ASOS PLC v Revenue & Customs (VAT - SUPPLY : Single or multiple) [2018] UKFTT 353 (TC)

FTT-Tax
ASOS PLC v Revenue & Customs (VAT - SUPPLY : Single or multiple)
[2018] UKFTT 353 (TC) · 2018-06-13
[30]“ [30] In my view the problems in this case have arisen from the fact that neither the Tribunal nor the judge clearly identified the issue that had to be determined. Given that the original sales under the terms of the Supply Agreement on the dealer sold basis constituted taxable supplies of goods by one registered person to another they necessarily gave rise to an output tax to be paid and an input tax to be brought into account. Those consequences could only be altered after the event under some statutory authority. The relevant authorities in this case are Article 11 C 1 of the Sixth Directive (77/388/EEC) and Regulation 38 VAT Regulations 1995 SI 1995/2518. [31] Article 11C(1) [ of the Sixth VAT Directive, now Article 90 PVD ] is applicable to ‘cancellation’ or cases where ‘the price is reduced after the supply takes place’. It seems to me to be axiomatic that such cancellation or reduction be pursuant to some legal entitlement whether arising from or conferred by the original contract of supply or subsequently; otherwise VAT would be a voluntary tax in every sense of the word. The legal entitlement might take the form of a remedy, such as rescission for mistake or misrepresentation, a right under the original contract to return the goods in certain specified events or a subsequent agreement discharging the original contract.[32][32] So the task of the Tribunal and the judge was to ascertain whether Brunel had a legal right to the discharge of the original supply. It was not provided by Clause 12. There was no vitiating factor in the conclusion of the original contracts of supply. It could only have arisen under some other provision of the original contract or by reason of some subsequent agreement.[34]…………………….. [34] It follows that the taxable consequences of the original supplies of vehicles by Ford to Brunel can only be discharged by some subsequent contractual rescission or novation which is evidenced by the credit notes. It does not appear to me that the Tribunal reached any such conclusion. They concluded at paragraph [14] that the issue of credit notes in respect of repossessed vehicles which have not been paid for was standard practice of Ford. They returned to this question later when they concluded at paragraph [38] that the credit notes served to confirm the cap upon the contractual liability of Brunel which would have been anticipated by the contracting parties as likely to result if the Supply Agreement was operated in accordance with its terms. Paragraphs [39] to [41] dealt with the absence of any bad debt relief being available to Ford. The conclusion in paragraph [42] repeated that the credit notes had been volunteered by Ford in recognition of its inability to obtain payment from Brunel of the price of the vehicles repossessed. In dismissing the appeal the Tribunal was accepting the original view of HMRC that it could not ignore the consequences of the credit notes. In my view they were wrong to have done so. ……………………..[38][38] In my view, therefore, the appeal should be allowed. But it does not follow, as counsel for Brunel accepted, that we should reach the converse conclusion to the effect that the credit notes did not evidence a right of Brunel http://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWC A/Civ/2009/118.html&query=(Brunel)+AND+(motor)+AND+(court)+AND+(of)+AND+(appeal) - disp72 to the contractual discharge of the original contract of supply and were ineffective for all legal purposes including VAT. It appears to me that the Tribunal never asked themselves the right question. They never considered the facts from the correct perspective. Had they done so they might, not would, have concluded that the original contracts of supply had been discharged by subsequent agreement of the parties, to be inferred at least in part from their conduct, of which the credit notes were evidence…... ”42. The Chancellor of the High Court concluded that there was nothing in the original agreement that gave Ford a right to cancel the supply, but that it was possible that the parties agreed a subsequent contractual rescission and the Value Added Tax and Duties Tribunal had never asked itself the right question (at [30]-[34]). The case was remitted to the First Tier Tribunal FTT (which had by then replaced the Value Added Tax and Duties Tribunal).43. The FTT concluded that there was no agreement between Ford and Brunel for the rescission of the original contract for the supply of cars. Henderson J dismissed Ford and HMRC’s appeal to the UT ( [2013] UKUT 6 (TCC) (“ Brunel (UT) ”). Relating to cancellation, Henderson J stated at [24] & [54]: “ [24] The relevant underlying principles of law are not in dispute between the parties. It is common ground that, as a matter of law, the terms of a contract can be rescinded or varied only by a subsequent agreement supported by valid consideration or under seal: see, for example, Stamp Duties Comr v Bone [1976] STC 145 at 151, [1977] AC 511 at 519 per Lord Russell of Killowen, delivering the opinion of the Privy Council (‘A debt can only be truly released and extinguished by agreement for valuable consideration or under seal.’) It follows that the mere unilateral issue of the credit notes by Ford could not, by itself, extinguish the indebtedness under the original contracts of supply. ……………………………… [54] In considering these submissions, I begin with the point, which Mr Milne rightly put at the forefront of his oral argument, that what has to be found in order to reverse the VAT consequences of the original supply of cars is a discharge by subsequent agreement of the contract for that original supply. Nothing less will do; and the mere fact that the receivers entered into a subsequent agreement with Ford for the re-supply of the cars, after they had been repossessed, does not of itself entail that the previous contract must have been cancelled.”44. In Almos Agrarkulkereskedelmi Kft v Nemzeti Ado-es Vamhivatal Kozep-magyarorszagi Regionalis Ado Foigazgatosaga (Case C-337/13) (“ Almos ”) the CJEU said: “[25] It must be noted in that regard that, if the total or partial non-payment of the