Menolly Homes Ltd v Appeal Commissioners & Revenue Commissioners

• Jurisdiction: Ireland
• Judge: Mr. Justice Charleton
• Judgment Date: 26 February 2010
• Neutral Citation: [2010] IEHC 49
• Court: High Court
• Date: 26 February 2010

Menolly Homes Ltd v Appeal Commissioners & Revenue Commissioners

JUDICIAL REVIEW

BETWEEN

MENOLLY HOMES LIMITED

APPLICANT

AND

THE APPEAL COMMISSIONERS AND THE REVENUE COMMISSIONERS

RESPONDENTS

[2010] IEHC 49

[No. 723 JR/2009]

THE HIGH COURT

REVENUE

Value added tax

Construction - Scheme of development - Letting agreement with builder prior to conveyance - Whether VAT exemption - Decision of tax inspector - Whether reason to believe tax due - Refusal to provide tax inspector as witness - Statutory interpretation - Jurisdiction of Appeal Commissioners - Nature of tax appeal - Burden of proof - Grounds upon which appeal may be brought - Words and phrases - Meaning of "reason to believe" - Whether jurisdiction to inquire into validity of assessment - Whether jurisdiction to call tax inspector on assessment - Relevance of delay between assessment and ruling - Whether delay bar to relief sought - Van Binsbergen v BestuurVan de Bedriffsvereniging voor de Metaalnijverheid (Case 33/74) [1974] ECR 1229, Halifax plc, v Commissioners of Customs and Excise (Case-225/02) [2006] ECR 1609, Cussens v Brosnan [2008] IEHC 169; Van Boeckel v Customs and Excise Commissioners [1981] 2 AER 505; Hanlon v Fleming [1981] IR 489, State (Whelan) v Smidic [1938] I R 626 and Jussila v Finland (2007) 45 EHRR 39 considered - Inland Revenue Commissioners v Sneath [1932] 2 KB 362 ; TJ v CAB [2008] IEHC 168; JE Davy v Financial Services Ombudsman [2008] IEHC 256 [2008] 2 ILRM 507 approved - Viera v Revenue Commissioners [2009] IEHC 431 distinguished - Value Added Tax Act 1972 (No 22), ss 4 and 23 - Value Added Tax Act 1994 (UK) - Taxes Consolidation Act 1997 (No 39), s 25, 933, 934 & 939 - Relief refused (2009/723JR - Charleton J - 26/2/2010) [2010] IEHC 49

Menolly Homes Ltd v Appeal Commissioners and Revenue Commissioners

VAN BINSBERGEN v BESTUUR VAN DE BEDRIJFSVERENIGING VOOR DE METAALNIJVERHEID 1974 ECR 1299 1975 1 CMLR 298

HALIFAX PLC v CUSTOMS & EXCISE CMRS 2006 ECR I-1609 2006 CH 387 2006 2 WLR 905 2006 2 CMLR 36

CUSSENS & ORS v BROSNAN (INSPECTOR OF TAXES) UNREP CHARLETON 11.6.2008 2008/10/1986 2008 IEHC 169

VALUE-ADDED TAX ACT 1972 S4(6)(A)

VALUE-ADDED TAX ACT 1972 S2

VALUE-ADDED TAX ACT 1972 S8

VALUE-ADDED TAX ACT 1972 S23

VALUE-ADDED TAX ACT 1972 S21

VALUE-ADDED TAX ACT 1972 S4(4)

TAXES CONSOLIDATION ACT 1997 S933

TAXES CONSOLIDATION ACT 1997 S934

VALUE-ADDED TAX ACT 1972 S25

VALUE-ADDED TAX ACT 1972 S25(2)

VALUE-ADDED TAX ACT 1972 S23(2)

CMRS OF INLAND REVENUE v SNEATH 17 TC 149 1932 2 KB 362

TAXES CONSOLIDATION ACT 1997 S939

J (T) v CRIMINAL ASSETS BUREAU UNREP GILLIGAN 1.5.2008 2008/30/6572 2008 IEHC 168

VALUE ADDED TAX ACT 1994 S83 (UK)

VAN BOECKEL v CUSTOMS & EXCISE CMRS 1981 STC 290 1981 2 AER 505

VALUE ADDED TAX ACT 1994 S73(1) (UK)

VALUE-ADDED TAX ACT 1972 S23(1)

HANLON v FLEMING 1981 IR 489 1982 ILRM 69 1981/10/1698

THE CONCISE OXFORD DICTIONARY 10ED REV 2001

VIERA LTD v REVENUE CMRS UNREP O'NEILL 6.10.2009 2009 IEHC 431

TAXES CONSOLIDATION ACT 1997 S934(3)

WHELAN, STATE v SMIDIC 1938 IR 626 1 ITR 571 1938 72 ILTR 214

VALUE-ADDED TAX ACT 1972 S30

RSC O.84

J & E DAVY (T/A DAVY) v FINANCIAL SERVICES OMBUDSMAN & ORS 2008 2 ILRM 507 2008/30/6639 2008 IEHC 256

VALUE-ADDED TAX ACT 1972 S30(1)

