Prudential Assurance Company Ltd v Revenue & Customs [2009] UKVAT 20957 (12 February 2009)

20957

Value Added Tax – matter to be determined as preliminary issue – failure of taxable person to register – assessment for final return period of 34 months – whether illegal as contrary to Article 252 Principal VAT Directive – Commissioners’ powers to require return for period exceeding 12 months under Article 273 Principal VAT Directive – whether decision in Bjellica v CCE per incuriam – whether assessment invalid – regulation 25(1) and (4) VAT Regulations 1995 – assessment both legal and valid – appeal dismissed in relation to preliminary matter

LONDON TRIBUNAL CENTRE

PRUDENTIAL ASSURANCE COMPANY LIMITED	Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS	Commissioners

Tribunal:	EDWARD SADLER (Chairman)
ALEX McLOUGHLIN

Sitting in public in London on 25 November 2008

Andrew Hitchmough, counsel, instructed by Pricewaterhouse Coopers LLP, for the Appellant

Ben Collins, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs, for the Commissioners

© CROWN COPYRIGHT 2009

DECISION

Introduction
1.	This is an appeal by Prudential Assurance Company Limited (“the Appellant”) against an assessment made by The Commissioners for Her Majesty’s Revenue and Customs (“the Commissioners”) for the period 1 June 2004 to 30 April 2007 in the sum of £1,275,206.09, and dated 28 June 2007 (“the Assessment”).  The Assessment was made against the company Egg Leasing Limited (“ELL”), which at the relevant time was in the same commercial group as the Appellant is the representative member, and the Appellant makes this appeal in that capacity.
2.	What may be termed the substantive appeal in this case is a matter of some length and complexity, and the facts and scope of that substantive appeal are outlined below in the statement of agreed facts and assumptions prepared by the parties for the present hearing.  There is, however, a preliminary matter relating to the validity of the Assessment which, if decided in the Appellant’s favour, would result in the Appellant succeeding in having its appeal allowed.  The parties wished to have that preliminary matter heard in advance, and applied to the tribunal for leave to have a separate hearing of the preliminary matter on two grounds: first, that if the appeal can be disposed of by reference to the preliminary matter that will save the parties the substantial costs of the hearing of the substantive appeal (which the parties presently estimate will take eight days); and, secondly, that the substantive appeal is likely to be influenced to a material degree by the appeal in an unrelated case which has recently been referred to the European Court of Justice, so that the hearing of the substantive appeal must now of necessity be postponed for what is likely to be a considerable period, whereas the matter might be disposed of without delay by reference to the preliminary matter.  The tribunal agreed to hear the appeal by reference to the preliminary matter only, determining whether the Assessment was validly made, and this decision concerns that matter alone.
3.	The Assessment was made on ELL for the period 1 June 2004 to 30 April 2007 in circumstances where (as is assumed only for the purposes of determining this preliminary matter) ELL failed to register for VAT when it should have done so on 1 June 2004.  The Appellant argues that the Assessment is invalid since, firstly, regulation 25(1) and (4) of the Value Added Tax Regulations 1995 (1995/2518) (“regulation 25”) has effect so that, by references to the circumstances of ELL, the Assessment should have related to the VAT period beginning 1 June 2004 and ending 30 June 2004; and secondly, by virtue of Article 252 and notwithstanding Article 273 of the Principal VAT Directive (2006/112/EC) (respectively, “Article 252” and “Article 273”) the Appellant has a directly effective right that no assessment can be made for a VAT period exceeding one year.  The Commissioners argue that in the circumstances as assumed to apply to ELL they have the right to assess VAT in relation to the period 1 June 2004 to 30 April 2007, and that accordingly the Assessment is valid.
4.	For the sake of completeness we should record that on 28 June 2007 the Commissioners made an alternative assessment on ELL in the same sum, but for the period 1 June 2004 to 30 June 2004, but in his skeleton argument for the Commissioners submitted shortly before the hearing Mr Collins, who appeared for the Commissioners, stated that the Commissioners no longer sought to rely on that alternative assessment.  That alternative assessment is therefore no longer a matter for our decision, although it does bear upon the question of costs, as appears below.
5.	For the reasons given below we do not accept that the Assessment is invalid on the grounds advanced by the Appellant, and therefore, in relation to the preliminary matter we were asked to hear, we dismiss the appeal.  Our decision in this regard is without prejudice to the Appellant’s appeal in relation to the substantive appeal, concerning which we make the directions set out at the end of this decision.
The evidence and the agreed facts and assumptions for the hearing of the preliminary matter
6.	We had in evidence before us a bundle of documents comprising correspondence and emails between the parties, the Assessment, and VAT compliance documentation (application for registration, VAT returns, application for cancellation of VAT registration).  In each case save one the VAT compliance documentation was completed by the Commissioners under the powers conferred on them (it being the Appellant’s case, in relation to the substantive appeal, that ELL was not required to register for VAT purposes, and hence had no registration or compliance obligations).  The Appellant did, however, complete and submit a final VAT return for the period 1 June 2004 to 30 June 2004.
7.	We also had in evidence a witness statement of Mr Kieran Joseph Devlin, Head of Tax of Prudential, who is a chartered accountant.  For the most part the evidence of Mr Devlin related to matters pertinent to the alternative assessment and therefore are of no relevance to the matter we are required to decide, but the Appellant did rely on the evidence of Mr Devlin in relation to the question of whether and when ELL ceased to trade, which is of possible relevance to the validity of the Assessment (and in particular, the date up to which ELL’s final VAT return was properly made).  The Commissioners made no objection to the evidence of Mr Devlin set out in his witness statement.
8.	The parties submitted a statement of agreed facts and assumptions for the hearing of the preliminary matter relating to the validity of the Assessment.  This (as amended to remove reference to matters relevant only to the alternative assessment, which is no longer an issue) is as follows:
(1)	The Appellant is a wholly owned subsidiary of Prudential plc and is the representative member of the Prudential UK VAT group, registered for VAT under VAT registration 235 3237 81.  The Appellant is a United Kingdom based company and is an established provider of insurance products in the United Kingdom.
(2)	ELL is a UK company, with company registration number 03828301.  ELL was originally incorporated on 19 August 1999 under the name Egg Trader Limited.  Egg Trader Limited changed its name to Egg Leasing Limited on 13 May 2003.
(3)	The Appellant and ELL are no longer connected persons due to the disposal of the Egg corporate group, including ELL, by Prudential plc.  However, ELL was a fully owned subsidiary of Prudential plc at the time of the transactions which are the subject of this appeal.
(4)	ELL acquired certain intellectual property assets (“the Assets”) from a company called Egg Jersey Limited, which was also a wholly owned subsidiary of the Appellant, on 15 July 2003.  The Assets were at the time of the transfer the subject of existing finance lease agreements with Egg plc, Egg Banking plc and Egg Investments Limited (the “end user companies”), which were all companies within the Egg corporate group.  The benefit of the agreements with the end user companies was also assigned to ELL at the time of the transfer. 
(5)	ELL subsequently continued to lease the assets to the end user companies under the same terms of the end user agreements.  The actual payments made under the lease agreements did not at any time exceed the VAT registration threshold. 
(6)	ELL was not VAT registered at the time of the acquisition of the Assets.  For the purposes of the appeal the Commissioners do not argue that ELL became required to register for VAT by virtue of the acquisition or as a result of instalments becoming due under the lease agreements with the end user companies. 
(7)	On 30 June 2004 ELL sold the Assets to the end user companies.  The sum received by ELL in consideration for the asset sale was £7,276,892.  No VAT was accounted for on this transfer by ELL because it treated the disposal of assets as falling within paragraph 1(7) of Schedule 1 to the Value Added Tax Act 1994 (“VATA 1994”) such that the consideration received was not to be included in calculating its turnover for determining its liability to register for VAT. 
(8)	The Commissioners consider that the disposal of the Assets by ELL on 30 June 2004 did not fall within paragraph 1(7) of Schedule 1 to VATA 1994 and that, as a result, ELL became liable to be registered for VAT as of 1 June 2004 on the forward looking VAT registration test set out in paragraph 1(1)(b) of Schedule 1 to VATA 1994.  This decision, which is the Appealed Decision, was communicated in a letter dated 21 December 2006 following a period of enquiries and correspondence. 
(9)	For the purposes of the hearing of the preliminary matter only, it is to be assumed that the Commissioners are correct in this assertion and that ELL was liable to register for VAT from 1 June 2004. 
(10)	Following the transfer of the Assets on 30 June 2004 ELL entered into no further transactions and made no further supplies. 
(11)	On 17 January 2007 the Commissioners submitted a VAT 1 registration form, registering ELL with effect from 1 June 2004.  A Certificate of Registration for VAT was issued on 5 April 2007. 
