Viera Ltd v Revenue Commissioners

• Jurisdiction: Ireland
• Judge: O'Neill J.
• Judgment Date: 06 October 2009
• Neutral Citation: [2009] IEHC 431
• Court: High Court
• Docket Number: [No. 895 J.R./2007]
• Date: 06 October 2009

[2009] IEHC 431

THE HIGH COURT

[No. 895 J.R./2007]

Viera Ltd v Revenue Commissioners

Viera Limited

Applicant

And

The Revenue Commissioners

Respondents

VALUE-ADDED TAX ACT 1972 S23

VALUE-ADDED TAX ACT 1972 S30(4)(A)(ii)

VALUE-ADDED TAX ACT 1972 S4

VALUE-ADDED TAX ACT 1972 S23(2)

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

LYNCH, STATE v COONEY & AG 1982 IR 337

BROADCASTING AUTHORITY ACT 1960 S31(1)

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

VALUE-ADDED TAX ACT 1972 S22

VALUE-ADDED TAX ACT 1972 S23(1)

HONIG & ANOR v SARSFIELD (INSPECTOR OF TAXES) 1986 STC 246

CUSTOMS & EXCISE CMRS v LE RIFIFI LTD 1995 STC 103

VALUE-ADDED TAX (ESTIMATION OF TAX PAYABLE & ASSESSMENT OF TAX PAYABLE OR REFUNDABLE) REGS 2000 SI 295/2000 REG 5(2)

RSC O.84 r21

REVENUE

Value added tax

Notice of assessment - Validity - Whether notice out of time and void - Meaning of phrase "reason to believe " - Whether requisite reason to believe that sum assessed due and payable - Statutory discretion to raise assessment - Whether respondents must hold opinion which is bona fide, factually sustainable and not unreasonable - Volume and quality of information available - Whether two assessments to VAT made or one assessment only - Time limits on raising of assessments - Whether for inspector to choose whatever period in respect of which tax is due and payable - Whether separate assessments can be raised in respect of separate periods and not one assessment in respect of several periods - Whether delay on the part of the applicant in bringing proceedings and amending grounds bar to relief - Honig v Sarsfield [1986] STC 246; State (Lynch) v Cooney [1982] IR 337; Van Boeckel v Customs and Excise Commissioners [1981] STC 290, [1981] 2 All ER 505 and Customs and Excise Commissioners v Le Rififi Ltd [1995] STC 103 considered - Value Added Tax Act 1972 (No 22), ss 4, 23(1) and 30(4)(a)(ii) - Value Added Tax (Estimation of Tax Payable and Assessment of Tax Payable or Refundable) Regulations 2000 (SI 295/2000) - Rules of the Superior Courts 1986 (SI 15/1986) O 84 r 21 - Relief refused (2007/895JR - O'Neill J - 6/10/2009) [2009] IEHC 431

Viera Ltd v Revenue Commissioners

Facts The applicant sought by way of judicial review, a declaration that the notice of assessment to value added tax in the sum of €3,085,021 raised by the respondents on the applicant on 14 December 2006, pursuant to s. 23 of the Value Added Tax Act, 1972 was invalid. The applicant had applied for a refund of corporation tax and had submitted various documents in support of same. The respondent noted discrepancies in relation to VAT payments and a VAT audit was commenced. On the applicant's appeal of the notice of assessment a meeting was requested by a representative of the respondent to obtain a better understanding of the issues involved as the facts were not fully apparent from the file. The applicant submitted that as a result of the foregoing, the assessments were raised in circumstance where the respondent was not aware of fundamental facts and consequently could not have had a 'reason to believe' that VAT was due and payable at that time. The applicant obtained leave on 13 July 2007 to include an additional ground that the notice of assessment referred to one assessment only in the total amount of €3,085,021 and that such a purported one total assessment was out of time in accordance with s. 30(4) (a)(ii) of the Act of 1972.

Held by O'Neill J. in refusing the application: That the concept of having 'reason to believe' involved an analysis of the subjective state of mind of the respondent's inspector based on the objective information before him. The respondent had ample 'reason to believe' that an amount of tax was due and payable by the applicant, which was calculated on the basis of the extensive financial material in the respondent's possession. There were two assessments encapsulated in the notification of the assessment and the assessment for the period 1 September 2003 to 31 August 2004 was valid. There was gross culpable delay on the part of the applicant in relation to the application for leave regarding the amended ground, which was not explained and consequently the applicant was out of time in bringing that amended ground.

Reporter: L.O'S.

O'Neill J.

2 1.1 This Court (Peart J.) granted leave on the 16^th July, 2007, to seek the following reliefs by way of judicial review:-

1 A declaration that the notice of assessment to value added tax in the sum of €3,085,021 raised by the respondents on the applicant on the 14^th December, 2006, pursuant to the provisions of s.23 of the Value Added Tax Act 1972 is invalid.