purchase price occurs without there being cancellation or refusal of the contract, the purchaser remains liable for the agreed price and the seller, even though no longer proprietor of the goods, in principle continues to have the right to receive payment, which he can rely on in court. Since it cannot be excluded, however, that such a debt will become definitively irrecoverable, the European Union legislature intended to leave it to each Member State to determine whether the situation of non-payment of the purchase price, which, of itself, unlike cancellation or refusal of the contract, does not restore the parties to their original situation, leads to an entitlement to have the taxable amount reduced accordingly under conditions it determines, or whether such a reduction is not allowed in that situation.”45. The importance of the contractual arrangements is demonstrated by the judgment in Société thermale d'Eugénie-les-Bains v Ministère de l'Économie, des Finances et de l'Industrie Case C-277/05; [2008] STC 2470 (“ Société Thermale ”) where the CJEU recognised that contracting parties may wish to provide the cancellation of a supply will not require the supplier to refund all money paid by its customer: “ The question referred for a preliminary ruling[16][16] By its question, the national court is asking, in essence, whether a sum paid as a deposit by a client to a hotelier is, where the client exercises the cancellation option available to him and that sum is retained by the hotelier, to be regarded as consideration for the supply of a reservation service, which is subject to VAT, or as fixed compensation for cancellation, which is not subject to VAT. ……[18][18] In the present case, the situation to be examined is that in which the party who has paid a deposit is free to go back on his undertaking, thereby forfeiting that deposit, while the other party may exercise the same option, whereupon it must return double the amount of the deposit. There is no need to examine the rights which may be relied upon by either of those parties if the other exercises that option. ……………. [22] In that regard, it must be noted that Article 90(1) of the VAT Directive, which relates to cases of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, requires the Member States to reduce the taxable amount and, consequently, the amount of VAT payable by the taxable person whenever, after a transaction has been concluded, part or all of the consideration has not been received by the taxable person. That provision embodies one of the fundamental principles of the VAT Directive, according to which the taxable amount is the consideration actually received and the corollary of which is that the tax authorities may not charge an amount of VAT exceeding the tax paid by the taxable person (see, to that effect, Case C‑588/10 Kraft Foods Polska EU:C:2012:40 , paragraphs 26 and 27). …….. [26] Since the obligation to make a reservation arises from the contract for accommodation itself and not from the payment of a deposit, there is no direct connection between the service rendered and the consideration received ( Apple and Pear Development Council , paragraphs 11 and 12, Tolsma , paragraph 13, and Kennemer Golf , paragraph 39). The fact that the amount of the deposit is applied towards the price of the reserved room, if the client takes up occupancy, confirms that the deposit cannot constitute the consideration for the supply of an independent and identifiable service.[27][27] Since the deposit does not constitute the consideration for the supply of an independent and identifiable service, it must be examined, in order to reply to the referring Court, whether the deposit constitutes a cancellation charge paid as compensation for the loss suffered as a result of the client's cancellation.[28][28] In that regard, it should be noted that the contracting parties are at liberty subject to the mandatory rules of public policy to define the terms of their legal relationship, including the consequences of a cancellation or breach of their obligations. Instead of defining their obligations in detail, they may nevertheless refer to the various instruments of civil law.[29][29] Thus the parties may make contractual provision applicable in the event of non-performance for compensation or a penalty for delay, for the lodging of security or a deposit. Although such mechanisms are all intended to strengthen the contractual obligations of the parties and although some of their functions are identical, they each have their own particular characteristics. [32] Whereas, in situations where performance of the contract follows its normal course, the deposit is applied towards the price of the services supplied by the hotelier and is therefore subject to VAT, the retention of the deposit at issue in the main proceedings is, by contrast, triggered by the client's exercise of the cancellation option made available to him and serves to compensate the hotelier following the cancellation. Such compensation does not constitute the fee for a service and forms no part of the taxable amount for VAT purposes (see, to that effect, as regards interest applied on account of late payment, Case 222/81 BAZ Bausystem [1982] ECR 2527, paragraphs 8 to 11). ….[35][35] Since, on the one hand, the deposit paid does not constitute the fee collected by a hotelier by way of genuine consideration for the supply of an independent and identifiable service to his client and, on the other hand, the retention of that deposit, following the client's cancellation, is intended to offset the consequences of the non-performance of the contract, it must be held that neither the payment of the deposit, nor the retention of that deposit, nor the return of double its amount is covered by Article 2(1) of the Sixth Directive. 46. In Lombard Ingatlan Lizing (VAT - Taxable amount : Judgment) [2017] EUECJ C-404/16 (12 October 2017) the CJEU considered Almos and stated at [20]-[26]:
“20 It should be recalled that Article 90(1) of the VAT Directive provides for the reduction of the taxable amount in the event of cancellation, refusal, total or partial non-payment, or where the price is reduced after the supply takes place. 21 In that regard, the Court has consistently held that provisions of EU law must be interpreted and applied uniformly in the light of the versions existing in all the languages of the European Union. Where there is divergence between the various language versions of an EU legislative text, the provision in question must be interpreted by reference to the general scheme and the purpose of the rules of which it forms part (judgment of 17 May 2017, ERGO Poist’ovňa , C‑48/16, EU:C:2017:377 , paragraph 37). 22 With regard to the terms ‘cancellation’ and ‘refusal’, it should be noted that most language versions of that provision, including the German and the French versions, refer to three possible situations, whereas other language versions, such as the English and the Hungarian versions, refer to two situations only. 23 As observed by the European Commission, the intent to include cancellation with retroactive ( ex tunc ) as well as with prospective ( ex nunc ) effect may explain the use in Article 90(1) of the VAT Directive of three terms, inter alia, in the German and the French versions. 24 The terms ‘elállás’ and ‘teljesítés meghiúsulása’ in the Hungarian version of that article do not preclude that interpretation in that they refer, respectively, to the retroactive refusal of an agreement and to a failed transaction. 25 That interpretation of Article 90(1) of the VAT Directive corresponds, in any event, to the general scheme and the purpose of that provision. 26 According to the case-law of the Court, in the situations covered by that provision, Article 90(1) of the VAT Directive requires the Member States to reduce the taxable amount and, consequently, the amount of VAT payable by the taxable person whenever, after a transaction has been concluded, part or all of the consideration has not been received by the taxable person. That provision embodies one of the fundamental principles of the VAT Directive, according to which the taxable amount is the consideration actually received and the corollary of which is that the tax authorities may not collect an amount of VAT exceeding the tax which the taxable person received (see, to that effect, judgment of 15 May 2014, Almos Agrárkülkereskedelmi , C‑337/13, EU:C:2014:328 , paragraph 22).”
The Appellant’s submissions 47. Mr Hitchmough QC for the Appellant addressed the three questions set out at paragraph 5 above. He submitted that they were all to be answered in the affirmative and the effect was that the retained amounts or delivery charges were not subject to VAT. Therefore the overpaid amount of output tax in respect of the VAT periods in question should be returned to the Appellant. He submitted that the fact that there were contractual terms allowing the Appellant to retain the delivery charges on cancellation of the supply did not give rise to a liability to VAT on those sums - the VATable supplies of goods had been cancelled. (1)Is ASOS making a single supply of delivered goods or two supplies: one of goods and the other of delivery? 48. Mr Hitchmough QC for the Appellant submitted that HMRC agreed that the Appellant was making a single supply of delivered goods. This was unsurprising in light of the decision in Customs and Excise Commissioners v British Telecommunications Plc [1999] 1 WLR 1376 (“ BT ”). 49. He submitted that the sale of clothing made by ASOS to its customers involves two elements: the sale of the clothing, and the delivery of that clothing. The delivery does not constitute for customers an aim in itself and is clearly subordinate to their purchase of the clothing. Further, ASOS has no physical shops meaning that the only way customers can obtain the clothing they purchase is by having it delivered. Therefore, delivery of the clothing is ancillary to the supply of the clothing. The two elements constitute a single supply from an economic point of view of which the clothing (goods) is the principle element. As was the case in BT , the fact that the delivery charge is identified separately does not alter the conclusion that as a matter of economic and commercial reality the customer is paying for a single supply of delivered clothing. (2) Is it possible, in principle for a supply of goods to be cancelled after the supply has been made, in particular, in circumstances where the supply involves ancillary service elements? 50. The second submission Mr Hitchmough QC relied upon was that the cancellation of the supply of goods after supply was effective. 51. He made three points on cancelling supplies of goods. 52. First, authority demonstrated that it is certainly possible to cancel a supply of goods after it has been made. Second, the contractual arrangements between the parties are crucial: they determine whether it is open to one party to cancel the supply unilaterally, whether a supply has been cancelled and the terms on which cancellation takes place. Third, supplies of services cannot usually be cancelled after they have been made; this is to be expected, unlike supplies of goods it will not usually be possible to restore parties to their original positions. (a)The possibility of cancelling a supply of goods after it is made 53. Mr Hitchmough QC submitted that this was the precise issue that arose in Brunel Motor Company Ltd (in administrative receivership) v HMRC [2009] STC 1146 (“ Brunel (CA) ”). He submitted that the Chancellor had concluded that there was nothing in the original agreement that gave Ford a right to cancel the supply, but that it was possible that the parties agreed a subsequent contractual rescission and the Value Added Tax and Duties Tribunal had never asked itself the right question (at [33]-[34]). He further submitted that Henderson J dismissed Ford and HMRC’s appeal to the UT ( [2013] UKUT 6 (TCC) (“ Brunel (UT) ”). 54. He relied on paragraph 34 of the Court of Appeal judgment and paragraph 54 of Henderson J’s judgment in the Upper Tribunal in submitting that, in this case, the VAT consequences had been ‘discharged’ or ‘reversed’ by the Appellant’s agreeing a contractual right for the customer to cancel the supply and the Appellant to retain the delivery charge. He submitted that the decisions in Brunel demonstrate clearly that had Ford and Brunel agreed, either in the original contract or subsequently, conditions under which the supply of cars would be cancelled then this would have been effective to cancel the supply and “ to reverse [its] VAT consequences ”. This was despite Ford also having responsibility to deliver the cars and possession in the cars having passed to Brunel. 