(12)	On 29 March 2007 a letter setting out a liability to a penalty for late notification of liability to be registered was issued covering the period 1 June 2004 to 31 March 2006.  The penalty only covered the period to 31 March 2006 because this was the date at which the Commissioners considered they were fully aware of the liability of ELL to be VAT registered for the purposes of section 67(3) VATA 1994. 
(13)	In March 2007 the Commissioners issued a ‘first registration period’ return FORM VAT 100 covering the period 1 June 2004 to 30 April 2007, which was due for submission by 31 May 2007.  The Appellant did not file this return.
(14)	The Commissioners effected the deregistration of ELL from 1 May 2007.
(15)	The Appellant completed and submitted a VAT 7 form [Cancellation of VAT Registration] on 10 May 2007.
(16)	The Commissioners issued a final return FORM VAT 193 on 4 July 2007, which was submitted by the Appellant on 24 July 2007.  This return was marked as covering the period 1 June 2004 to 30 April 2007.  The return was submitted by the Appellant as a ‘nil’ return and amended so that the period end date was 30 June 2004.
(17)	The Assessment was issued on 28 June 2007, pursuant to a letter from Mr Hugh Williams of the Commissioners dated 22 June 2007 setting out the basis of assessment.  The Assessment was in the sum of £1,275,206.09.  The amount of the Assessment is not a matter for consideration at the hearing of the preliminary matter. 
(18)	The Assessment was raised under section 73 VATA 1994 on the basis of a failure by the Appellant to submit the issued return for the period covering 1 June 2004 to 30 April 2007. 
9.	The evidence of Mr Devlin (which is not challenged) which is relevant to the preliminary matter can be summarised as follows:
(1)	He informed the Commissioners by correspondence in July 2004 that ELL commenced its activity as a leasing company in July 2003 and that this activity ceased in June 2004 (upon the sale by ELL of the Assets, as described above).  
(2)	In August 2005 he confirmed this in further correspondence with the Commissioners, and added, “I am not aware of any current intention that ELL will trade again.”  
(3)	ELL made corporation tax returns for the periods ending 31 December 2003 and 2004.  The covering letter submitting the 2004 corporation tax return stated that on 30 June 2004 ELL assigned the leases comprising the Assets and ceased trading.  The Commissioners accepted that no corporation tax returns were due from ELL for subsequent years on the grounds that it was dormant.  
(4)	ELL was not liquidated after it ceased trading: there was no policy within the Prudential group as to the treatment of dormant companies.  Once the Commissioners began their enquiries as to the transactions involving ELL the Appellant did not think it appropriate to liquidate ELL.  In January 2007 the Prudential group agreed to sell the Egg group (including ELL) to Citigroup, and thereupon the decision as to whether or not to liquidate ELL rested with Citigroup.
The relevant domestic and European legislation 
10.	The Appellant relies upon both the domestic legislation (certain provisions in Schedule 1 to VATA 1994 and regulation 25) and the Principal VAT Directive (Article 252).  The Commissioners say that Article 252 must be read subject to the provisions of Article 273, which entitle the Commissioners to exercise additional powers.
11.	Paragraph 1 of Schedule 1 to VATA 1994 is headed Liability to be registered, and paragraph 1(1) is in these terms:
Subject to sub-paragraphs (3) to (7) below, a person who makes taxable supplies but is not registered under this Act becomes liable to be registered under this Schedule – 
(a)	…; or
(b)	at any time, if there are reasonable grounds for believing that the value of his taxable supplies in the period of 30 days then beginning will exceed [£56,000].
It is assumed for the hearing of the preliminary matter of the validity of the Assessment that ELL fell within sub-paragraph (1) (b), in that on 30 June 2004 it made taxable supplies exceeding £56,000 (by reason of the sale of the Assets), so that it became liable to be registered for VAT purposes under Schedule 1 on 1 June 2004.  (If the substantive appeal is heard by the tribunal, ELL will argue that sub-paragraph (7) of paragraph 1 applies in relation to the sale of the Assets, with the consequence that it did not in fact become liable to be so registered.)
12.	Paragraph 6 of Schedule 1 to VATA 1994 provides:
(1)	A person who becomes liable to be registered by virtue of paragraph 1(1)(b) above shall notify the Commissioners of the liability before the end of the period by reference to which the liability arises.
(2)	The Commissioners shall register any such person (whether or not he so notifies them) with effect from the beginning of the period by reference to which the liability arises.
ELL (it is to be assumed) was liable to be registered on 1 June 2004.  It failed to notify the Commissioners of that liability, and on 17 January 2007 the Commissioners exercised their obligation to register ELL with effect from 1 June 2004.
13.	Paragraph 3 of Schedule 1 to VATA 1994 deals with the situation where a person who is liable to be registered ceases to be so, and provides, so far as relevant:
A person who has become liable to be registered under this Schedule shall cease to be so liable at any time if the Commissioners are satisfied in relation to that time that he – 
(a)	has ceased to make taxable supplies; or
(b)	….
14.	Paragraph 13 of Schedule 1 to VATA 1994 is headed Cancellation of registration, and, so far as relevant, provides:
(1)	Subject to sub-paragraph (4) below, where a registered person satisfies the Commissioners that he is not liable to be registered under this Schedule, they shall, if he so requests, cancel his registration with effect from the day on which the request is made or from such later date as may be agreed between them and him.
(2)	Subject to sub-paragraph (5) below, where the Commissioners are satisfied that a registered person has ceased to be registrable, they may cancel his registration with effect from the day on which he so ceased or from such later date as may be agreed between them and him.
(3)	….
(4)	The Commissioners shall not under sub-paragraph (1) above cancel a person’s registration with effect from any time unless they are satisfied that it is not a time when that person would be subject to a requirement to be registered under this Act.
(5)	The Commissioners shall not under sub-paragraph (2) above cancel a person’s registration with effect from any time unless they are satisfied that it is not a time when that person would be subject to a requirement, or entitled, to be registered under this Act.
The Commissioners exercised their powers under paragraph 13(1) of Schedule 1 to VATA 1994 to deregister ELL with effect from 1 May 2007.  The Appellant completed a form cancelling ELL’s VAT registration on 10 May 2007.
15.	Regulation 25 is headed Making of returns and sets out the requirements as to when and how a registered person must make his VAT returns.  So far as is relevant to this appeal it provides as follows:
(1)	Every person who is registered or was or is required to be registered shall, in respect of every period of a quarter or in the case of person who is registered, every period of 3 months ending on the dates notified either in the certificate of registration issued to him or otherwise, not later than the last day of the month next following the end of the period to which it relates, make to the Controller a return on the form numbered 4 in Schedule 1 to these Regulations (“Form 4”) showing the amount of VAT payable by or to him and containing full information in respect of the other matters specified in the form and a declaration, signed by him, that the return is true and complete; provided that - 
(a)	…;
(b)	the first return shall be for the period which includes the effective date determined in accordance with Schedules 1, 2, 3 and 3A to the Act upon which the person was or should have been registered, and the said period shall begin on that date;
(c)	where the Commissioners consider it necessary in any particular case to vary the length of any period or the date on which any period begins or ends or by which any return shall be made, they may allow or direct any person to make returns accordingly, whether or not the period so varied has ended;
(d)	…..
(2)	….
(3)	….
(4)	Any person who – 
(a)	ceases to be liable to be registered, or
(b)	ceases to be entitled to be registered under either or both of paragraphs 9 and 10 of Schedule 1 to the Act [voluntary registration of a trader who is not liable to be registered],
shall … make to the Controller a final return on the form numbered 5 in Schedule 1 to these Regulations (“Form 5”) and any such return shall contain full information in respect of the matters specified in the form and a declaration, signed by him, that the return is true and complete and shall be made, in the case of a person who was or is registered, within one month of the effective date for cancellation of his registration, and in the case of any other person, within one month of the date upon which he ceases to be liable to be registered, and in either case shall be in respect of the final period ending on the date aforementioned and be in substitution for the return for the period in which such date occurs. 
Thus the scheme of regulation 25 is that a VAT return must be made in respect of each quarter, that return to be submitted no later than the end of the month following the end of that quarterly period, but the Commissioners are given a discretion to vary the length of the period to which the return relates or the date on which the period begins or ends, or the date by which the return for a period must be made.  Special rules apply (regulation 25(4)) in the case of a “final return”, that is, the return made when a registration is cancelled or when a person who was or is not registered ceases to be liable to be registered.
16.	The relevant provisions in the Principal VAT Directive are as follows:
Article 252
1	The VAT return shall be submitted by a deadline to be determined by Member States.  That deadline may not be more than two months after the end of each tax period.
2	The tax period shall be set by each Member State at one month, two months or three months.  Member States may, however, set different tax periods provided that those periods do not exceed one year.

