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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Emblaze Mobility Solutions Ltd v Revenue and Customs [2012] EWHC B7 (Ch) (27 April 2012) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2012/B7.html Cite as: [2012] STI 1600, [2012] STI 3011, [2012] BVC 174, [2012] EWHC B7 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		27th April 2012

Mr Peter Leaver QC:

INTRODUCTION

1. The issues to be decided in these proceedings concern, first, the right of the Defendants, The Commissioners for Her Majesty's Revenue and Customs ("HMRC" or "the Commissioners"), to set-off against a liability owed by HMRC to a taxpayer a liability owed by the taxpayer to HMRC, and, secondly, whether interest is payable on the sum found due and payable by HMRC by the First Tier Tribunal (Tax Chamber) ("FTT") in its Decision dated the 25th August 2010.
2. The first issue was ordered to be tried by Stadlen J on the 13th July 2011, and the second issue was ordered to be tried, also by Stadlen J, on the 13th December 2011.

THE FACTS

3. The facts can be shortly stated. Prior to the appointment of the Administrative Receiver on the 30th May 2007, Global Telecoms Distribution Plc ("Global") carried on business as a wholesale distributor of mobile telephones. The Administrative Receiver was appointed by HSBC Plc pursuant to the terms of a debenture dated the 1st May 2002.
4. Global was registered with HMRC for the purposes of VAT. Prior to the commencement of the Commissioners for Revenue & Customs Act 2005 on the 18th April 2005, Global would have been registered with HM Customs and Excise for those purposes.
5. On the 17th January 2008 the Administrative Receiver assigned to the Claimant, Emblaze Mobility Solutions Limited ("Emblaze") the benefit of an appeal against the disallowance of VAT input tax claimed by Global in respect of the VAT Accounting Period up to the 31st March 2006 in the sum of £8,790,868.75. For that same period Global's VAT output tax liability was £345,218.31. The net sum disallowed was, therefore, £8,445,650.44. In HMRC's Acknowledgment of Service the assignment was challenged. However, it is sufficient for present purposes for me to say that the validity of the assignment is not an issue that I have to decide, although it may be necessary for that issue to be decided at some later stage.
6. On the 18th January 2008 the Administrative Receiver notified the VAT and Duties Tribunal (as it then was) and HMRC of the assignment, and sent a copy of the assignment to HMRC. In February 2008 Emblaze was substituted in place of Global in the appeal before the Tribunal. HMRC did not object to the substitution in February 2008, and has not objected since then.
7. On the 25th August 2010 the FTT (as the VAT and Duties Tribunal had become) released its Decision, in which it ordered HMRC to credit to Emblaze VAT input tax in the disallowed sum of £8,790,868.75. HMRC did not appeal the Decision.
8. On the 27th October 2010 HMRC informed Emblaze that it intended to set-off against the sum to which Emblaze was entitled pursuant to the FTT's Decision sums that it contended were owed to it by Global in respect of various historic taxes, including Corporation Tax and PAYE contributions. HMRC's position was that after exercising the set-off the sum owed to Emblaze was £474,156.83.
9. On the 27th January 2011 Emblaze commenced proceedings in which it sought judicial review of HMRC's decision to set-off on the ground that the set-off was unlawful. On the 15th February 2011 HMRC filed its Acknowledgment of Service.
10. It is not necessary to set out in detail the various interlocutory hearings that then took place. It is sufficient to state that on the 13th July 2011 Stadlen J ordered that the proceedings should continue in the Queen's Bench Division as if, in effect, they had not been started as judicial review proceedings, and further ordered HMRC to pay the sum of £7,333,716.84 (which was described as "the undisputed sum") to Emblaze. On the 13th December 2011 Stadlen J transferred the proceedings to the Chancery Division.
11. In his Order made on the 13th July 2011 Stadlen J ordered two issues to be tried. They were:

i) Whether HMRC may exercise a set-off as between Global Telecoms Distribution plc?s direct and indirect tax credits and/or debits on the grounds summarised in sub-paragraphs 12(4) and (5) of the Statement of Grounds in the Acknowledgement of Service;

ii) If the answer to (i) above is „yes?, then it shall be assumed for the purposes of this issue that the assignment of 17 January 2008 between Global Telecoms Distributions plc (in Administrative Receivership) and the Claimant was validly made, and the Court shall decide whether in those circumstances any sum payable pursuant to the said assignment is payable subject to the said set-off in (i) above or not.