55. Mr Hitchmough QC submitted that HMRC’s primary argument appeared to be that a supply of goods once made can never be cancelled, and that this applies a fortiori where the supply of goods also involves ancillary service elements that cannot be returned. The decisions of the Court of Appeal and Upper Tribunal in Brunel demonstrated that this argument is misconceived. It is also fundamentally inconsistent with the long-standing position in English law that contracts for the transfer of goods can be rescinded following execution (a situation that most commonly comes before the courts in cases of misrepresentation). (b)The importance of the contractual arrangements 56. Mr Hitchmough QC submitted that HMRC also appear to assert (relying on HMRC v Robertson's Electrical Ltd [2007] STC 612) that cancellation of the supply for VAT purposes means something different from cancellation of the contract in English contract law; HMRC cite no authority in support of this ( Robertson’s Electrical Ltd does not support it). The authorities clearly demonstrate that this is false: cancellation for VAT purposes and cancellation of the contract are treated as synonymous by the Court of Appeal and Henderson J in the UT in Brunel , and the CJEU’s judgment in Almos (at [25]) refers to cancellation in the Article 90(1) sense as cancellation of the contract. 57. He submitted that, as Brunel makes clear, the contractual arrangements are a crucial part of the analysis on cancellation. The same point is demonstrated by Re Liverpool Commercial Vehicles Ltd [1984] BCLC 587 (“ LCV ”) a case relied on by HMRC, in their published guidance on cancellation. HMRC draw attention to Vinelott J’s statement that:
“I can see no ground on which a delivery of goods pursuant to a contract which contains a title retention clause and which constitutes a supply in respect of which VAT has become due within the clear terms of the legislation can later be said not to constitute a supply because the goods are repossessed by the vendor.” 58. He submitted that the important proviso in Vinelott J’s conclusion is “ because the goods are repossessed by the vendor ”
. As is stated in Brunel (CA) in which LCV was cited, unilateral repossession is not sufficient to cancel a contract (unless the contract provides that it will); cancellation must be effected either by the exercise of a right created by the original contract (or by statute), or by agreement between the parties subsequent to the original contract. Indeed, such a possibility is expressly considered by Vinelott J in LCV , who also said:
“ A return or assessment may have to be adjusted if in the light of later events it transpires to have been incorrect and it may be that an adjustment falls to be made if it transpires that a supply was made under a contract which is later found to be void or which is rectified or rescinded .” 59. The further importance of the contractual arrangements is shown by Société thermale d'Eugénie-les-Bains v Ministère de l'Économie, des Finances et de l'Industrie Case C-277/05; [2008] STC 2470 (“ Société Thermale ”) where the CJEU recognised that contracting parties may wish to provide the cancellation of a supply will not require the supplier to refund all money paid by its customer: “[28] In that regard, it should be noted that the contracting parties are at liberty – subject to the mandatory rules of public policy – to define the terms of their legal relationship, including the consequences of a cancellation or breach of their obligations. Instead of defining their obligations in detail, they may nevertheless refer to the various instruments of civil law .”
Cancelling supplies of services 60. Mr Hitchmough QC submitted that HMRC attempted to draw principles about cancellation from cases on the supply of services. The cases were largely irrelevant to cancellation of supplies of goods. 61. He submitted that in Customs and Excise Commissioners v Bass plc [1993] STC 42 (“ Bass ”) customers could make guaranteed hotel reservations where Bass, the hotelier, promised to make the room available, and on cancellation the customer was charged the price of one night’s stay. Popplewell J concluded that the customer received the right to use a room for the night, whether or not they did so. Therefore, a supply of services had been made. 62. The Appellant did not contend, and it was not necessary for its case, that supplies of services, once performed can be cancelled. It is uncontroversial that the parties cannot usually be returned to substantially their original position once services have been supplied; however, as the Court of Appeal clearly accepted in Brunel , the situation is different where the supply is of goods including delivered goods. 63. He submitted that HMRC’s reliance on Société Thermale is misconceived for the same reason: to cancel a contract parties must be returned to substantially their original positions, for supplies of goods this is possible even after the supply has occurred, whereas for supplies of services it is not. It is instructive to note that the same analysis applies in relation to rescission as a remedy for misrepresentation. (3) If the Appellant is making a single supply of delivered goods and it is possible to cancel such a supply, is this what has happened when customers returned goods to ASOS in accordance with the Returns Policy? 64. Mr Hitchmough QC submitted that when a customer elects to return the goods to the Appellant, they cancel the supply and the parties are returned to their original positions. The Appellant’s view is that the customer is exercising a right granted to them under the initial sale contract. Even if this not the case, the cancellation of the contract would be the result of a bilateral agreement between the Appellant and the customer, the Appellant having made an offer in the Returns Policy, which the customer accepts by attempting to make a return. As the Court of Appeal made clear in Brunel , either course is sufficient to cancel a contract for the supply of delivered goods. 