19177
VALUE ADDED TAX — claim for repayment of overpaid output tax — VATA 1994 s 80, VAT Regulations 1995 reg 35 — industrial and provident societies — output tax paid by one society later transferring its engagements to another — whether right to claim refund transferred — Industrial and Provident Societies Act 1965, ss 16, 51, 54, 59, 74 — whether restriction by VATA of right to reclaim overpayment to person which made a payment contrary to principle of effectiveness — no — right to reclaim not transferred on transfer of engagements — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

	MIDLANDS CO-OPERATIVE SOCIETY LIMITED	Appellant

	- and -

	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

			Tribunal:	Colin Bishopp (Chairman)

Sitting in public in Manchester on 27 June 2005

Amanda Brown, solicitor with KPMG, for the Appellant

James Puzey, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	This is an appeal by Midlands Co-operative Society Limited (“Midlands”), which was until January 1995 called Central Midlands Co-operative Society Limited, against the Respondents’ rejection of two voluntary disclosures, seeking the repayment of output tax said to have been over-declared. I am not asked to deal with the merits of the claim, with any defence the Respondents might have to it, nor with the amount which might be due, but with a single issue: whether, assuming there is an otherwise valid claim, Midlands has any standing to make it. 
2.	Midlands was represented by Amanda Brown, solicitor, and the Respondents by James Puzey of counsel. The facts were agreed and I heard no oral evidence, though I had a bundle of relevant documents and was referred to a number of authorities.
3.	The following is an edited version of the agreed statement of facts:
“(1)	Midlands is an industrial and provident society registered in accordance with the Industrial and Provident Societies Act 1965 (the Act).
(2)	Midlands carries on business as a general retailer, selling food and non-food products through retail premises, providing funerals, acting as travel agents, and carrying on the business of a motor dealer.
(3)	Midlands has been registered for the purposes of VAT since 6 September 1997 although returns have been rendered with effect from the prescribed accounting period 02/92.
(4)	Leicestershire Co-operative Society Limited (Leicester) was an industrial and provident society registered in accordance with the Act carrying on a similar business to Midlands, including the business of a motor dealer. Leicester was registered for VAT.
(5)	At general meetings of Leicester held on 7 March and 23 March 1995 the following special resolution was passed in accordance with section 51 of the Act:
‘That this meeting of the members of [Leicester] hereby resolves to transfer the whole of the stock, property and other assets and all engagements of the Society to [Midlands] in consideration of [Midlands] issuing to each member of this Society paid up shares equal to the amount standing to the credit of each member in the share ledgers of this Society on the date when the transfer of engagements becomes effective.
The transfer shall become effective immediately on the expiration of the Saturday following the date of the registration of this resolution.’
(6)	At a meeting of the Board of Midlands on 26 January 1995 it was resolved that a special members’ meeting be called to change the name of the society and:
‘That this meeting of the Central Board of Directors of [Midlands] hereby agrees in consideration of this Society receiving the whole stock, property and other assets of [Leicester] to issue paid up shares equal to the amount standing to the credit of each such member in the share ledgers of [Leicester] on the date when the transfer of engagements becomes effective.’
(7)	On 30 March 1995 the Register of Friendly Societies acknowledged the registration that day of the Special Resolution of Leicester and the registration of the change of name of Midlands.
(8)	In consequence of the registration of the Special Resolution ‘immediately upon the expiration of’ Saturday 1 April 1995 the engagements of Leicester were transferred to Midlands pursuant to section 51(1) of the Act. At that moment Leicester had no spare members and no assets or liabilities whatsoever.
(9)	On 30 April 1997, pursuant to section 16(1)(a)(ii) of the Act, the Registrar of Friendly Societies stated in respect of Leicester that:
‘The registration of the above mentioned society is hereby cancelled on the ground that the society has ceased to exist following its Transfer of Engagements to [Midlands]’.