Article 273
Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transaction carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.
(In the Sixth Directive the corresponding provisions – in virtually identical terms – are to be found in Article 22. 4(a) and Article 22.8 respectively.)
The Appellant’s submissions
17.	Mr Hitchmough, for the Appellant, presented a detailed and carefully argued case which it is necessary to set out at some length.  He contended that the Assessment is illegal, since it was made for a period exceeding 12 months and therefore was contrary to the provisions of Article 252.  He further contended that the Assessment is invalid, since it was issued for the wrong VAT period – ELL ceased to be liable to be registered for VAT when it ceased trading on the sale of the Assets on 30 June 2004, so that the only VAT period for which an assessment could validly be made is the period 1 June 2004 to 30 June 2004.
18.	On the assumption made for the purposes of deciding the preliminary issue (namely, that ELL made a taxable supply on the sale of the Assets on 30 June 2004 which caused it to be liable to be registered), then it is common ground that ELL should have registered on, or with effect from, 1 June 2004.  The Appellant argues that ELL ceased to be liable to be registered on the sale of the Assets on 30 June 2004, as that was the time at which it ceased trading and therefore ceased to make taxable supplies (see paragraph 3 of Schedule 1 to VATA 1994); furthermore, ELL at that time ceased to be entitled to be registered on a voluntary basis under the provisions of paragraph 9 of Schedule 1 to VATA 1994 since it was then no longer making taxable supplies.  ELL having ceased on 30 June 2004 to be both liable to be registered and also entitled or eligible to be registered, paragraph 13 of Schedule 1 to VATA 1994 applies so that cancellation of the registration must have effect as from 30 June 2004, the date of cancellation specified by the Appellant in its VAT Form 7 [Cancellation of VAT registration].
19.	The date on which cancellation of the registration properly has effect is crucial to the application of regulation 25: the basic rule requires quarterly VAT periods, the first of which must begin with the date on which the trader was or should have been registered (1 June 2004 in the Appellant’s case).  The Commissioners have discretion, by paragraph (1)(c) of regulation 25, to increase that quarterly period, but it cannot be correct that they can use that discretion to extend the period beyond the date when the trader has ceased to be liable to be registered and can no longer be eligible to register voluntarily, that is, beyond the date when the registration must be cancelled.
20.	Furthermore, that discretion in paragraph (1)(c) of regulation 25 is subject to the terms of paragraph (4) of regulation 25, which relate to the final return made by a trader who ceases to be liable to be registered and specifies the period for which the return must be made.  That final return is in substitution for what would otherwise be the “normal” quarterly return.  Regulation 25(4) deals with two situations: first “the case of a person who was or is registered” – in such a case the final return must be made “within one month of the effective date for cancellation of his registration” and must be “in respect of the final period ending” on that date; secondly, “the case of any other person” – in such a case the final return must be made “within one month of the date upon which he ceases to be liable to be registered” and must be “in respect of the final period ending” on that date.  ELL is in the second of these situations, because it was not in fact registered for VAT until the certificate of registration was issued in April 2007, and so when regulation 25(4) was first engaged, which was when ELL ceased to be liable to be registered (on ceasing trading), ELL was not a person who then “was or is registered”.  It follows that ELL is in the situation of “any other person”, so that the final return must be made, in its case, in respect of the final period ending on the date it ceased to be liable to be registered, namely 30 June 2004.  Regulation 25(4) is designed to give finality, and this it achieves by specifying that the final period ends at the point the taxpayer ceases to be liable to be registered.  
21.	Mr Hitchmough acknowledged that (applying the assumptions made for the purpose of hearing the preliminary matter) it was ELL’s default which took it outside the category of the person “who was or is registered” and that ELL might be seen to be benefiting from that default, but he referred to the case of HMRC v Enron Europe Ltd (in administration) [2006] STC 1339 where the court had been compelled to hold that an assessment was invalid as being out of time by applying the relevant provisions notwithstanding that the taxpayer had delayed providing relevant information.
22.	The Appellant also argued, with respect to regulation 25(4), that even if (as the Commissioners contended) ELL was in the first situation contemplated by the provision (that is, was “a person who was or is registered”), then since it ceased to make taxable supplies following the sale of the Assets on 30 June 2004 and had no intention of making further taxable supplies, it was at that time not liable to be registered and not eligible for voluntary registration.  Therefore any cancellation of its registration should have been effective from 30 June 2004, with the consequence that the final return should have been for the period ending on that date: that would have been an outcome consistent with the facts.
23.	The Appellant further submitted that the Assessment is illegal, since it is made for a VAT period of 34 months, and the Principal VAT Directive, by Article 252, prohibits any VAT period exceeding 12 months.  Since Article 252 is a provision which is clear, unconditional and precise it confers on the Appellant a directly effective right which may be asserted in a national court to oppose national rules which are incompatible with the Directive provision (see JP Morgan Fleming Claverhouse Investment Trust plc v HMRC (Case C-363/05) [2008] STC 1180; Balocchi v Ministero delle Finanze (Case C-10/92) [1997] STC 640).
24.	Mr Hitchmough accepted that the decision of the Court of Appeal in the case of Bjellica (trading as Eddy’s Domestic Appliances) v CCE [1995] STC 329 holds that a VAT assessment may be validly made for a period exceeding one year (in that case, twelve and a half years): in the Bjellica case the 12 month limitation on a VAT period specified in what is now Article 252 was held, on a construction expressed to be to give effect to the general purpose of the Directive, to be subject to the general right conferred on Member States by Article 273 to “impose other obligations which they deem necessary to ensure the correct collection of VAT”.  On that construction the Court of Appeal held that the Commissioners could validly impose as such an obligation the requirement that a person should submit a return for an extended period in special circumstances where they deemed that necessary to ensure the correct collection of VAT, as had been found to be the circumstances in that case.  
25.	However, Mr Hitchmough invited us not to follow the decision of the Court of Appeal in the Bjellica case on the grounds that it is per incuriam, being inconsistent with earlier decisions of the European Court (which were not cited to the Court of Appeal) and also inconsistent with subsequent decisions of the European Court.  In particular, the Court of Appeal was not taken to the Balocchi case, where national provisions relating to interim payments of VAT were held to be incompatible with express Directive provisions dealing with that matter, and there was no suggestion by the European Court that what is now Article 273 gives a Member State the right to impose requirements contrary to an express Directive provision – in Mr Hitchmough’s submission the proper approach (rejected by the Court of Appeal) is that “other obligations” referred to in Article 273 must be obligations of a nature not specifically dealt with in an express Directive provision.  This was the approach of the European Court in the case of Léa Jorion v Belgian State (Case C-123/87) (which also was not cited to the Court of Appeal), where the Court states (at paragraph 15): “Article [273] is a special provision limited to the specific area of taxpayers’ obligations and only relates to the right of Member States to lay down obligations other than those provided for in the Directive.”
