20050
VALUE ADDED TAX — pump manufacturer — goods originally intended to be supplied and delivered to Hong Kong — delays — goods actually supplied and delivered to a site in UK — appellant zero rated the supplies — should have been standard rated — sections 1(1)(a), 7(2) and section 30 VAT Act 1994 — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
					SERFILCO EUROPE LIMITED	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	   Ian Vellins (Chairman)
	Alban Holden

Sitting in public in Manchester on 14 February 2007

Mr K A Rogers, company secretary, for the Appellant 
 
Miss L Linklater, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2007

DECISION

The Appeal

1.	In this appeal the Appellant is Serfilco Europe Limited who trades from an address in Manchester as a pump manufacturer and has been registered for VAT with effect from 1 April 2003.  The Appellant appeals against a decision of the Respondents to assess the Appellant for Value Added Tax in the sum of £7,206 for the periods January 2005 and April 2005 issued to the Appellant by Notice dated 26 October 2005.  The Appellant appealed by Notice of Appeal dated 3 March 2006.

2.	At the hearing of this appeal at Manchester on 14 January 2007, the Appellant was represented by its company secretary Mr K A Rogers, and the Respondents by Miss L Linklater, counsel.
  
3.	The short issue in this appeal is as follows.  The Appellant took orders to manufacture and deliver goods, from two customers, one in Hong Kong and another in France.  The intention was that the goods would be incorporated into finished goods and then the goods would be re-imported into the United Kingdom to be installed at the premises of Rolls-Royce in Derby.  However, the Appellant’s suppliers of components were late in delivering parts and the goods were finished too late to be sent abroad for incorporation into the finished goods.  Therefore the Appellant was requested by its customers to deliver the goods direct to the Rolls-Royce site in Derby in the UK where the equipment would be incorporated into the finished goods.  Accordingly, the Appellant supplied and delivered the goods direct to the site in the United Kingdom.  The Appellant had an integrated stock system and accounting system, and prepared its invoices to its customers, and dealt with its VAT returns, on the basis of the original intention that the goods would be supplied and delivered to its customers in Hong Kong and France.  On this basis the Appellant zero-rated the supplies, on the basis of the original intentions of the orders, instead of standard rating the supplies and goods.  

4.	On 12 September 2005, an officer of the Respondents visited the Appellant and noted that sales invoices had been zero-rated for VAT to customers in Hong Kong and France, but that the associated delivery notes showed that the goods had actually been delivered to an address in the United Kingdom.  The officer raised an assessment on the basis that that the supply of goods had taken place in the United Kingdom and should have been standard rated and not zero-rated.  The Appellant appealed, submitting that the VAT should have been assessed on the person to whom the goods were supplied, and that the goods should still be zero-rated by the Appellant based on the original intention, because the contract had been fulfilled in accordance with the terms of the order.  The facts of the appeal were largely not in dispute.

The Legal Framework

5.	Section 1(1)(a) of the Value Added Tax Act 1994 (“VAT Act 1994”) provides that:

“Value Added Tax shall be charged … on the supply of goods or services in the United Kingdom”.

6.	Section 7(2) of the VAT Act 1994 provides that: 

“If the supply of any goods does not involve their removal from or to the United Kingdom they shall be treated as supplied within the United Kingdom if they are in the United Kingdom”.

7.	Section 30(6) of the VAT Act 1994 provides that:

“A supply of goods is zero-rated by virtue of this subsection if the Commissioners are satisfied that the person supplying the goods – 
	(a)	has exported them to a place outside the member states; or …”.

8.	Section 30(8) of the VAT Act 1994 provides for regulations for the zero-rating of supplies of goods in cases where “the Commissioners are satisfied that the goods have been or are to be exported to a place outside the Member States”.

9.	Section 30(10) of the VAT Act 1994 gives powers to the Respondents to forfeit goods which have been found in the United Kingdom after the date on which they were alleged to have been exported or shipped or removed from the United Kingdom.