65. The effect of cancellation is that the taxable consequences of the original supply are “ discharged ” ( Brunel (CA) at [34]) or “ reversed ” ( Brunel (UT) at [54]), meaning that for VAT purposes the Appellant has no longer made a supply. The economic and commercial reality is that the Retained Amount restores the Appellant to its pre-contractual bargaining position (analogous to the contract allowing for the retention of the deposit in Société Thermale ). The Retained Amount cannot be consideration for VAT purposes because there is no long a supply in respect of which it can be consideration. 66. He submitted that the commercial reality of the Appellant’s agreement with its customers is that a customer can cancel a supply on condition that the Appellant retains the Retained Amount to restore it to its pre-contractual bargaining position. Such a possibility was expressly recognised in Société Thermale . HMRC’s submissions 67. Mr MacNab on behalf of HMRC took issue with each step in the Appellant’s reasoning. 68. He submitted that the Appellant’s arguments were inconsistent with the actual transaction(s) between it and the customer and with the economic and commercial reality of the transaction(s). 69. He submitted that the basic flaw in the Appellant’s argument is that it misapplies the CPP/Levob principles on single/multiple supplies and either applies those principles to a question to which they are not applicable, or fails to carry those principles to their logical conclusion. The Appellant’s case confuses the question of whether there has been a taxable “supply” or “supplies” (and the effect of subsequent events on that supply or supplies), with the question of how that supply is (or those supplies are) to be characterised for VAT purposes. The CPP/Levob principles are relevant only to the characterisation of the supply for VAT purposes. 70. Mr MacNab submitted that those principles are not relevant to ascertaining the terms of the actual transaction itself or the VAT consequences of events subsequent to the initial supply. ASOS’s argument ignores the fact that the original transaction between ASOS and customer comprised a bundle of features or elements, namely the sale of the goods and the special (non-standard) delivery of those goods, for which the customer paid a consideration comprising the price of the goods and the delivery charge; but that only one of those features or elements has been “reversed” (by return of the goods by the customer and the refund of the price by the Appellant) – or, put another way, one of those features has not been reversed, since the Appellant has not refunded the delivery charge. 71. He submitted that the sale of the goods and the supply of the special delivery service would, if considered separately, be taxable supplies. The return of the goods and refund of the purchase price 5 could have no effect on the VAT treatment of the delivery and delivery charge. It makes no difference to the analysis in this case that the two elements were together treated as a single, composite supply of goods. 72. In that regard, it is common ground that the transaction between the Appellant and customer was to be characterised for VAT purposes as a single, taxable supply of (delivered) goods, in accordance with standard CPP/Levob principles, as applied in CEC v British Telecommunications Plc [1999] 1 WLR 1376 (“ BT ”) and reflected in §2.2 of VAT Notice 700/24. Those standard principles are summarised in Honourable Society of Middle Temple v RCC [2013] STC 1998 at [60]. 73. Mr MacNab accepted that in this case the ancillary delivery element shared the VAT treatment of the principal goods element. However, and as already noted above, CPP/Levob is relevant only to the VAT characterisation of the supply. The Appellant cannot seek to use that characterisation for VAT purposes to “reconfigure” the underlying commercial transaction: cf. Case C-8/17 Biosafe , per AG Kokott at AGO [51], ECLI:EU:C:2017:927 ; and compare also Secret Hotels2 Ltd [2014] STC 937 at [29]-[35] (Lord Neuberger P); Airtours Holidays Transport Ltd [2016] STC 1509 at [42]-[58], esp. [45]-[49] (Lord Neuberger P); ING Intermediate Holdings Ltd [2017] STC 320 , UT, at [35]-[39]. 74. He submitted that the delivery element remains a feature of the overall transaction(s) and of the overall single, composite supply and cannot be ignored. For VAT purposes, it either remains part of a single composite supply of goods for a consideration, or a separate supply of services for a consideration. Either way, it remains something that has been done, or part of something that has been done, by the Appellant for a consideration and remains a taxable supply or part of a taxable supply, regardless of how the supply is characterised for VAT purposes. 75. Mr MacNab submitted that the delivery element has not been “reversed” or “cancelled”, either because it cannot be (having been performed) or because the parties have not purported to do so by refund of the delivery charge. Put another way, the Appellant’s argument to the effect that there can no longer be any (taxable) supply to the customer, because the original supply was properly characterised as a supply of goods and because the goods have been returned and their price refunded, ignores the fact that the goods were themselves (only) one element of the bundle features comprising the single composite supply; and that it is only that element that has been reversed. 76. In conclusion he submitted that there were either two supplies (goods, special delivery), only one which has (arguably) been “cancelled”; or more likely, and his primary case that there was one composite supply (goods & special delivery), the consideration for which (price + delivery charge) has been reduced (by the amount of the price), to become the amount of the delivery charge. Discussion and Decision 77. Despite Mr Hitchmough QC’s very skilful and attractive advocacy, the Tribunal accepts the submissions and analysis of Mr MacNab on behalf of HMRC as set out above. In giving reasons for dismissing this appeal, the Tribunal adopts HMRC’s submissions and analysis as set out below. 78. The contractual and VAT positions of the Appellant are straightforward. 79. As a matter of contract (and as a matter of economic and commercial reality) the Appellant agreed to sell and deliver, and sold and delivered, goods to the customer. The customer paid the Appellant the contract price for the goods and paid a separate delivery charge for the special delivery of the goods. 