(10)	On 30 June 2003 Midlands’ representatives submitted two voluntary disclosure claims in respect of VAT claimed to have been over declared. The first voluntary disclosure for £63,054 relates to the period 1 April 1973 to 30 November 1999 in respect of output tax over declared under the margin scheme on the sale of demonstrator cars. The second voluntary disclosure for £38,493 relates to the period 1 April 1973 to October 1996 in respect of payments by car manufacturers of demonstrator discounts and bonuses. The two claims were made as a consequence of the decisions in the cases of Commission v Italian Republic (Case C-46/95) [1997] STC 1062 and Elida Gibbs v Customs and Excise Commissioners (Case C-317/94) [1996] STC 1387 respectively.
(11)	Customs, by letter dated 18 May 2004, have refused to pay any part of the voluntary disclosure in so far as it relates to VAT paid originally by Leicester prior to its transfer of engagements to Midlands on 1 April 1995.”
4.	In summary, Midlands’ case is that it has succeeded to all of Leicester’s rights and liabilities, that those rights extend to Leicester’s ability to claim a refund of overpaid VAT, and that Midlands alone is competent to make the claim since, Leicester’s “engagements” having been transferred to Midlands, it has ceased to exist. The Respondents’ stance, and the reason for the rejection of the voluntary disclosures, is that only the taxable person which made the overpayment is entitled to claim repayment. So far as the tax was overpaid before the transfer, that taxable person was Leicester; thus only Leicester may make the claim. It is, they say, immaterial that Leicester has ceased to exist and that in consequence, there is no-one able to make the claim.
5.	The Respondents’ case depends on the wording of section 80(1) of the Value Added Tax Act 1994 and of regulation 35 of the Value Added Tax Regulations 1995, the two provisions which allow for the making of claims such as that in issue here. I was not asked to discriminate between these provisions, but am to assume that either or both can apply, and to come to a conclusion based on that assumption. Section 80(1) provides:
“Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not due to them, they shall be liable to repay the amount to him.”
And regulation 35 is as follows:
“Where a taxable person has made an error—
(a) 	in accounting for VAT, or 
(b)	in any return made by him, 
then, unless he corrects that error in accordance with regulation 34, he shall correct it in such manner and within such form as the Commissioners may require.”
6.	The refusal to accept the voluntary disclosures was based on the use in those provisions of the words “him” (in section 80) and “he” in regulation 35. Those words, Mr Puzey argued, could refer back only to the “person” (in section 80) or “taxable person” (in regulation 35) who had made the overpayment or error respectively. It was not possible to read the provisions so that “him” or “he” could include the person’s successors or assignees. This was not a case in which the special provisions relating to the transfers of going concerns might apply, so that the predecessor’s rights and liabilities were transferred, with the going concern, to the successor. Such a transfer could occur in limited circumstances only: when the transferor and transferee so elected in writing and the transferee became registered with the transferor’s VAT registration number (see section 49(3) of the 1994 Act and regulation 6 of the 1995 Regulations). Here, there was no election, and Midlands did not succeed to Leicester’s registration number; thus the transfer of Leicester’s rights and liabilities in accordance with these provisions could not have occurred. There was no other provision of the VAT Act, or of the Regulations, by which such a transfer might be effected and it necessarily followed that any right Leicester may have had to claim a refund remained with it, and became lost when Leicester ceased to exist.
7.	Mrs Brown, however, argued that the provisions relating to the takeover of a going concern were not in point. Despite the arguments she advanced in Midlands’ earlier appeal, (2002) VAT Decision 17049 (see also [2002] STC 198), she contended that Midlands had not purchased Leicester’s business: it had accepted a transfer of its engagements and it was necessary to consider the governing legislation, the Industrial and Provident Societies Act 1965, and not the VAT Act, in order to determine what the effects of a transfer of engagements are. The provisions on which she relied are sections 16, 51, 54, 59 and 74 of the 1965 Act which, so far as material, read as follows:
“16(1) Subject to the provisions of this section and sections … 59 of this Act, … the Authority may, in writing, cancel the registration of any registered society 
(a)	if at any time it is proved to the Authority’s satisfaction … 
(iii) 	that the society has ceased to exist.”