1 JUDGMENT of Mr. Justice Charleton delivered the 26th February, 2010

2 1. The applicants claim the right to cross-examine a tax inspector on a V.A.T appeal before the Appeal Commissioners. In May, 2004 the Revenue Commissioners, through the tax inspector, assessed the applicant Menolly Homes Limited to just under €20M in unpaid V.A.T. on the sale of new houses. Such sales are normally subject to V.A.T., but these apparently took place in the context of a scheme of leasing as between closely related companies. The Revenue Commissioners did not accept the transactions carried a V.A.T. exemption. Menolly Homes claimed they did not owe this amount of V.A.T., or anything like it. They say that the assessment should never have been raised. They appealed to the Appeal Commissioners claiming their leasing arrangements entitled them to a V.A.T exemption. A hearing, lasting so far about 16 days, took place over two years between 21 ^st May, 2007 and 29 ^th May, 2009. This judicial review is essentially about proceedings on that last day. Fundamentally, the applicant claimed that the tax inspector who assessed that the tax was due had no "reason to believe" that an amount of tax was due and payable by them; the statutory formula which allows him to raise an assessment. As taxpayers, they proposed to call that tax inspector in evidence on the appeal before the Appeal Commissioners and to cross-examine him as to his state of mind five years previously when he had raised the assessment. This was with a view to demonstrating one of: a lack of good faith; that his view was not factually sustainable or; that his view was unreasonable. They did not specify which. The Revenue Commissioners protested the calling of the tax inspector for the purpose of cross-examination by the applicant and would not tender him in evidence. They said there was no jurisdiction and, in any event, no issue requiring him to be heard arose. The Appeal Commissioners ruled in the favour of the Revenue Commissioners.

3 2. The matter now comes here for judgment whereby it is sought to upset that decision and require the respondents to proceed on the basis of allowing the applicant to cross-examine the tax inspector. Two factors, principally, excite the applicants into the thought that there might be profit to this cross-examination: firstly, that the concept of abusive process, whereby the true but underlying nature of transactions are discovered by analysing and redefining an apparently lawful and V.A.T. exempt guise, was not crystallised in European or Irish Law at the time of the V.A.T. assessment; and, secondly, that inquiries made by the Revenue Commissioners into these transactions after the assessment was made might be demonstrated to show them floundering around in post-justification enthusiasm.

4 3. The applicants contend that an Appeal Commissioner would have authority to call an inspector of taxes or to require the Revenue Commissioners to make him available for cross-examination. The applicant contends that the Appeal Commissioners therefore had jurisdiction to rule that the assessment was not properly raised and thus to strike it down. To do otherwise, it is argued, would leave a want of fair procedures whereby a witness who could be cross-examined, and thus give valuable evidence, would not be heard. This desire to hear from this witness, and to subject him to the challenge of cross-examination was, the applicant say, "well flagged"; the crystallisation of this issue resulting in the ruling against the applicants of the 29 ^th May 2009. Having a "reason to believe" or, more importantly from the point of view of the applicants, not having a "reason to believe", is only ascertainable, the applicant's contend, from the evidence of the tax inspector. Nothing on the face of the documents, they assert, shows the grounds for such a reason and, indeed, the document of assessment from the Revenue Commissioners consists of a characteristically terse statement that V.A.T. is due, followed by a schedule of figures. The wording of the legislation, in referring to the power of the Appeal Commissioners "to reduce or abate" the liability of a taxpayer indicates, it is argued, wide-ranging powers including, in effect, the power to strike down a tax assessment. As to when any taxation issue about the sale and leasing of these new homes as to bank consent, the validity of an arrangement for lease of land and sale, or the legal effect of documents apparently exchanged between related companies, might have arisen, the inspector's mind might not, the applicant argues, be able to say much factually about that, but a great deal could be gleaned through cross-examination as to what he knew, or had "reason to believe", when this allegedly unlawful tax assessment was first raised.

5 4. In that regard, the majority of the argument before the Appeal Commissioners has hinged on a rule of interpretation in European Law that some might argue has been around since 1974; van Binsbergen v. Bestuur van de Bedrijfsvereniging voor de Metaalnijverheid, ( Case 33/74) [1974] E.C.R. 1229. However, this rule established itself only, it is contended by the applicants, well after the tax assessment with what might be urged to be, from the point of view of the Revenue Commissioners either a reiteration of that principle, or its statement in digestible form, in Halifax plc, Leads Permanent Development Services Limited, County Wide Property Investments Limited v. Commissioners of Customs and Excise(Case C-255/02) [2006] E.C.R. I-1609. All of this concerns the redefining of purported legal transactions to achieve a V.A.T. exemption in order to discover their real effect.

6 5. Fortunately, it is not necessary for me to decide those issues or as to whether there might be any similarity in the situation under review before the Appeal Commissioners and the judgment of this court Cussens v. Brosnan, [2008] IEHC 169; now under appeal to the Supreme Court. Rather, this case concerns the jurisdiction on appeal in a V.A.T. assessment before the Appeal Commissioners; whether any jurisdiction to order cross-examination has been decided at that appeal within jurisdiction; and whether a delay of approximately five years between the raising of the assessment and the ruling on the issue of cross-examination informs the courts interpretation of the relevant legislation, or operates as a discretionary bar to any form of judicial review relief that might otherwise arise.

Background

7 6. The applicants are builders. In respect of a substantial number...