2 In the alternative an order of certiorari quashing the notice of assessment to value added tax in the sum of €3,085,021 raised by the respondents on the applicant on the 14^th December, 2006, pursuant to the provisions of s.23 of the Value Added Tax Act 1972.

3 An order of certiorari preventing the respondents from relying upon the notice of assessment to value added tax in the sum of €3,085,021 raised on the applicant on the 14^th December, 2006, to collect the said sum or any sum of value added tax for the period covered by the assessment.

3 1.2 On the 6^th March, 2009, this Court (Hedigan J.) granted the applicant leave to amend its original statement of grounds to seek the following additional reliefs:-

4 A declaration that the assessment in the total sum of €3,085,021 described in the notice of assessment to value added tax dated the 14^th December, 2006, raised by the respondents on the applicant pursuant to the provisions of s.23 of the Value Added Tax Act 1972 is one assessment only.

5 A declaration that the assessment in the total sum of €3,085,021 described in the notice of assessment to value added tax raised by the respondents on the applicant on the 14^th December, 2006, pursuant to the provisions of s.23 of the Value Added Tax Act 1972 is out of time in respect of the total sum of €3,085,021 by reference to the provisions of s. 30(4)(a)(ii) of the Value Added Tax Act 1972, and is accordingly void.

2 2.1 The applicant is a construction company engaged primarily in the development and sale of residential houses. It applied for a refund of corporation tax for the year ended the 31^st August, 2004, and in respect of this application it submitted a director's report and financial statements for the year ended the 31^st August, 2004. The financial statements also included figures from the preceding financial year. Mr. Aidan O'Brien, an official of the respondents, in the course of dealing with this refund claim, noted discrepancies between the sales figures as reported in the financial statements and the total annual gross sales figures as returned by the applicant for value added tax ("VAT") purposes. He noted that the figures for VAT sales were considerably less than the sales figures contained in the financial statements in respect of the years ending the 31^st August, 2003, and the 31^st August, 2004. Mr. O'Brien was of the view that the matter warranted further investigation and on the 23^rd August, 2005, a VAT audit commenced on the applicant company in respect of the financial year ended the 31^st August, 2004.

3 2.2 On the same date as the commencement of the audit, a meeting was held at the business premises of the applicant company between Mr. Larkin, a director of the applicant company, Mr. Byrne of Dermot Brennan & Associates, auditors to the applicant company, and Mr. Lockhart, Tax Principal at Matheson Ormsby Prentice, Solicitors. It transpired that the applicant had entered into licence agreements with McPeake Auctioneers, the auctioneering firm engaged to sell the applicant company's dwellings. In essence, the licence agreements were agreements to let dwellings to McPeake Auctioneers on a short term basis, thereby purportedly surrendering possession to the auctioneers. The objective of this arrangement was to make the applicant liable for VAT on the lower value of the cost of land or buildings only, rather than at the higher full selling price as per s.4 of the Value Added Tax Act1972 ("the Act of 1972").

4 2.3 On the 26^th August, 2005, Mr. O'Brien wrote to the applicant to extend the scope of the audit to cover VAT from the 1^st January, 2002, onwards. A further meeting took place at the business premises of the applicant between Mr. O'Brien and Mr. Byrne of Dermot Brennan & Associates on the 6^th October, 2005. The day after this meeting Mr. O'Brien informed the applicant by letter that he did not accept the tax treatment of the licence agreements which was proposed by the applicant. This was replied to by Mr. Lockhart by letter dated the 13^th February, 2006, which was, in turn, replied to by Mr. O'Brien on the 26^th June, 2006, again reiterating his non-acceptance of the propriety of the scheme. On the 13^th December, 2006, Mr. O'Brien wrote to the respondents to input estimates under s.23 of the Act of 1972 to recover VAT due on the selling prices of the applicant company's properties for the years ending the 31^st August, 2003, and the 31^st August, 2004. A notice of assessment then issued to the applicant company on the 14^th December, 2006, in the sum of €3,085, 021. By letter dated the 22^nd December, 2006, Mr. Lockhart, on behalf of the applicant company, advised the respondents that it was exercising its right to appeal the notice of assessment pursuant to s. 23(2) of the Act of 1972 on the grounds that "it considers the assessment to be excessive." Mr. Condon, who is Mr. O'Brien's supervisor, acknowledged receipt of the notification of appeal by letter dated the 24^th January, 2007, and advised that all correspondence and contact should be directed to him with regard to the appeal.

5 2.4 On the 6^th March, 2007, a meeting was convened by Mr. Condon with Mr. Lockhart and...