12. In his Order dated the 13th December 2011 Stadlen J ordered a further two issues to be tried. They were:

i) Whether, pursuant to the Decision of the FTT dated 25 August 2010 (which was final), the Claimant is entitled to interest on the sum found to be due to it, from the date of the Decision until the date of repayment of that sum or any part (including the payment already made on 21 July 2011), on the ground that by reason of s. TCEA 2007, the Decision created a judgment debt, or should be treated as if it had created a judgment debt for the purposes of s. 17 JA 1838; and

ii) If so entitled, whether the rate of 8% per annum, or what other rate; where "FTT" means the First-Tier Tribunal (Tax Chamber); "TCEA 2007" means the Tribunal, Courts and Enforcement Act 2007, and "JA 1838" means the Judgments Act 1838.

13. It is unnecessary for me to deal with the second of the issues identified by Stadlen J on the 13th December 2011, as it was accepted by Mr Philip Moser on behalf of HMRC that, in the event that I found that the effect of section 27 of the TCEA 2007 was that the sum which the FTT ordered HMRC to pay either was, or was to be treated as if it were, a judgment debt, and I further ordered that interest was payable on that sum, the current rate payable under the Judgments Act 1838 ("the JA") of 8% would be payable.

THE VAT LEGISLATION

14. VAT was introduced into the tax system in the United Kingdom by the Finance Act 1972 in preparation for the United Kingdom's accession to the European Economic Community (as it was then called) on the 1st January 1973. It was stated to be a tax "on the supply of goods and services", and was "under the care and management" of the Commissioners of Customs and Excise.
15. After 1972 a number of statutes dealt with VAT until the Value Added Tax Act 1994 ("VATA") came into force. VATA remains in force at the date of this judgment, although there have been a number of amendments to it. Reference will be made to those amendments, where appropriate.
16. Until the Commissioners for Revenue & Customs Act 2005 came into force all VAT payments were made to the Commissioners of Customs and Excise's general account at the Bank of England, and all payments to the Inland Revenue were made to the Commissioners of Inland Revenue's account at the Bank. After that date all payments were made into the account of The Commissioners for Her Majesty's Revenue and Customs. There was some discussion during the hearing as to whether, prior to the coming into force of the Commissioners for Revenue & Customs Act 2005, it would have been possible to set-off against sums owed to a taxpayer by the Commissioners of Customs and Excise sums owed by that taxpayer to the Commissioners of Inland Revenue. If such a set-off would not have been possible, the issue then arises as to whether one of the consequences of the merger of the Customs and Excise and the Inland Revenue was that such a set-off was possible. This is an issue with which I will deal later in this judgment.
17. All taxes are creatures of statute, and VATA is simply one of many taxing statutes. Where VAT differs from many other taxes is that it is the product of a series of EC Directives, which provide for the harmonisation of this form of sales tax throughout all of the member states of the European Union. It is a Community tax.
18. Section 1(1) of VATA provides that VAT shall be charged, in accordance with the provisions of VATA, on the supply of goods or services in the United Kingdom and on the acquisition in the United Kingdom from another member state of any goods. Section 1(2) provides that VAT on the supply of goods or services is a liability of the person making the supply and that, subject to provisions about accounting and payment, it becomes due at the time of the supply. That section must be read in conjunction with Sections 4(1) and 10(1), which make it clear that VAT is charged on the events referred to in Section 1 only when the person who makes the supply or acquisition is a taxable person. Section 3(1) provides that a person is a taxable person while he is, or is required to be, registered under VATA.
19. Section 7 of VATA deals with the place of supply of the taxable goods or services. Section 25(1) provides that a taxable person shall account for and pay VAT in respect of the supplies made by him and in respect of the acquisition by him of goods from another member state. This accounting takes place by reference to prescribed accounting periods. Section 25(2) provides that the taxable person is entitled at the end of each accounting period (a) to credit for so much of his input tax as is allowable under Section 26 and (b) to deduct that amount from any output tax that is due from him. So Global was liable under Section 25(1) of VATA to pay the output tax due on the supplies of the mobile telephones that were made by it in the United Kingdom, and was also entitled under the same section to recover (by credit and deduction) the input tax allowable under Section 26 that it paid on supplies to it.
20. Part IV of VATA, which is entitled "Administration, Collection and Enforcement", commences with Section 58, which provides that Schedule 11 shall have effect with respect to the administration, collection and enforcement of VAT. Paragraph 1(1) of Schedule 11, as originally enacted, provided that VAT was due to be under the care and management of the Commissioners for Customs & Excise. However, as has been pointed out above, these provisions must now be read together with the Commissioners for Revenue and Customs Act 2005, which provides for the appointment of the Commissioners for Revenue and Customs to exercise the functions previously vested in the Commissioners of Customs & Excise, and for the transfer to the Commissioners of Revenue and Customs of the ancillary powers that were conferred on the former Commissioners by the Customs & Excise Management Act 1979.