51(1)	Any registered society may by special resolution transfer its engagements to any other registered society which may undertake to fulfil those engagements; and if that resolution approves the transfer of the whole or any part of the society’s property to that other society, the whole or, as the case may be, that part of the society’s property shall vest in that other society without any conveyance or assignment.
54	An amalgamation or transfer of engagements in pursuance of section … 51 … of this Act shall not prejudice any right of a creditor of any registered society which is a party thereto.
59	Where … a registered society’s engagements are transferred under section 51 … of this Act, the society shall not be dissolved, and the registration of the society shall not be cancelled, until there has been lodged with the Authority a certificate signed by … the secretary or some other officer of the society approved by the Authority that all property vested in the society has been duly conveyed or transferred by the society to the persons entitled.
74	… ‘property’ includes all real, personal or heritable and moveable estate, including books and papers.”
8.	Mrs Brown also contrasted the 1965 Act with the Companies Act 1985 which, by section 653, allows for the restoration of a struck off company to the register in certain circumstances. There is no corresponding provision in the 1965 Act; once an industrial and provident society has been dissolved, and its registration cancelled in accordance with section 59 of the 1965 Act, it cannot be restored, whatever the circumstances.
9.	The effect of the statutory provisions, she said, was that a transfer of engagements from one society to another (save in the case of a partial transfer, which was not the position here) involved the complete transfer of all the transferor society’s property, rights and liabilities to the transferee society. The transferee stood in the shoes of the transferor. The effect of sections 51 and 54 is that the transferee is required to satisfy any liabilities of the transferor, to its members or to third parties, and the corollary must be that it had the benefit of all the transferor society’s rights. There was no basis on which it could be inferred that some rights and liabilities were transferred, but others were not. Moreover, the power to dissolve the transferor society under section 59 could not arise until all of its property had been transferred. The notion that it retained the right to claim the refund, despite the transfer of engagements, could therefore not be reconciled with section 59. 
10.	There is apparently no authority on the effect of a transfer by an industrial and provident society of its engagements. Mrs Brown referred me to the comments of Warrington LJ in Sun Permanent Benefit Building Society v Western Suburban and Harrow Road Permanent Building Society [1921] 2 Ch 438 at 456:
“The chairman of the defendant society undoubtedly thought that in entering into the contract he was not merely purchasing the mortgages and entitling the defendant society to transfer them, but was arranging for what, in Building Societies Act 1874, s 33, is called a transfer of its engagements—a very different thing, because a transfer of the engagements of the society means that the members of the one society become the members of the other society; and the mortgages are not merely transferred as a separate item of property, but as part of the transfer of the entire business.”
11.	Although section 33 of the Building Societies Act 1874 is not directly in point, she said, there is a close analogy between its provisions and those of section 51 of the 1965 Act and, in particular, the phrase “transfer of engagements” should be interpreted in the same way. It implied, as Warrington LJ had indicated, more than the mere transfer of a business; thus the decision of the tribunal in Shendish Manor Limited v Customs and Excise Commissioners (2003) VAT Decision 18474 was to be distinguished. There, at paragraph 18, it said of section 80 of the VAT Act, “We can see no way in which the final words ‘repay the amount to him’ could be read as covering a successor or assignee”. That might well be the case when there had been a transfer of a going concern from one person to another and the transferor remained capable of making a claim and of receiving the payment. That was not the position here. Moreover, the principle of effectiveness, as expounded by the European Court of Justice in cases such as Von Colson and Kamann v Land Nordrhein-Westfalen (Case 14/83) [1984] ECR 01891 showed that the national courts should, so far as possible, interpret legislation so as to give effect to the requirements of European Law. The cases of Italian Republic and Elida Gibbs, on which the claims were based, made it clear that there was a European Law right to recovery, and the domestic legislation should not be read and applied in a manner which defeated that right.
