1996 (2) TMI 531 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the business of F.A.D./Express consisted in supplying goods to non-taxable persons to be sold by retail.
2. Whether the Commissioners' Direction was applicable to the supply of goods by F.A.D./Express.
3. Whether the Direction or its application contravened Community law.

Issue-wise Detailed Analysis:

1. Business Supplying Goods to Non-Taxable Persons for Retail:

The court examined whether F.A.D./Express's business involved supplying goods to non-taxable persons (agents) for retail. It was established that Express Gifts supplied goods to agents, who were not registered for VAT, and that these agents sold a substantial portion of these goods by retail, although some were retained for personal use. The documentation used by Express Gifts indicated an intention for agents to resell the goods. The court found that Express Gifts subjectively intended for some goods to be sold on by agents, satisfying the requirement that the business involved supplying goods to be sold by retail. The court also concluded that the business of Express Gifts partly consisted of supplying goods for resale, supported by the marketing structure and efforts to encourage agents to sell goods to customers. Thus, the first issue was answered affirmatively.

2. Applicability of the Commissioners' Direction:

The court addressed whether the terms of the Direction were applicable to the supply of goods by F.A.D./Express. It was noted that when agents placed orders, certain goods were already earmarked for onward sale. The VAT tribunal indicated that order forms could be modified to identify such goods. The court emphasized that VAT is a self-assessed tax, and traders must record necessary information for accurate tax assessment. Therefore, the terms of the Direction were applicable to the supply of goods earmarked for onward sale by Express Gifts. The second issue was answered affirmatively.

3. Contravention of Community Law:

The third issue concerned whether the Direction or its application contravened Community law. The court referred to the European Court of Justice's judgment in Direct Cosmetics Ltd. and Laughtons Photographs Ltd. v. Customs and Excise Commissioners, which upheld the validity of the Council's authorisation of the derogation in paragraph 3 of Schedule 4. The court interpreted the concept of "open market value" as the value closest to the commercial value on a sale by retail, i.e., the actual price paid by the final consumer. The market value used by the Commissioners for their best judgment assessment was the catalogue price, which was the price the market would bear. Despite arguments that some goods were sold below catalogue prices, the court found it impractical to ascertain the actual prices paid by ultimate purchasers. The court concluded that the use of catalogue prices as the market value was justified and did not conflict with Community law. Thus, the third issue was answered in the negative.

Conclusion:

The appeal was allowed. The court found that the business of Express Gifts involved supplying goods to non-taxable persons for retail, the Direction was applicable to such supplies, and the Direction did not contravene Community law.