21. Paragraph 5(1) of Schedule 11 provides that VAT due from any person shall be recoverable as a debt due to the Crown. Various provisions are included within Part IV to enable HMRC to collect and to enforce the payment of VAT. For example, Section 60 enables a civil penalty to be recovered in cases of dishonest evasion of VAT or the making of false input tax or repayment claims. Section 61 extends liability to a civil penalty to the director or managing officer where the person liable under Section 60 is a body corporate, and Section 72 makes it an offence for a person to be knowingly concerned in, or in the taking of steps with a view to, the fraudulent evasion of VAT by him or by any other person. This provision supplements other common law offences with which an offender may be charged: these include conspiracy to cheat the Revenue. Every one who is knowingly concerned in the fraudulent evasion and who is subject to the criminal jurisdiction of the relevant part of the United Kingdom, is within the reach of these provisions. Section 73 enables the Commissioners to assess the amount of VAT due where there has been a failure, for whatever reason, to make any returns required by VATA. The making of assessments under this provision is subject to the time limits specified.
22. Section 79 provides for a repayment supplement in any case in which a VAT registered person (i) is entitled to a VAT credit, that is, to the amount by which creditable input tax for the period exceeds the output tax for that period, and (ii) the requisite return or claim is received by HMRC not later than the last day on which it was required to be furnished or made and a written instruction directing the making of the payment or refund has not been issued by HMRC within the relevant period.
23. Section 81 makes provision for the payment of interest: in particular, it provides that any interest payable by HMRC, whether under an enactment or instrument or otherwise, is to be treated as an amount due by way of credit under Section 25(3).
24. Section 81(3) provides that, subject to Section 81(1), in any case where an amount is due from HMRC to any person under any provision of VATA, and that person is liable to pay a sum by way of VAT, penalty interest or surcharge, the amounts due from HMRC ("the credit") shall be set against the sum due from the VAT registered person ("the debit") and "accordingly, to the extent of the set-off, the obligations of [HMRC] and the person concerned shall be discharged". Thus, there is express provision for the set-off of sums due in respect of VAT from HMRC to a VAT taxpayer against sums due to HMRC by that taxpayer.
25. Section 81(4A) provides that the set-off provided for in Section 81(3) is not required where (a) an insolvency procedure has been applied to the person entitled to the credit; (b) the credit became due after the insolvency procedure was applied; and (c) the liability to pay the debit either arose before the procedure was applied or (having arisen afterwards) relates to, or to matters occurring in the course of, the carrying on of any business at times before the procedure was applied.
26. Section 83 provides for appeals and, in particular, for an appeal to the FTT with respect to the amount of any input tax which may be credited to a VAT registered taxpayer.
27. At the time that the appeal was before the FTT, Section 84(8) provided that where on an appeal it was found that the whole or part of any VAT credit due to the Appellant has not been paid, so much of that amount as had not been paid should be repaid with interest at such rate as the Tribunal may determine.
28. Section 84(8) has been replaced by Section 85A, which was inserted into VATA and came into force on 1st April 2009. It provides that where on an appeal the FTT has determined that the whole or part of any VAT credit due to the Appellant has not been paid, so much of the VAT credit as the FTT determines not to have been paid shall be paid with interest at the rate applicable under Section 197 of the Finance Act 1996. Section 85A(3) deals with the reverse situation. It provides that where on an appeal the FTT has determined that the whole or part of any disputed amount not paid or deposited or the whole or part of any VAT credit was not payable, so much of that amount or credit as the FTT determines to be due or not payable shall be repaid to HMRC with interest. Thus, Section 85A works in both directions.
29. Section 85A(5) provides that nothing in Section 85A requires HMRC to pay interest on any amount which falls to be increased by a supplement under Section 79.
30. On the 21st July 2008, Section 130 of the Finance Act 2008 came into effect. That section provides for a statutory right of set-off where there is both a credit ("a sum payable by the Commissioners to a person") and a debit ("a sum payable by a person to the Commissioners"). It is common ground that it is not available to HMRC in the present case as the assignment to Emblaze was before that date. Nor is Section 133 of the Finance Act 2008 which provides for set-off where the right to be paid a sum has been transferred: that section also came into force on 21st July 2008, and has effect where the right to be paid the transferred sum was transferred from the original creditor on or after 25th June 2008.
31. Finally, it is to be noted that Section 130(8) is in the following terms:

