The Commissioners rejected those claims on the ground that the deduction was
prohibited by the Cars Orders. Royscot, Harrison and Domecq appealed to the
VAT and Duties Tribunal, which dismissed the appeals. After the High Court had
also dismissed their appeals they appealed to the Court of Appeal, which decided
to stay proceedings and to refer the following questions to the Court for a
preliminary ruling:
'1. Did Article 11(4) of the Second Council Directive of 11 April 1967
authorise Member States to introduce or retain, and does the second
subparagraph of Article 17(6) of the Sixth Council Directive of 17 May 1977
authorise Member States to retain, national laws which exclude, without
limit, the right to deduct VAT payable on the purchase of motor cars to be
used by a taxable person for the purposes of his taxable transactions?
2. In particular, may the right to deduct be excluded:
(a) even though the cars are essential tools of the business in the sense
that the business by definition would not exist without the cars (eg,
the car-leasing business of the Royscot companies, and the car-leasing
and car-hire businesses of the T.C. Harrison Group)?
(b) even though the cars are never available for any private use by the
taxable person or his staff (eg, the car-leasing businesses of the
Royscot companies and of the T.C. Harrison Group)?
(c) even though the taxable person could not carry on his business at all
without the cars (eg, "demonstrator" cars acquired by a member of
the T.C. Harrison Group in its dealership business)?
(d) even though the taxable person's employees could not perform their
duties without the cars (eg, the travelling salesmen employed by the
Allied Domecq Group)?
(e) notwithstanding (a), (c) or (d) above, on the ground that the taxable
persons' employees are permitted to make some, subsidiary, private
use of the cars outside working hours?
3. Is it material to question 2(e) above to consider whether:
(a) an apportionment of the expenditure on the cars can be made
between the business use and the private use?
(b) the permission to make private use of the cars is a taxable transaction
for VAT purposes because the taxable person charges the employees
a fee for that use?
4. Did the authorisation granted to Member States by the second
subparagraph of Article 17(6) lapse at the end of the four-year period
referred to in the first subparagraph?'
The first and second questions
