Supreme Court dismisses appeal on VAT exemption where EU law clarifies transaction is not exempt from VAT.

THE SUPREME COURT

Keane C.J.

Hardiman J.

Fennelly J.

95/03

BETWEEN

S. Ó CULACHÁIN

INSPECTOR OF TAXES

APPELLANT

AND

STYLO BARRATT SHOES LIMITED

RESPONDENT

JUDGMENT delivered the 31st day of March 2004, by Keane C.J.

I have read the judgment which will be delivered by Fennelly J. I agree with it and the order he proposes. I would merely wish to add

some observations as to the somewhat mystifying course these proceedings have taken.

They began in 1996 when the respondent appealed against the decision of the Inspector of Taxes to refuse to repay the VAT claimed

by the respondent in respect of the March / April 1994 VAT period and against the assessment made for the same period in the

amount of £17,885.92. The claim for the repayment of the VAT was rejected by the inspector because he was of the view that the

transaction was exempt from VAT under the provisions of s. 3(5)(b)(iii) of the Value Added Tax Act, 1972. This was on the basis that

the transfer of the premises, together with the fixtures and fittings, was “in connection with a transfer of a business or part thereof”

within the meaning of that provision. The Appeal Commissioner ruled against the inspector because he was satisfied that there had

been no agreement for the transfer of the business or any part thereof.

The agreement between the vendors and the respondent was that the purchase price of £1,000,000.00 sterling should be exclusive of

VAT and the amount thought to be payable in respect of VAT was paid by the respondent to the vendors. It should then, of course,

have been transmitted by the vendors to the revenue but we were told during the hearing that this may not have happened. (It

would appear that the vendors shortly thereafter ceased trading.) Whatever the position may have been factually, however, the legal

position is not in doubt: if the revenue were correct in their contention that the transaction was exempt from VAT, the result should

have been that they did not recover anything in respect of VAT. It is understandable that the inspector should have sought a ruling

from the Appeal Commissioner so as to ensure that the law as to VAT was being correctly applied. Although counsel for the appellant

was invited to indicate to the court why it was thought necessary, such a ruling having been obtained, to pursue thereafter what

was at best a dubious argument which, if successful, would have resulted in a significant loss of tax to the revenue, no satisfactory

explanation was forthcoming. Nor was there any explanation whatever as to why, after the inspector had expressed dissatisfaction,

the matter was then allowed to rest for nearly six years, until the Case Stated was ultimately signed by the Appeal Commissioner and

transmitted to the High Court.

In the meantime, the High Court had decided in another case (O’Shea [Inspector of Taxes] –v- Coole Parkview Service Station Ltd.

[McCracken J.; unreported; judgment delivered 25th May, 2000]) that a similar transaction was not exempt under the same provision.

The present case was decided by Kearns J. in favour of the respondent on 14th February, 2003. Undaunted, the appellant pursued an

appeal to this court, although on the 27th November, 2003, in Zita Modes Sàrl –v- Administration de L’enregistrement et des domains

(Case c-497/01; unreported judgment; 5th chamber) the Court of Justice of the European Union held that a transaction such as this

did not come within the exemption in question, admittedly for reasons not entirely the same as those to be found in the decisions of

the Appeal Commissioner, McCracken J. and Kearns J.

Far from accepting that there was no point in wasting the taxpayer’s money any further on this curious enterprise, the response of

the appellant was to invite the court to send the entire matter back to the Appeal Commissioner. It was presumably envisaged that

there would be a further appeal by way of Case Stated in the event of that being unsuccessful, followed by yet another appeal to

this court. All this in a case where the law is now so plainly against the appellant that, if by any chance the decision had been in

favour of the revenue at any stage, there would unquestionably have been a reference for a preliminary ruling to the Court of Justice

of the European Union. The true position, as pointed out by Fennelly J. in his judgment, is that, since the decision in Zita Modes Sàrl,

the issue which has involved so much time and money is acte clair.

It may be that there is some explanation for this extraordinary sequence of events, but I find it disquieting that, if there is, it was

never indicated to this court.