"This section has effect without prejudice to any other power of the Commissioners to set off amounts."

As has been said, the provisions of Section 130 are not available to HMRC in the present case. Although Section 130(8) refers to the "power" of HMRC to set-off amounts, it does not identify what that power was, or, if there was more than one, what those powers were. Neither Mr. Moser nor Mr Chivers QC were able to provide any explanation as to what was encompassed by Section 130(8).

THE PARTIES' RESPECTIVE SUBMISSIONS

(a) HMRC'S Submissions

32. It is convenient to start by considering the submissions of HMRC. In the Summary of Grounds contained in HMRC's Acknowledgment of Service, HMRC's contention in respect of set-off was expressed as follows:

"(4) HMRC is entitled to make such a set-off pursuant to statute under ss.130-133 Finance Act 2008 ...

(5) Even if (quod non) this case does not fall within HMRC?s statutory powers under the Finance Act 2008, HMRC is anyway entitled to set-off the said taxes due from Global to HMRC against repayments due from HMRC to Global under general principles of equitable and/or common law set-off (which are expressly preserved by Section 130(8) FA 2008)."

33. HMRC no longer rely upon the provisions of Sections 130-133 of the Finance Act 2008 or on common law set-off, but contends that it is entitled to equitable set-off. In particular, HMRC rely upon dicta of Lord Walker of Gestingthorpe in Mellham v. Burton (Collector of Taxes) [2006] STC 908 where, at Paragraph 22, Lord Walker stated:

"... set-off is a general principle founded in simple convenience and fairness, even if it has some arcane fringes. It should be taken to apply generally to all liquidated cross-claims unless excluded by statute or contract."

34. HMRC also rely upon the judgment of Rix LJ in Geldof Metaalconstructie NV v. Simon Calves Limited [2010]EWCA Civ 667 and of Black LJ in Autoworld Systems Limited v. Kito Enterprises [2010] EWCA Civ 1469. In Geldof, Rix L.J. undertook a comprehensive review of the authorities on equitable set-off and expressed his conclusions, with which Patten and Maurice Kay LJJ agreed, in the following passage:

"43. In my judgment, this jurisprudence allows the following conclusions:

(i) The impeachment of title test, although derived from the leading case of Rawson v Samuel and still stated by Lord Denning in his formulation in The Nanfri, even if it is there immediately glossed by his "so closely connected ... that it would be manifestly unjust" test, should no longer be used: The Dominique and Bim Kemi. It is an unhelpful metaphor in a modern world. In the light of the emphasis put on it by Hobhouse J in The Leon and the reliance sought to be placed on it by the Charterers in The Dominique, it made sense for the House of Lords to go out of its way to downplay its significance.

(ii) There is clearly a formal requirement of close connection. All the modern cases state that, whether Hanak v Green, The Nanfri, The Dominique (by reference to the Newfoundland Railway case), Dole Dried Fruit or Bim Kemi. The requirement is put in various ways in various cases. Morris LJ in Hanak v Green spoke of a "close relationship between the dealings and transactions which gave rise to the respective claims". Lord Denning in The Nanfri spoke of claims and cross-claims which are "closely connected". How closely? "[S]o closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim". The Dominique adapted the Newfoundland Railway Dole Dried Fruit returned to Lord Denning?s test in The Nanfri but also spoke of a claim and cross-claim which was so "inseparably connected that the one ought not to be enforced without taking into account the other". Bim Kemi expressed a preference for the test in The Dominique, while warning against being caught up in the nuances of different formulations.

