility of mitigating these
penalties, so there is no right to appeal to the Tribunal on the basis of
“proportionality”. To put it another way, the appeal to the Tribunal concerns
only whether there should be a penalty or not, rather than the amount of the
penalty and it is the amount of the penalty which is relevant to a
“proportionality” appeal.
30. Given the
statements above concerning the application of the Tribunal’s jurisdiction in Oxfam,
I do not consider that it can be correct to limit the subject matter of the
appeal in this way. The question of whether a penalty is to be applied and the
amount of the penalty are inextricably linked and we consider that it would be
counter to the principles set out in Oxfam to separate the issues in
this way.
31. This was the
approach taken in the Enersys case where it was accepted that the fact
that the Tribunal could not mitigate the penalty did not mean that the Tribunal
had no jurisdiction at all.
32. To suggest that
cases concerning the VAT surcharge cannot be subject to proportionality based
appeals because of the lack of the ability to mitigate the penalty under the
VATA is a reversal of the logic which has been applied in previous decisions,
where it is the very fact of the inability to mitigate which triggers EU law and
the application of the Convention.
33. Previous cases
have proceeded on the basis that the UK’s VAT legislation, as EU based law,
must be applied by reference to the concept of proportionality, see for example
the statements in Garage Molenheide BVBA v Belgium [1998] STC 126; “the
principle of proportionality is applicable to national measures which …. are
adopted by a member state in the exercise of its powers relating to VAT”.
This EU based principle overrides any specific, national legislation.
34. Similar logic
applies to the principle of proportionality derived from the UK Human Rights
Act and the Convention, on the basis that VAT penalties are criminal in nature,
Article 6 of the Convention applies and these general principles override any
specific provisions of the UK’s VAT legislation.
35. Arguing that a
lack of a power to mitigate VAT penalties means that none of these principles
can be applied by the Tribunal ignores the fact that these principles override
the specific provisions of national law.
36. The real problem
for the Tribunal, highlighted by HMRC in this case, is not whether it has
jurisdiction to apply the proportionality principle, which we think it clearly
does in this case, but how it goes on to apply those principles in the face of
VAT legislation which offers only an all or nothing approach under s 59.
37. In previous
decisions such as Enersys the Tribunal, having accepted that the
proportionality principle applied, went on to reduce the amount of the default
surcharge penalty to nil because that was the only course open to it on the
basis of the UK VAT legislation, even if the effect of that was to change a
penalty from being disproportionately heavy to being disproportionately light.
38. No Tribunal has
yet concluded that accepting the proportionality principle means that it can
only properly be applied by overriding the specific rules in s 59 VATA and
applying a lower rather than a nil penalty to the taxpayer in question, even
though that might be the logical conclusion of the application of the principle.
39. This Tribunal
does not consider that these issues with the application of the proportionality
principle mean that the Tribunal has no jurisdiction to consider the principle
itself, though it might suggest that there are aspects of the UK’s VAT legislation which make the principle difficult to apply.
40. For these
reasons this Tribunal considers that it does have jurisdiction to consider an
appeal on the basis of proportionality and HMRC’s application to strike out
this appeal is dismissed.
41. In the absence
of the Taxpayer the Tribunal declined to consider the substantive matters under
appeal but directs that this appeal should be re listed for a hearing subject
to the standard directions for basic cases.
42. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
Rachel Short
TRIBUNAL JUDGE
RELEASE DATE: 11 January 2012
© CROWN COPYRIGHT
2011