26.	Mr Hitchmough argued that even if the Bjellica case were correctly decided, later decisions of the European Court such as Eismann Alto Adige Srl v Ufficio IVA di Bolzano (Case C-217/94) [1996] STC 1374 and CCE v Federation of Technological Industries (Case C-384/04) [2006] STC 1483 have made it clear that Article 273 permits a Member State to impose “other obligations” in relation to the payment of tax, or tax compliance, only where those obligations are of a kind not otherwise provided for in the Directive.  
27.	In summary, therefore, the European jurisprudence makes it clear that Article 273 cannot be used as authority for the United Kingdom to confer on the Commissioners the power to require a VAT return for a period exceeding one year, since that is contrary to the express limitation on the VAT return period specified in Article 252.
28.	As a secondary submission on the Bjellica case Mr Hitchmough argued that Article 273 permits a Member State to impose “other obligations” only where it is “necessary” to ensure the correct collection of VAT.  In the Bjellica case the tribunal had found as a fact that it was “necessary” for the period of the VAT return to be extended to twelve and a half years, and on that finding of fact the Court of Appeal held that the Commissioners were entitled to look to Article 273.  
29.	In the present appeal, in Mr Hitchmough’s submission, it was not “necessary” to specify a 34 month return period in order to assess and collect the VAT in question.  It would have been possible for the Commissioners to have registered ELL with effect from 1 June 2004, with the first quarterly period running from that date, and then to have made an assessment for that first quarter and nil assessments for each subsequent quarter until the Commissioners cancelled the registration at the end of April 2007.  The rules which limit the right for Commissioners to make back assessments would not, on the facts, have prevented such a course of action:  they were in possession of all the evidence of the facts by 29 March 2006, when copies of board minutes of the relevant transactions were supplied to them by the Appellant, and the decision letter from the Commissioners relating to the substantive appeal was sent on 21 December 2006.  The Commissioners could have made a series of sequential assessments within the prescribed time limits had they acted with a reasonable degree of expedition.  Accordingly, they cannot argue that, on the facts of this case, it was “necessary” for the collection of the VAT due that a period in excess of 12 months should be assessed.  On these grounds the Appellant’s case is to be distinguished from that of the taxpayer in the Bjellica case.
The Commissioners’ submissions
30.	Mr Collins, for the Commissioners, submitted that it is essential to differentiate between those situations and provisions which deal with, or impose, a liability to pay VAT and those (as in the present case) which deal with the collection of VAT when a liability has arisen.  Once that is seen as the context of the relevant provisions it is clear that the Assessment is neither unlawful nor invalid.
31.	As to the illegality argument advanced by the Appellant by reference to the Directive provisions and the European jurisprudence, he submitted that the Bjellica case was correctly decided and remains a binding decision on the tribunal as to the compatibility of the domestic provisions with Articles 252 and 273.  He accepted, as did the Court of Appeal, that Article 252 is directly effective – were it not so it would not have been necessary for the court to look at Article 273.  But a directly effective provision does not preclude a Member State from applying a discretion which vitiates the directly effective provision if that discretion is permitted, as is the case with Article 273: Article 252 is directly effective where the Member State cannot rely on Article 273.  Viewed in this way the decision in the Bjellica case is entirely consistent with the decision in the earlier Balocchi case.
32.	Those provisions in the Directive dealing with the collection of VAT (in the Sixth Directive grouped in Article 22, and of which what are now Article 252 and Article 273 of the Principal VAT Directive form part) set out the framework rules which apply in the ordinary course, but in what is now Article 273 there is discretion given to the Member State to require a trader to comply with other requirements where that is deemed necessary – that is how the Court of Appeal construed the relevant provisions as a consistent and workable code.  This approach is also taken in the European jurisprudence (see, for example, the opinion of Advocate General Elmer at paragraph 29 in the Eismann case (at p 1382)).  Where the situation is one of liability, rather than collection (as with the Balocchi case, which deals with making interim payments before the amount of actual tax due is known, and as with the Federation of Technological Industries case, which deals with the giving of security for the payment of tax on a joint and several liability basis), the European Court will not allow Article 273 to be used to extend the liability to pay tax beyond what is expressly provided for elsewhere in the Directive: see, for example, the statement in paragraph 37 of the opinion of Advocate General M Poiares Maduro in the Federation of Technological Industries case (at p 1495).  That is not, however, relevant to the Appellant’s case, which is concerned with the collection of VAT which the Appellant is liable to pay.
33.	As to the Appellant’s secondary argument that, in order to impose “other obligations”, it must be necessary to do so in order to ensure the correct collection of VAT, that is not the right question – Article 273 is in terms of what the Member State deems to be necessary, so that there is an element of discretion or margin conferred on the Member State.  It makes administrative sense (and is a legitimate exercise of discretion) in a case such as this where the taxable person is in default, and where there is no question as to the amount of tax payable or the date when the tax fell due, to have a single, extended, return period rather than the series of pointless quarterly returns and assessments which the Appellant contends for.
34.	In considering regulation 25 and the question of the validity of the Assessment under the domestic provisions, it is also important to have in mind that these are provisions dealing with the collection of VAT for which the taxable person is liable.  It is common ground (assumed for the purposes of determining the preliminary matter) that ELL was liable to register on 1 June 2004, and the Commissioners accept that it was no longer liable to be registered by 30 June 2004.  The issue, however, is when ELL ceased to be registrable, for cancellation of registration can take place only from that date: paragraph 13(2) of Schedule 1 to VATA 1994.  If there was the possibility that ELL might continue to trade it remained registrable, and that was the view the Commissioners took, in the absence of evidence to the contrary.  Following the sale of ELL out of the Appellant’s group the purchaser requested that ELL should be registered as a member of its VAT group, and at that point ELL’s registration was cancelled from the end of April 2007, the Commissioners taking such action pursuant to paragraph 13(1) of Schedule 1 to VATA 1994.
35.	Therefore, for the purposes of regulation 25(4), the case of ELL is that of “a person who was or is registered” (and not, as the Appellant contends, that of “any other person”), so that its final return falls to be made within one month of the effective date for cancellation of registration, which is the basis of the return on which the Assessment has been made.
36.	Therefore the Commissioners were correct to register ELL with effect from 1 June 2004 and were correct to cancel that registration with effect from 30 April 2007.  The final return made under regulation 25(4) was validly made within a month of the effective date of cancellation of the registration, and the resulting Assessment was made for the correct VAT liability arising in that period.
Decision
Introduction
37.	This is a matter of some complexity.  It is also a matter of significance beyond the present appeal: Mr Collins told us that the procedures adopted in this case are routinely applied by the Commissioners when they make assessments on taxable persons who should have registered but have failed to do so.
