1999 (2) TMI 657 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Entitlement to credit for input tax under the Value Added Tax Act 1983.
2. Definition and allocation of "input tax."
3. Determination of the recipient of estate agent services.
4. Application of the European Court of Justice's decision in B.L.P. Group Plc. v. Customs and Excise Commissioners.

Issue-wise Detailed Analysis:

1. Entitlement to Credit for Input Tax:
The core issue in this case was whether Redrow Group Plc ("Redrow") was entitled to credit as a deduction from the output tax due for the amount of VAT charged by estate agents on their services. Section 14(2) of the Value Added Tax Act 1983 allows a taxable person to obtain credit for input tax, which is then deductible from any output tax due. The critical question was whether the tax paid to the estate agents fell within the definition of "input tax" under section 14(3).

2. Definition and Allocation of "Input Tax":
Section 14(3) defines "input tax" as the tax on the supply to a taxable person of any goods or services used for the purpose of any business carried on by them. The tribunal found that the fees paid to estate agents were part of Redrow's cost components in the sale of its homes, thus directly connected to its business activities. The tribunal held that the services supplied by the estate agents were supplied both to Redrow and the prospective purchasers. The Court of Appeal, however, held that the services were directly attributable to the sale by the prospective purchaser of his own house and not to the sale of a new house by Redrow.

3. Determination of the Recipient of Services:
The determination of whether the services were supplied to Redrow or the prospective purchasers was crucial. Redrow argued that it chose and instructed the estate agents, monitored their performance, and paid their fees, thus receiving the services for its business purposes. The Court of Appeal initially found that the services were supplied to the prospective purchasers, as they were the final consumers. However, the House of Lords concluded that the services were supplied to Redrow, as the agents were instructed by Redrow and performed tasks as per its instructions, making Redrow the recipient of the services.

4. Application of B.L.P. Group Plc. v. Customs and Excise Commissioners:
The Court of Appeal relied on the European Court of Justice's decision in B.L.P. Group Plc. v. Customs and Excise Commissioners, which requires a "direct and immediate link" between the services and the taxable transactions. The Court of Appeal applied this test to determine that the services were linked to the sale of the prospective purchaser's home. However, the House of Lords clarified that the B.L.P. case was about the attribution of input tax concerning exempt supplies, not the identity of the recipient of the services. The House of Lords emphasized that the taxpayer must identify the payment for which the tax to be deducted formed part, and if the taxpayer becomes liable to pay the agent's fees, the services are supplied to the taxpayer.

Conclusion:
The House of Lords allowed the appeal, affirming the decision of the VAT tribunal that the services of the estate agents were supplied to Redrow. The Lords concluded that Redrow obtained something of value in return for the payment of the agents' fees, which was used for the purposes of its business. This satisfied the conditions for deducting input tax. The appeal was allowed with costs in the Court of Appeal and House of Lords.