10.	The burden of proof of establishing that the supply of the goods was zero-rated is upon the Appellant.  

Facts and Conclusions

11.	We make the following findings of fact and reach the following conclusions in this appeal.
  
12.	We have heard evidence in this appeal in the form of a written witness statement from the officer of the Respondents, Mr Doyle, and oral evidence from the managing director of the Appellant, Mr H Williams.  

13.	The Appellant manufactures and supplies pump and filter systems.  Rolls-Royce in Derby in the United Kingdom were requiring a processing plant and effluent plant to be installed in Derby.  Rolls-Royce ordered the plants through main contractors who were in the United Kingdom, who in turn subcontracted a part of that main contract to another company based in the United Kingdom.  They further subcontracted parts of their order to a company Process Automation Limited, which operated in Hong Kong and had offices in China (“PAL”) and another part of the order was subcontracted via a company in France to the Appellant’s sister company, Serfilco France, who in turn ordered pumps from the Appellant.

14.	The timescale for the orders was such that the Appellant was to ship the equipment that was being supplied by the Appellant to China (to PAL) and to France (to Serfilco France), who in turn would install the Appellant’s goods in China and France respectively before shipping the plant back to the United Kingdom to the premises of Rolls-Royce in Derby.

15.	The Appellant required parts from certain suppliers in the United Kingdom but ultimately discovered that the companies supplying those parts had encountered delays, and by the time that the Appellant had completed the pumps and goods that it was to supply, it was too late for those goods to be shipped out to the Far East and to France to be installed by its customers there and then for the finished products to be delivered back in time at the Rolls-Royce site in Derby.  The Appellant was therefore requested by both its customers to deliver and supply the Appellant’s goods direct to the Rolls-Royce site in Derby.  

16.	The Appellant had an integrated stock system on which it had set up the orders with all the relevant contract details upon it.  The accounting system involving the invoices and VAT returns was based upon that.  As the original intentions had been for the goods to be supplied outside the United Kingdom, the Appellant had prepared its invoices on the basis that it believed that the supplies of its goods were zero-rated.  The Appellant had intended at the outset to supply the goods and deliver them outside the United Kingdom.  When the Appellant was requested by its customers to refrain from delivering to the Far East and to France but to deliver the goods direct to the Derby site of Rolls-Royce, the Appellant did not change its proposed invoices, but issued its invoices to its customers in Hong Kong and France based on its original intentions, and the invoices of the Appellant zero-rated the supplies.  The Appellant submitted its VAT returns on the basis that the supplies had been zero-rated.

17.	In September 2005, an officer of the Respondents visited the Appellant and noted that a number of the sales invoices were zero-rated for VAT but bore the names and addresses of the customers in Hong Kong and France, namely PAL and Serfilco France, but the associated delivery notes showed that the goods had actually been delivered to the address in the United Kingdom.  The officer raised an assessment on the basis that the supply of goods had taken place in the United Kingdom.  

18.	Correspondence then took place between the Appellant and the Respondents.  The Appellant was contending that if the contract had been fulfilled in accordance with the terms of the original order, Section 30(8) of VAT Act 1994 would have applied to zero rate the goods in question.   It was also argued that Section 30(10) had the effect of providing for VAT to be assessed on the person to whom the goods were supplied.  The Respondents however were maintaining that the goods were supplied within the United Kingdom and VAT was chargeable accordingly, whatever the original intentions had been.  The Respondents had argued that Section 30(6) did not apply to the transactions in question since the Appellant had not exported them to a place outside the Member States, and the Respondents further argued that Section 30(10) could have no application to the present case as that subsection dealt with forfeiture and did not assist the Appellant.

19.	Mr Williams, at the hearing, accepted that the goods supplied by the Appellant had never actually left the United Kingdom, and the goods had been delivered to an address in the United Kingdom.  Mr Williams believed that VAT had actually been paid by the importer in respect of goods, but admitted that he could not be sure that this was actually done.  The Appellant’s own invoices to the Appellant’s own customers indicates that it did not charge VAT to its customers on any of the supplies made by it.

20.	We reach the following conclusions.

21.	The legal position is quite clear.  Value Added Tax is to be charged on the supply of goods or services in the United Kingdom (including anything treated as such a supply) in accordance with the provisions of Section 1(1) of the VAT Act 1994.  The Appellant was a taxable person at the time of the supply of those goods (Section 3).  