80. A further feature or element of that transaction was the right of the customer to return the goods after they had been supplied (and after the contract had been performed on both sides) during the extended returns period, in return for which the customer would a refund of the price of the goods, but not of any delivery charge paid for the original special delivery. In that regard, the customer had no right to return goods, and the Appellant had no corresponding duty to accept their return, in the absence of an express term or separate agreement to that effect . 81. Both parties fully performed their obligations under that contract. Indeed, under the ASOS terms and conditions, the customer had to perform his obligations in full before any contract came into existence; the making of the contract and full performance by the customer were simultaneous. 82. In the circumstances at issue, and by whatever means it was achieved and however it is described, that contract may (arguably) be analysed as having been discharged by agreement (despite the fact that the contract was fully executed by both parties and that there were no outstanding contractual obligations from the performance of which either party had to discharged), on terms that the customer returned the goods and that the Appellant refunded the price of the goods, but not the delivery charge. 83. What is relevant is that the original contract was not rescinded (or otherwise avoided) ab initio for some extraneous vitiating factor ( e.g. misrepresentation); and that the parties have not been purportedly restored to the position as if the contract had never been made. 84. The basic position remains that the customer has furnished (monetary) consideration to the Appellant in return for something done by the Appellant. 85. As a matter of VAT analysis: (a) ASOS made a single, composite taxable supply for VAT purposes, comprising the sale of goods and the special delivery of those goods, for a monetary consideration comprising the price of the goods and the delivery charge. (Again, one of the features was the right to return the goods after the supply was completed). (b) That single, composite taxable supply was properly characterised for VAT as a supply of goods. (c) The taxable amount for which the Appellant was required to account on that taxable supply was the full monetary consideration comprising the price of the goods and the delivery charge. (d) Subsequently, the transaction was (arguably) “cancelled” –in part, but not in full (and any “cancellation” was in those circumstances prospective rather than retroactive): see Case C- 404/16 Lombard ECLI:EI:C:2017:759) – and the consideration for the single composite supply was reduced after the supply took place. (e) However analysed, the Appellant had received and retained the delivery charge paid by the customer. Accordingly, the taxable amount fell to be “reduced accordingly”: see Article 90 PVD. (f) Having regard to all the circumstances, the reduction in the taxable amount was represented by the price of the goods refunded, and not the retained delivery charge, since the total consideration received for the single composite supply was reduced only by the amount of the refund. 86. Therefore, however described, and however the bundle and series of transactions is analysed, the basic position remains that the customer paid the Appellant for the supply of something. The sums paid by the customer, not refunded by the Appellant are, and remain, consideration for a taxable supply by it to the customer, however that supply is characterised. That position follows from basic principles of VAT, as set out in the provisions of the PVD and VATA set out above. 87. Further, or alternatively, the Appellant’s argument involves a logical flaw. Its argument runs as follows: its original supply to the customer was to be characterised as a supply of goods. Because the goods were returned and the price of the goods was refunded, there can therefore be no “supply of goods”. 88. The argument is flawed for three main reasons. First, and as submitted above, it ignores the fact that the supply was a single composite supply, comprising more than feature or element, and that one or more of those features has not been reversed. In essence, the Appellant is seeking to use the VAT characterisation of the original transactions (as a single composite supply of goods) to reformulate the actual transaction. Second, and also as submitted above, it seeks to apply CPP/Levob principles to questions to which they are not relevant, namely the VAT consequences of events subsequent to the supply. Third, the Appellant relies on one subsequent event (return of the goods and refund of price) while ignoring other (non-refund of delivery charge). As matter of logic, however, the Appellant cannot have it both ways. 89. It is incorrect as a matter of fact and law, but in any event inappropriate, to seek characterise the events that occurred as involving a “rescission” or “cancellation” or “reversal” of the contract (or of the supply) in its entirety, i.e. in the sense that the contract between the Appellant and customer is deemed never to have existed or taken place. The Appellant kept the delivery charge paid by the customer. That, however, is not the same as the Appellant’s contention, namely that the contract has effectively been annulled for all purposes and must effectively be treated as never having existed. 90. In a “simple” case – where there had been no partial “reversal” or “unwinding” of the arrangements between the Appellant and its customer – there is no doubt, and no dispute, that the transaction was correctly characterised for VAT purposes as a single supply of delivered goods. The goods and delivery service are supplied at the same time and would properly be regarded as a single supply of delivered goods, the delivery service being ancillary to the supply of goods. 91. This case, however, is not that “simple” case of characterising a supply for VAT purposes. This case concerns the VAT effect of events subsequent to the supply (as characterised). The customer has returned the delivered goods and the Appellant has refunded the price of the goods but not the delivery charge. The VAT analysis must follow the facts. The Appellant’s analysis, by contrast, seeks to start from the VAT “analysis” and seeks to (re)formulate the actual transaction from that supposed VAT analysis. 