12.	Mr Puzey’s response was that section 15 of the 1965 Act allowed for partial transfers of engagements; thus it did not follow that all of the transferor’s rights and obligations must be transferred. Section 74 of the Act, even if it did not contain an exhaustive definition of “property”, did not make any reference at all to intangible property such as a right to reclaim an overpayment of VAT, and the Appellant had identified no other statutory provision which did so. There was nothing in the Sixth VAT Directive about the transfer of rights and liabilities in relation to VAT and it could not therefore be said that the domestic legislation, by similarly making no such provision, failed to implement the directive. The view that such rights and liabilities could not be transferred (save in accordance with section 49(3) of the VAT Act and regulation 6 of the 1995 Regulations) found favour not only in Shendish Manor but also in Aberdeen Estates Limited v Customs and Excise Commissioners (1995) VAT Decision 13622. Mrs Brown’s proposed interpretation of the legislation would put industrial and provident societies in a different position from other taxable persons by allowing them, uniquely, to transfer their rights and obligations. In the absence of clear statutory words such an interpretation was not possible. The principle of effectiveness was not offended since the Respondents’ views, if correct, did not prevent Leicester, which had paid the tax, from claiming reimbursement; it was the fact that Leicester had ceased to exist which rendered it incapable of claiming.
13.	I can see the attraction of Mrs Brown’s argument that Leicester has transferred the entirety of its assets, of every description, to Midlands, leaving only a shell, and that Leicester’s members have likewise transferred their own rights, now attaching to the assets of Midlands, including those acquired from Leicester. I also recognise the force of her argument that, if Midlands cannot claim the repayment, the right to claim is irretrievably lost, an injustice which I should seek to override if an interpretation of the legislation which does not lead to that result is possible. Nevertheless, I am bound to agree with Mr Puzey that, absent any provision of European law which allows for the transfer of the right to reclaim an overpayment of VAT, the domestic legislation allows only of a narrow interpretation. As the tribunal pointed out, in its decision in Shendish Manor, section 80(1) of the VAT Act provides that the Customs and Excise Commissioners (as they were) shall not be liable to repay tax except as provided by that section. The section provides only for repayment to the taxable person who has made the over-payment. In the absence of clear words, I do not think it is open to me to construe the requirement in a manner which allows an assignee to exercise an assignor’s rights. The absence of any indication that payment to an assignee shall discharge the Respondents’ obligations suggests that the assignment of a right to recover an overpayment of VAT was not in the draftsman’s contemplation. Regulation 35 permits a taxable person to correct an error which he has made; it is impossible to read that provision in a manner which allows him to correct an error which someone else has made.
14.	Alternatively, the Appellant’s argument requires me to conclude that, in some way, Midlands and Leicester are to be treated as if they were the same person. I do not see how it is possible to do so. Midlands may have taken over all of Leicester’s assets and its members, but it did not take over, or “become” Leicester: Leicester remained a registrable entity, even if it was no more than a shell, until its registration was cancelled in April 1997. If instead the correct view is that it ceased to exist immediately following the transfer of its engagements, in 1995, the simple fact that it has ceased to exist is inconsistent with the proposition that, within Midlands, it nevertheless has some continuing existence. I agree too with Mr Puzey, and for the reasons he gave, that the principle of effectiveness does not assist the Appellant.
15.	It may be that there is a lacuna in the legislation, and that some provision should be made to cater for situations of this kind. I cannot, however, invent such a provision. I am persuaded that the Respondents are correct and that the appeal must be dismissed. Mr Puzey did not seek a direction in the Respondents’ favour in respect of costs.

COLIN BISHOPP

CHAIRMAN
RELEASE DATE: 20 July 2005

MAN/04/0337