22.	Section 7 of the Act applies to determine whether goods or services are supplied in the United Kingdom.  It is clear that the goods in question were never removed from the United Kingdom and have remained in the United Kingdom at all times.  Consequently under Section 7(2), the general rule is that the goods were supplied within the United Kingdom.  In the alternative, the goods were assembled or installed within the United Kingdom and as such were supplied within the United Kingdom (Section 7(3).  

23.	The date of delivery of the goods coincided with the date of the invoice.  In these circumstances, the time of supply of the goods is the date of issue of the relevant invoices (Section 6(5)).  

24.	In all the circumstances, Section 4 was fulfilled and VAT should have been charged on the supply by the Appellant as a standard rated supply, and was not so charged by the Appellant.  The Appellant is liable to VAT as the person making the supply (Section 1(2)).  We find that the assessment of the Respondents was fully justified, was to the best of the Respondents’ judgment, and was in accordance with the provisions of the VAT Act 1994.

25.	The Appellant has contended that its goods were zero-rated pursuant to Section 30(8).  However, Section 30(8) does not afford any assistance to the Appellant.  This provision enables the Respondents to make regulations zero-rating supplies of goods in specified circumstances.  Such provision does not of itself zero-rate goods.  The Appellant did not rely upon any specific regulation in support of its contention that the goods in question were zero-rated.  We find that the goods were not zero-rated but standard rated.  

26.	The Appellant had argued that Section 30(10) assisted the Appellant.  We find that Section 30(10) does not arise because it only applies where goods are zero-rated pursuant to regulations made under Section 30(8).  The section does not assist the Appellant.  It deals with forfeiture by the Respondents.  

27.	It would appear that the Appellant is seeking to argue that the Respondents should have waived VAT.  However, any discretion that the Respondents may have is not subject to appeal to the Tribunal pursuant to Section 83 VAT Act 1994.  

28.	The Appellant further argued that the Appellant’s initial contracts with its customers were that the goods were to be exported.  The Appellant argued that both the Appellant and the ultimate customer, Rolls-Royce were United Kingdom registered VAT traders.  The Appellant argued that if one removed all the intermediate steps, then the resultant tax would be neutral and the Appellant should not be out of pocket.  It argued that the Respondents should not be paid twice for the same goods.  The Appellant argued that the principles of a capital gains tax case W T Ramsay Limited v Commissioners of Inland Revenue 1981 54TC101 should be applied to the case of the Appellant, and that the commercial nature of the transactions should be considered, rather than the individual processes through which the transactions pass, and account should be taken of the fact that the Appellant had set up all its systems on the basis that the goods were to be exported.  The Appellant submitted that the assessment should have been made on Rolls-Royce who would then have adduced evidence that they had paid the VAT and the matter would have been resolved.

29.	We find that the decision in the case of W T Ramsay Limited has no relevance to the Appellant’s appeal.  The Ramsay case was a direct tax case dealing with capital gains tax and dealt with tax avoidance schemes.  The payment of Value Added Tax in the United Kingdom is required under the provisions of the VAT Act 1994.  That Act clearly provides for Value Added Tax to be paid as a standard rated supply of goods made by the Appellant in the United Kingdom.  The Ramsay case does not entitle the Appellant to zero-rate its supplies when its supplies were properly standard rated.  The Appellant should have invoiced its customers charging VAT at the standard rate, when its customers requested the Appellant to supply and deliver the goods within the United Kingdom rather than deliver them to Hong Kong and France.  We find that the Respondents have properly and correctly assessed the Appellant to VAT on the supplies as properly standard rated.  We reject the submissions and arguments of the Appellant and accept the arguments and submissions of the Respondents.

30.	Accordingly we dismiss the appeal of the Appellant.  The Respondents indicated that they did not request an order for costs against the Appellant and we make no order for costs against the Appellant.

IAN VELLINS
CHAIRMAN
Release Date:  23   February  2007
MAN/06/0195