38.	On balance we are persuaded by the arguments advanced by Mr Collins as to both the legality of the Assessment and its validity.  We determine that the Commissioners were not precluded by law from making the Assessment based upon a return for a period exceeding 12 months (in this case, 34 months), and that, in the circumstances of this case, they correctly applied the regulations by making the Assessment under section 73 VATA 1994 based on a final return for the period 1 June 2004 to 30 April 2007, ELL having failed to make such a return itself by 31 May 2007 for that period.  The Appellant’s appeal in relation to the preliminary matter therefore fails.
39.	In this case relating to the determination of the preliminary matter the underlying facts in relation to the disputed Assessment, including the amount of VAT due, are taken as agreed between the parties.  The Appellant does not argue that the VAT liability in question does not arise, nor does it question the Assessment other than in relation to the period for which it is made and the date by reference to which it was made (and hence, implicitly, whether it was made out of time).
40.	The starting point in this case is that ELL is in default: it should have registered for VAT purposes with effect from 1 June 2004, and failed to do so (that is the agreed assumption for the purposes of determining the preliminary matter – if the matter proceeds to a hearing of the substantive issue it will, of course, be the Appellant’s case that it was not required to register for, or pay, VAT).  All that followed did so as a result of that failure in compliance on the part of ELL: had it properly registered for VAT shortly after the end of June 2004 the “normal” procedures would have followed as a matter of course, with ELL making a quarterly return covering the period in which the Assets were sold and paying VAT in respect of such sale; the eventual cancellation of ELL’s registration would have occurred when ELL satisfied the Commissioners that it was no longer liable to be registered.  Of course, the fact that ELL was in default does not give the Commissioners carte blanche to assess ELL without regard to the applicable rules, but it gives the context in which those rules are to be understood and applied at the practical level.
41.	Also, by way of context, we accept the distinction (most significant in approaching the legality issue) made by Mr Collins between provisions which relate to the determination of liability to pay VAT and those which relate to the collection of VAT which is liable to be paid.  Again, simply because, as is assumed in this case, VAT is liable to be paid that does not entitle the Commissioners to disregard the rules as to how that VAT is properly collected, but as a matter of approach one might expect to find conferred on the Commissioners a degree of flexibility or discretion in matters relating to collection and other administration which would not necessarily be available in matters determining liability.
The legality issue
42.	Turning first to the legality issue, the question is whether, as the Appellant argues, Article 252 confers on the Appellant an inviolable right to require that it is assessed only in relation to returns for periods which do not exceed one year, or whether, as the Commissioners argue, that right is subject to any limitations which the United Kingdom has imposed in domestic legislation (that is, by regulation 25(1)(c)) which the United Kingdom has deemed necessary to ensure the correct collection of VAT.  Both parties agree that Article 252 confers on the Appellant a directly effective right: the Commissioners argue that such right is restricted if and to the extent that the United Kingdom imposes an obligation as to collection under the authority of Article 273; the Appellant argues that this is tantamount to denying such right to the Appellant or other taxpayers in any meaningful sense.
43.	This exact issue, by reference to the corresponding provisions in the Sixth Directive, was considered by the Court of Appeal in the Bjellica case.  It was held that a notice of assessment issued by the Commissioners (where the taxpayer had failed to register, and, in consequence, make any returns) covering a period of twelve and a half years did not infringe any provisions of the Sixth Directive since the “other obligations” which the Commissioners could impose under what is now Article 273 could extend to obligations requiring a return for a period exceeding 12 months where they deemed it necessary to ensure the correct collection of VAT.  The Court of Appeal reached this conclusion on a purposive construction of the Directive provisions.
44.	We consider this decision to be binding upon us.  Mr Hitchmough urged us to regard it as bad law, being inconsistent with previous and later decisions of the European Court of Justice, but we were not persuaded on that point.  
45.	First he placed reliance on the Balocchi case, which concerns Italian law provisions requiring the taxpayer to make interim payments (monthly or quarterly) on account of VAT for a return period of one year.  The taxpayer claimed that the effect of the provisions was to require him to pay VAT before he had supplied the services giving rise to the VAT, since in his business trade was seasonal (and concentrated at the end of the yearly return period) and payments on account over the year were on a level basis, so that in effect he was paying VAT in advance.  The European Court held that the provisions of what is now Article 252 confer a directly effective right on individual taxpayers to oppose national rules which are incompatible with those provisions.  Mr Hitchmough argued that had this decision been cited to the Court of Appeal they would have reached a different decision, given the unconditional and precise terms of Article 252.  However, the direct effect of Article 252 was argued before the Court of Appeal and, it would seem, was implicitly accepted, since the court would not otherwise have considered whether the terms of Article 252 must be taken as limited by the “other obligations” which may be imposed under the authority of Article 273.  It was this latter point which was of concern in the Bjellica case, namely the ability of the Member State to limit the taxpayer’s rights under Article 252 by a discretionary provision validly imposed under the authority of Article 273 – or, as Mr Collins put it, the ability of the Member State to impose a different obligation.
46.	What is clear is that the Balocchi case is not concerned with the interaction between Article 252 and Article 273, dealing as it is with interim payments – the issue is whether national provisions requiring interim payments conflict with a Directive provision that VAT is to become payable when the goods are delivered or the services supplied.  The European Court’s concern in the case is to ensure that a “collection” provision (there is a provision authorising interim payments in the Article dealing with “collection” matters) is not used by a Member State to introduce arrangements which effectively override the clear liability provision that tax should not be paid in advance of the making of the supplies on which the tax is charged.
47.	Therefore we do not find that the Balocchi case entitles us to disregard the decision of the Court of Appeal in the Bjellica case.
48.	The Eismann case concerns a requirement imposed domestically under Italian law as to the documents which the taxpayer must hold to accompany the transport of goods within Italy (but not where the goods were to be transported across frontiers).  It is not concerned with Article 252, but is concerned with what is now Article 273.  The taxpayers’s case was that the obligation imposed by the Italian state for such documents in domestic transactions was contrary to Article 273 in that it was an obligation which infringed the requirement of equal treatment as between domestic and cross-border transactions.  The taxpayer did not succeed, the European Court holding that the harmonisation principle, which was the aim and context of the legislation, was directed at regulating trade between Member States, rather than harmonising the formalities of internal or domestic provisions and transactions.  Accordingly, Article 273 did not prevent the Italian state from imposing more rigorous documentary requirements in the case of domestic transactions than it imposed in the case of cross-border transactions.