92. However the events are analysed, the correct position is that when the goods were sold and delivered by special delivery, and the goods were later returned (and the price refunded), but the delivery charge was retained, an element of the single, composite supply (delivery) had been performed and remained “performed”, both because it could not be “unperformed” and because the Appellant did not refund the delivery charge. The delivery charge was and remains part of the consideration for a taxable supply, regardless of the return of the goods and refund of the price. 93. Further, and having regard to the original notice of appeal, the nonrefunded delivery charge is not a “penalty”, nor a deposit paid to encourage future performance, nor a compensation for breach of contract; and does not fall outside the scope of VAT by analogy to Société thermale . 94. By contrast to Société thermale , where the customer never stayed in the hotel room or paid the full sum to stay, the customer in the present circumstances had performed, in paying for goods and delivery in full; and the Appellant had performed its obligations to the customer in delivering the goods. There was no failure of performance and no breach of contract; and no question of the customer being required to compensate the Appellant for breach of contract. Consideration of the Appellant’s three submissions “ Issue 1 – single or multiple supply ” 95. As noted above, it is common ground that –for VAT purposes – the Appellant made a single supply of (delivered) goods, having regard to CPP/Levob principles, summarised in Middle Temple at [60]. This is not an “issue”: nor does the VAT characterisation of the supply lead to the conclusion for which the Appellant contends. “ Issue 2 – cancelling supplies of goods ” 96. The Appellant’s submissions do not address the issue in this appeal, namely the consequences of “cancellation” of part but not all of a single composite supply ( i.e. where one element, the goods, are returned and the price of those goods is refunded; but where another element (special delivery) is not undone and the delivery charge is not refunded). Thus, it is irrelevant whether it is possible to cancel a supply of goods after it has been made. 97. The Tribunal agrees that the contractual arrangements between the parties are crucial. In this appeal, the contractual arrangements lead only to the conclusion that the supply to the customer has not been “cancelled” in the sense in which the Appellant seeks to use it, namely complete unwinding of the transaction(s) and the restoration of the parties to their pre-contract positions. That is precisely because the Appellant retains part of the consideration paid by the customer for that supply. 98. The contention that “supplies of services cannot usually be cancelled after they have been made” may be debatable. In the present circumstances the Appellant has retained the service charge, i.e. the element of the consideration referable to the service element. In any event, however, it leads to the conclusion that the Appellant’s overall supply to the customer has not been and cannot be “cancelled”. “ The possibility of cancelling a supply of goods after it is made ” 99. Brunel (CA) , Brunel (UT) and Almos, do not assist the Appellant in the present appeal as they are not on point. Broadly, all concern “cancellation” of a contract for non-performance by a party. That is not the case here, since both parties had performed: the customer had paid and the Appellant had delivered the goods. 100. None of paragraphs 30-34 of the Court of Appeal’s Judgment in Brunel supports the Appellant in arriving at that the position where there is no taxable supply. Those paragraphs do emphasise, however, the importance of ascertaining whether there was a contract between the parties and what that terms of that agreement was. The VAT consequences follow the contract, not vice versa . There is no suggestion in Brunel (CA) that it concerned a situation like the present, or that the parties could themselves agree to “rescind” the taxable supply as opposed to the underlying contract giving rise to that supply. 101. Likewise, in the present case, there is no contract of the kind envisaged in Brunel (UT) (or Brunel (CA ) ) and no purported agreement to “unwind” the (original) contract in its entirety. The only contract, however it is formulated or analysed, is that described above, whereby the Appellant retained the delivery charge. 102. Almos does not support ASOS’s case. As appears from the paragraph cited, it concerns the situation of non-performance by a party, in the context of facts very different from the present. Almos at [22] does, however, undermine ASOS’s case: In that regard, it must be noted that Article 90(1) of the VAT Directive, which relates to cases of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, requires the Member States to reduce the taxable amount and, consequently, the amount of VAT payable by the taxable person whenever, after a transaction has been concluded, part or all of the consideration has not been received by the taxable person. That provision embodies one of the fundamental principles of the VAT Directive, according to which the taxable amount is the consideration actually received and the corollary of which is that the tax authorities may not charge an amount of VAT exceeding the tax paid by the taxable person … 103. In the present case, the Tribunal accepts HMRC’s submission on the “fundamental principle”, namely that the Appellant is, and remains liable for, VAT on the “consideration actually received” for the taxable supply (and not refunded). “ The importance of the contractual arrangements ” 104. The Tribunal accepts that “the contractual arrangements” are important to this case. HMRC’s position in this appeal is itself based on the Appellant’s “contractual arrangements” with the customer. 