49.	It seems clear that the Eismann case is principally concerned with the second part of Article 273, that is, the limitation (by reference to equal treatment of domestic and cross-border transactions) on the scope which a Member State has to impose “collection” obligations.  However, both the Appellant and the Commissioners relied on the following paragraph in the opinion of the Advocate General in the case:
“29.	I think the first part of [Article 273] shows clearly that as regards VAT there is no intention to regulate exhaustively in Community law the formal requirements which may be imposed for the purposes of collection and control.  The provision specifically provides that the member states may impose ‘other obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion’.  These questions are thus still left basically to the member states.” [at p 1382]
The Appellant argues that implicit in this statement is the reasoning that the Directive lays down the bare minimum as to collection and control matters, which Member States can supplement, but the other obligations they may impose must be by way of supplement, and not by way of changing or overriding what is provided for in that bare minimum specified in the Directive.  The Commissioners argue that the statement indicates that in matters of collection, so long as they relate to domestic transactions, Article 273 gives Member States a wide discretion to impose requirements where they consider that necessary for correct collection or to prevent evasion.
50.	We cannot see that there is any clear principle to be drawn from this statement in the Advocate General’s opinion.  More to the point, the whole context of the case is the scope of the equal treatment limitation imposed by the second part of Article 273 – the general right of the Italian State to impose the obligation in question under the authority of Article 273 is not at issue, and therefore the case is not concerned with the nature or scope of the obligations which can be so imposed.  Any statements made as to the general scope of Article 273 are therefore no more than by way of giving introduction or context to the matter in dispute in this case.  We cannot see that there is anything in the Eismann case which leads us to the conclusion that the Bjellica case is now not good law.
51.	The Federation of Technological Industries case concerns UK legislation introduced to give the Commissioners powers to require a taxable person to provide security for VAT due from certain third parties with whom the taxable person traded, and also powers to render a taxable person jointly and severally liable for VAT on supplies made by other persons in relation to goods of which the taxable person had had ownership.  The appellants in the case argued that such legislation was incompatible with Community law.  In part the argument of the Commissioners, as respondents in that case, was that what is now Article 273 authorised the legislation, since it related to the collection of VAT and the prevention of evasion.
52.	The European Court ruled that Article 273 does not allow a Member State to enact legislation which imposes on a taxable person joint and several liability for the VAT liability of others in a chain of transactions, since the Directive provisions relating to the collection of VAT (of which Article 273 forms part) do not extend to determining who is liable to pay VAT: the Directive has specific provisions which determine when a person may be made liable for the VAT of another, and the discretion which Article 273 confers in its scope is limited to matters of payment – which includes the requirement for security where a person has been made jointly and severally liable for VAT in accordance with the specific Directive provisions dealing with liability.
53.	The decision of the European Court therefore is not directly in point for the issue in the Bjellica case or this appeal: the “other obligations” which a Member State may impose which they deem necessary to ensure the correct collection of VAT under the authority of Article 273 cannot extend beyond ensuring payment of VAT which is liable to be paid, and in particular cannot be used to impose a liability to tax which is not otherwise allowed by the Directive.  The decision is not concerned with the question of whether such “other obligations” can vary or override other specific Directive provisions relating to the collection of tax.
54.	However, Mr Hitchmough did rely on the following statement in the judgment of the Court, at paragraph 43:
“Article 22(8) of the Sixth Directive permits member states to impose on persons liable for VAT, and on persons declared jointly and severally liable to pay it, determined under art 21 of that directive, obligations, other than those provided for in the preceding paragraphs of art 22, such as that of providing security for the payment of the VAT due, which they deem necessary for the collection of that tax and for the prevention of evasion.” [at p 1504]
(Article 22(8) of the Sixth Directive corresponds to Article 273, and the reference to Article 22 is to those provisions in the Sixth Directive which deal with the collection of VAT, including the provision which corresponds to Article 252.)
55.	This does not seem to us to be a clear statement of the principle for which the Appellant contends.  The UK legislation in regulation 25 which permits the Commissioners to require a return for a period in excess of one year is, in one sense at least, an obligation other than that provided for in Article 252, since Article 252, in so far as it can be said to be providing for an obligation, specifies tax periods not exceeding one year.  The Appellant is arguing that, to fall within the “other obligations” scope of Article 273, the obligations in question must be different in nature from those dealt with in Article 252 and (presumably) the other Directive provisions dealing with collection.  The European Court does not go that far, and of course there is no reason why it should, since the case is not concerned with the relationship between Article 273 and the remaining Directive provisions relating to the collection of VAT due.
56.	Similarly, in the Léa Jorion case (which was concerned with the right for the Belgian State to impose requirements as to information included in an invoice as a condition for claiming input tax), the reference in the judgment in that case to the Article 273 provisions does not define the limitations or scope of the “other obligations” which may be imposed, except to say what is self-evidently the case, namely that they must be obligations other than those provided for in the Directive.  In that case the European Court held that Article 273 gave the Belgian State authority to impose invoice requirements additional to those invoice particulars set out in the Directive itself, provided that the inclusion of the additional requirements was deemed necessary for the correct levying of VAT and to permit supervision of the collection of VAT.  It was implicitly accepted that Article 273 can be used to impose obligations in an area (invoice particulars) which is dealt with specifically by the Directive, albeit, on the facts of the case, by imposing additional requirements rather than alternative requirements.
57.	For this tribunal to proceed on the basis that the decision of the Court of Appeal in the Bjellica case is per incuriam and must therefore be disregarded, it must be the case that the decision is demonstrably wrong because it was given in ignorance of a decision to the contrary effect in an authority binding on the court.  We do not consider that the European Court decisions on which the Appellant relies clearly lead to the conclusion that, had they been cited to the Court of Appeal, the court must have decided the Bjellica case differently.  We therefore conclude that we cannot disregard the decision of the Court of Appeal, and are bound by it.  We therefore decide that the Commissioners could lawfully require a VAT return to be made for a period of 34 months, so that the Assessment is not, for that reason, illegal.
58.	The Appellant’s secondary submission on the illegality point was that, even if Article 273 permits the Commissioners to assess the Appellant by reference to a period of 34 months, they can do so only if such action is necessary to ensure the correct collection of VAT.  The Appellant argued, as outlined above, that in the present case it was not so necessary, as the Commissioners, had they acted with a degree of expedition, could have assessed the Appellant with a series of assessments based on sequential three-month return periods.
59.	As Mr Collins rightly pointed out, the precise language of Article 273 is to allow Member States to impose “other obligations which they deem necessary”.  This formulation is reproduced in regulation 25(1)(c), which states, “where the Commissioners consider it necessary in any particular case to vary the length…”.  Thus it is not an objective test of necessity but, it would seem, a question of the reasonableness of the Commissioners in coming to the view that the extended return period was necessary to ensure the correct collection of the VAT due from ELL.  Applying Wednesbury principles, the decision of the Commissioners can be impugned only if no body of Commissioners acting reasonably could have reached the view that an assessment based on a 34 month return period was necessary to collect the tax due in this case.
60.	We suffered the same disadvantage on this question as the tribunal in the Bjellica case (Bjellica (trading as Eddy’s Domestic Appliances) v CCE [1991] BVC 754), where no evidence was given as to the decision process.  We have the Appellant’s assertion (not disputed by the Commissioners at the hearing) that a series of assessments based on quarterly returns could have been made within requisite time limits had the Commissioners moved swiftly to act on information provided to them.  We have the Commissioners’ submission that it is administratively a pointless and inconvenient exercise for both parties to require a series of nil assessments when exactly the same result is achieved by a single assessment for an extended return period.
61.	We agree with the Commissioners that they have a measure of discretion in this matter.  That discretion is exercised in the context of what is required to ensure the correct collection of tax due.  In the present case it is also exercised in the context of a taxable person who has failed to register for VAT when it should have done so, and where, some considerable length of time after the VAT has become due and should have been paid, the Commissioners are taking action to ensure that that VAT will be collected.  The Appellant has not suggested that the Commissioners had some purpose in mind in exercising their powers other than the collection of the tax due, nor that extraneous factors influenced their decision.  We cannot conclude in these circumstances and in this particular case that the Commissioners acted unreasonably in deciding that it was necessary so as to ensure the correct collection of VAT that a return of 34 months should be stipulated.
62.	It is our decision, therefore, that the Assessment was lawfully made.
The validity issue
63.	We now turn to the issue of whether the Assessment was valid in terms of being made in compliance with the regulations governing such matters.
64.	The parties argued their respective cases principally in relation to regulation 25(4), but it is necessary first to look at the provisions in Schedule 1 to VATA 1994 dealing with registration and cancellation of registration as they apply in this case.  
65.	The parties are in agreement that (for the purposes of deciding this preliminary matter) ELL was liable to be registered on 1 June 2004, and that the Commissioners were correct in registering it with effect from that date under paragraph 6 of Schedule 1 to VATA 1994.  They are also in agreement that, following the sale by ELL of the Assets on 30 June 2004, it ceased to be liable to be registered, as provided by paragraph 3 of Schedule 1 to VATA 1994.  The parties are also in agreement that a person may cease to be liable to be registered, but nevertheless may still be registrable (that is, eligible to be registered), if he makes taxable supplies or is carrying on a business and intends to make such supplies, under the voluntary registration provisions of paragraph 9 of Schedule 1 to VATA 1994.
66.	Cancellation of registration is dealt with by paragraph 13 of Schedule 1 to VATA 1994.  Two situations are provided for: where the registered person satisfies the Commissioners that he is not liable to be registered; and where the Commissioners are satisfied that the registered person has ceased to be registrable.  In the former case the registration is cancelled upon the request of the registered person with effect from the date of the request or a later date agreed between that person and the Commissioners; in the latter case the Commissioners have the right to cancel the registration with effect from the date on which that person ceased to be registrable or from a later date agreed between that person and the Commissioners.
67.	The Commissioners argue that ELL’s case fell within the first of these situations:  ELL requested to be deregistered following its sale by the Prudential group, the Commissioners were satisfied that it was not then liable to be registered, and registration was cancelled with effect from an agreed date after the request.  They point out that there is no latitude, in this situation, to cancel registration with effect from a date prior to that on which the request is made, and that accordingly 30 April 2007 is the correct effective date for cancellation of ELL’s registration.  They argue that ELL’s case did not fall within the second situation: they were not satisfied that at any point prior to 30 April 2007 ELL had ceased to be registrable, since it was not certain that ELL was not carrying on a business and did not have an intention to make taxable supplies (which would make it eligible for voluntary registration) – at best the Commissioners had the statement of Mr Devlin in August 2005 in reply to their query on the point: “I am not aware of any current intention that ELL will trade again.”
68.	We agree that the registration of ELL was properly cancelled on 30 April 2007 on the basis that it was then not liable to be registered and a request for cancellation of its registration was made on that date (or prior to that date, but the parties agreed upon that date as the date for cancellation).  The Commissioners acted within the terms of paragraph 13(1) of Schedule 1 to VATA 1994, which requires them to cancel the registration, upon request, once they are satisfied that that the registered person is not liable to be registered.  Such cancellation cannot be back-dated in its effect prior to the date of request.  In particular, it does not take effect from the date that the registered person ceases to be liable to be registered (which the parties agree is 30 June 2004).
69.	By contrast the cancellation procedure under paragraph 13(2) of Schedule 1 to VATA 1994, the second situation described above, is discretionary: first, the Commissioners have to be satisfied that the registered person has ceased to be registrable, and then they “may” cancel his registration.  If they do so, cancellation is effective from the day he ceased to be registrable or a later agreed date.  ELL made its corporation tax returns on the basis that it was a dormant company, and in correspondence on this issue Mr Devlin made his statement as to the current intention.  Those circumstances and that evidence do not compel the Commissioners to cancel ELL’s registration: first, the evidence is not unequivocal on the question of whether ELL was still carrying on a business and intended to make taxable supplies in the course of that business (or, as Mr Collins put it, the Commissioners are entitled not to be satisfied on that point by such evidence); and secondly, even if the Commissioners were, or should have been, satisfied that ELL had ceased to be registrable, it is still a matter of their discretion as to whether to cancel the registration for this reason.  In the context of an enquiry as to the failure of a company to comply with its obligations to register for VAT and therefore to pay VAT for which it has become liable (even where the company is arguing it has grounds for its action) it is not unreasonable for the Commissioners to proceed with care and to err on the side of caution when exercising a discretion.
70.	We therefore turn to regulation 25(4) in the context that ELL was registered (and correctly registered) for VAT with effect from 1 June 2004 until 30 April 2007.
71.	Regulation 25(4) is set out above.  It deals with the final return which must be submitted by a taxable person, specifying when such a return must be made, and the period for which it must be made.  