105. Contrary to the suggestion, the Court of Appeal in Brunel (CA) did not seek to draw any relevant distinction between “cancellation” of a contract and a situation where “'the price is reduced after the supply takes place”: [31]. “Cancellation” was not thereafter used as a term of art, in either Brunel (CA) or Brunel (UT). Nor was it necessary to do so in that case, where the issue was whether what had been done had been done pursuant to a contract between the parties, rather than by way of unilateral act by Ford. 106. Further, having regard to the facts of the present case, it is not necessary in this case to decide whether the events that have occurred involve “cancellation” or a situation where “the price is reduced after the supply takes place” ( cf. Article 90 PVD). For the avoidance of doubt, the Tribunal is satisfied that the present case involves the latter. There is no concept of “cancellation” of a contract in English (or contract law. The concept, however, is used in the Distance Selling Regulations. 107. Article 90 of the PVD itself is required to be interpreted and applied uniformly across the EU in the light of the general scheme and purpose of that provision: Lombard at [21]-[26], including a reference back to Almos [22], cited above. 108. The Appellant’s submission based on Société thermale [28], namely that “ the CJEU recognised that contracting parties may wish to provide the cancellation of a supply [sic] will not require the supplier to refund all money paid by its customer ”, does not reflect what the CJEU said in Société thermale [28] itself or held in the remainder of the judgment. Again, in Société thermale at [21]-[36], especially in this context [27] & [28] the CJEU was not concerned with “ cancellation of a supply ”, but with contracting parties’ freedom of contract, including their freedom to “ define … the consequences of a cancellation or breach of their obligations ” – in circumstances where the “cancellation or breach” meant that the contracted for supply of the hotel room did not take place. 109. Société thermale provides insufficient support for the Appellant’s case overall. It is authority for the proposition that a deposit paid by a prospective customer to a hotel to reserve a room, and retained by the hotelier if the customer cancelled the reservation or failed to show up, was not consideration for the supply of a service by the hotel to the customer (separate from the intended “supply” of the hotel room which does not take place). The CJEU held it was rather in the nature of a penalty to encourage performance by the customer and compensation for the hotelier: see the judgment at [27]-[32]. 110. Société thermale is distinguishable from present case. This is a case where both parties performed their obligations in full, and where there was no relevant failure or performance or breach of contract (or “ cancellation or breach of [the customer’s] obligations ”) capable of being “penalised”. It is also notable that the Appellant does not now advance its original argument, based on Société thermale , to the effect that the delivery charge was a “penalty”, which figured in the correspondence and in the Notice of Appeal. “ Cancelling supplies of services ” 111. The Appellant seeks to draw a distinction between “cancellation of supplies of goods” and “cancellation of supplies of services”. The distinction is not useful or relevant. As far as “cancellation” is relevant to anything, it is cancellation of contracts, rather than cancellation of “supplies”. In the present case, it does not matter whether what has occurred is “cancellation” of the contract or a reduction in consideration, or whether “cancellation” is an appropriate description where both parties have performed under the contract. What is material is that part of the consideration for the supply was not refunded; and it remains consideration for that (single, composite) supply. 112. The Appellant’s submission as to what is meant by to “cancel a contract”, namely that “ the parties must be returned to substantially their original position ” cannot stand in light of Lombard [21]-[26], especially [23]. In any event, that submission is not describe the situation in the present appeal, given that the Appellant retains the delivery charge. Whatever “cancellation” means and whether it applies to the present appeal, it does not transform the delivery charge received and retained by the Appellant from being consideration for a taxable supply, and thus subject to VAT, into a payment that is, or is for something, that is outside the scope of VAT. 113. The example of rescission of a contract for misrepresentation is illuminating. If a contract is induced by misrepresentation, the representee is prima facie entitled to rescind the contract ab initio (subject to s.2(2) of the Misrepresentation Act 1967) . Applied to the present case, the Appellant would be required to repay both the price and the delivery charge. However, that is not the situation in the present case. “Issue 3 – cancellation on these facts” 114. The submission of the Appellant, that “ when a customer elects to return the goods to ASOS, they cancel the supply and the parties are retur ned to their original positions” is (1) assumes that which is to be proved and (2) factually incorrect since the parties are not “returned to their original positions”. Whichever way one analyses the situation, the Appellant retains the delivery charge paid by the customer. 115. The “economic and commercial reality” is that the Appellant has retained the delivery charge, part of the consideration for the original (single composite) supply. It is not clear what is meant by the Appellant’s “ precontractual bargaining position ”. If it simply refers to the Appellant’s pre-contract position, then even this does not apply to the facts of this case. 116. There is no determinative analogy to be drawn between this case and Société thermale , for the reasons above. Put one way, the retention of the delivery charge is payment for performance, not (as in Société thermale ) payment (compensation) for non-performance. Conclusion 117. HMRC acted lawfully in refusing the Appellant’s claim under section 80 VATA for repayment of output tax on the retained amounts of the delivery charges for the four years 1 April 2010 to 31 March 2014. The retained amounts were subject to VAT. For the above reasons, this appeal is dismissed. 118. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. RUPERT JONES TRIBUNAL JUDGE RELEASE DATE: 27 JUNE 2018

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