72.	In summary, the Appellant argued that the key date is the date upon which it ceased to be liable to be registered (so that the final return must be made within one month of that date, and the final period for which the return must be made is the period ending on that date) – this is so because, in the terms of regulation 25(4), ELL’s case is that of a person other than one “who was and is registered” at the time it ceased to be liable to be registered.  On the facts, the Appellant argued, ELL ceased to be liable to be registered immediately after the sale of the Assets on 30 June 2004, that being the time at which the Commissioners must be taken as being satisfied that ELL had ceased to make taxable supplies, which, applying paragraph 3 of Schedule 1 to VATA 1994, is the date it ceased to be liable to be registered.
73.	The Commissioners argued that, for regulation 25(4) purposes, ELL’s case is that of a person “who was or is registered”, so that the key date is the effective date for cancellation of its registration, 30 April 2007, (so that the final return was due on 31 May 2007 for the period beginning 1 June 2004 and ending 30 April 2007).
74.	As Mr Hitchmough expressed it, the first point in time at which regulation 25(4) becomes relevant, or is engaged, is 30 June 2004, being the date ELL ceased to be liable to be registered.  At that point ELL was not a person who “was or is registered” – because of its failure to register it did not in fact become registered until 5 April 2007, when the Certificate of Registration was issued (albeit with an effective date of 1 June 2004).  Therefore ELL falls into the “other person” category as a matter of fact at that time.  Mr Hitchmough argues that once regulation 25(4) has been engaged it must be applied by reference to the circumstances at that time – it cannot be re-engaged later by reference to circumstances (a back-dated registration) which occur later.  He justifies this approach on the basis that the rules relating to final returns are designed to give certainty and finality to the compliance process, and for the person who has not been registered this is achieved by ensuring finality by reference to the date on which he ceases to be liable to be registered, that is, when he is no longer within the scope of the tax.
75.	We do not consider that regulation 25(4) should be read in such a narrow way – in particular, we do not see that it is required that it should be applied exclusively to the first occasion by reference to which it becomes relevant, or is first engaged.  As we have said, the context is, first, that of a taxpayer who has failed to comply with its registration obligations (and, in consequence, its obligations to pay VAT), and secondly, that of provisions which relate to the collection of VAT which is due to be paid rather than provisions which deal with liability to pay VAT.  The relevant provisions should be read and applied with that context in mind.  
76.	ELL is, we are to assume, a person who was liable to be registered with effect from 1 June 2004 and who is liable to pay an agreed amount of VAT.  ELL was in due course registered with effect from 1 June 2004.  That registration was cancelled with effect from 30 April 2007.  The scheme of the final return provisions works logically and fairly if the final return is made for the period ending with the effective date for cancellation of registration, so that it covers the period up to the point at which the taxable person is deregistered and ceases to have any possibility of being liable to VAT.  This is so both for the person who complies with his obligations and registers in the normal way and for the person who fails to comply and is registered by the Commissioners at a later date, even if by then he has ceased to be liable to be registered (but is still eligible to register, so that his registration has not been cancelled).  ELL was correctly (if, by reason of ELL’s default, belatedly) registered, and there is no reason in logic or fairness to apply regulation 25(4) in a way which ignores that fact.  It places no strain upon the language of regulation 25(4), nor upon the scheme of its provisions, to apply it to ELL as a person who “was or is registered”.  ELL may wish that its registration had been cancelled at an earlier date, but that is a matter which lay in its own hands: had it registered it could, at an earlier date, have requested cancellation under paragraph 13(1) of Schedule 1 to VATA 1994 on the grounds that it had then ceased to be liable to be registered.
77.	We therefore determine that the Commissioners complied with the provisions of regulation 25(4) in making the return in respect of the final period, being the period beginning on 1 June 2004 (the effective date of ELL’s registration) and ending on 30 April 2007 (the effective date for cancellation of ELL’s registration).  The Assessment is made by reference to the return for that final period and is therefore valid.
78.	We decide this preliminary matter in favour of the Commissioners.
Costs
79.	At the hearing Mr Collins asked that, should they be successful, the Commissioners be allowed to reserve their position as to costs until the substantive appeal is determined.  We therefore make no order as to costs against the Appellant at this stage.
80.	Mr Hitchmough pointed out that the Appellant had incurred costs in preparing its case in respect of the alternative assessment which, shortly before the hearing, the Commissioners indicated they no longer wished to argue (see paragraph 4 above).  He requested an order for the Commissioners to pay those costs of the Appellant, on the basis of those costs directly attributable to preparing the appeal against the alternative assessment and one-half of the costs which were not directly attributable to either the appeal against the alternative assessment or the appeal against the Assessment.  In reply, Mr Collins said that the Commissioners were prepared to pay the Appellant’s costs on the normal basis directly attributable to the alternative assessment and a portion of the costs of the Appellant’s appeal which could not be directly attributed to either assessment, but that it would not be fair at this stage for there to be a costs order which to any extent extended to the costs relating to the substantive issue since that has yet to be determined.  In his submission the greater part of the costs of the Appellant were likely to relate to the substantive issue, and therefore the Appellant’s proposal for one-half of the “non-attributable” costs would not be reasonable.
81.	We order that the Commissioners pay the costs of the Appellant attributable to its preparation of the appeal against the alternative assessment, that is to say, those reasonable costs of the Appellant which the Appellant would not have incurred had the Commissioners not made the alternative assessment.  If the parties are unable to agree such costs the matter will be referred back to the tribunal for it to determine or to make a direction that such costs be taxed.
Directions for the hearing of the substantive issue
82.	It follows from our decision in the preliminary matter that the Appellant’s appeal will proceed to a hearing of the substantive issue.  As mentioned at the outset, the parties wish that such hearing is stood over until the decision of the European Court of Justice is given in another case which may have a bearing on the substantive issue.
83.	We therefore make the following directions:
(1)	The parties shall inform the tribunal office in writing within one month of the publication of such decision of the European Court of Justice whether they intend to proceed with the appeal (or, if later, within one month of the final determination of this preliminary matter, should this decision be appealed and the Appellant’s appeal not allowed by such final determination);
(2)	If the parties intend to proceed with the appeal, they will, when informing the tribunal office of their intention to proceed, advise the tribunal office of their time estimate for the hearing of the substantive appeal, and each party will also advise the tribunal of their respective available dates for the hearing;
(3)	The appeal will be listed for hearing on the first available date three months after the date on which the parties inform the tribunal office of their intention to proceed with the appeal; and
(4)	On the first available date after the date on which the parties inform the tribunal office of their intention to proceed with the appeal the matter will be listed for a case management hearing for the tribunal to make such directions as it thinks necessary or expedient to ensure the speedy and proper determination of the appeal.
84.	Either party is at liberty to apply to the tribunal to amend, suspend or set aside these directions.

EDWARD SADLER

CHAIRMAN
RELEASE DATE: 12 February 2009

LON/2007/9008