(iii) Thus the Newfoundland Railway test of "inseparable connection" is one formulation of the close connection test, but it is not the only one. Potter LJ wisely referred to the wise refusal of the Courts to become bogged down in the nuances of formulation. Oddly enough, both the Newfoundland Railway case and The Dominique were single contract cases, and therefore probably rather unhelpful contexts in which to judge what is meant by "inseparable connection". In truth, where separate contracts (or dealings or transactions) are concerned, the metaphor of inseparability is not all that helpful. Ex hypothesi, the contracts are separate (as in Bankes v Jarvis, the case about the veterinary surgeon?s practice discussed by Morris LJ in Hanak v Green). I am not aware of the inseparable connection test being used to exclude a set-off, where some other formulation of the close connection requirement would have allowed it. It was not used to exclude a set-off in either the Newfoundland Railway case, nor in The Dominique nor in Bim Kemi. Nor is the test all that helpful in single contract cases: as Potter LJ remarked in Bim Kemi, where a case concerns a claim and cross-claim arising out of the same contract, although that fact is not in itself enough to ensure an equitable set-off, it is on the whole likely to take a special rule excluding set-off, such as the rules about freight, rent and cheques (and now direct debits), see Esso v Milton, to prevent a set-off. In this connection, Modern Engineering (Bristol) Limited v. Gilbert-Ash (Northern) Limited [1974] AC 689 emphasises that an equitable set-off for defective work is not easily excluded even in building contracts where sums are payable under an architect?s certificate. On the other hand, The Nanfri itself shows that in the context of maritime adventures and time charter hire, and against the background of the rule as to freight, a special regime of limited but not general set-off has been fashioned for cross-claims under the charterparty.

(iv) There is also clearly a functional requirement whereby it needs to be unjust to enforce the claim without taking into account the cross-claim. This functional requirement is emphasised in all the modern cases, viz Hanak v Green, The Aries, The Nanfri, Dole Dried Fruit, Esso v Milton and Bim Kemi. The only modern authority cited above which does not in terms refer to the functional requirement of injustice is Lord Brandon?s discussion in The Dominique. This has led Potter LJ in Bim Kemi (at para. 38) to remark on the absence of reference to "manifest injustice" by Lord Brandon: but nevertheless it did not lead him to dispense with that requirement (ibid). It seems to me impossible to do so: it is not coherent to have a doctrine of equitable set-off which ignores the needs for consideration of aspects of justice and fairness. Mr. David Friedman QC, on behalf of SCL, has submitted that the test of "inseparable" connection contains inherently within it the need for a requirement of manifest injustice. That is what, he submits "inseparable" means. In my judgment, such lack of transparency in a test would be undesirable, and I do not believe that it is as Mr. Freidman submits. But I do not in any event think that Lord Brandon was intending to use the Newfoundland Railway formulation as an exclusive test for equitable set-off. Rather, he was using it to de-throne the concept of impeachment.

(v) Although the test for equitable set-off plainly therefore involves considerations of both the closeness of the connection between claim and cross-claim, and of the justice of the case, I do not think that should speak in terms of a two-stage test. I would prefer to say that there is both a formal element in the test and a functional element. The importance of the formal element is to ensure that the doctrine of equitable set-off is based on principle and not discretion. The importance of the functional element is to remind litigants and courts that the ultimate rationality of the regime is equity. The two elements cannot ultimately be divorced from each other. It may be that at times some judges have emphasised the test of equity at the expense of the requirement of close connection while other judges have put the emphasis the other way round.

(vi) For all these reasons, I would underline Lord Denning?s test, freed of any reference to the concept of impeachment, as the best restatement of the test, and the one most frequently referred to and applied, namely: "Cross-claims ... so closely connected with [the plaintiff?s] demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim". That emphasises the importance of the two elements identified in Hanak v Green; it defines the necessity of a close connection by reference to the rationality of justice and the avoidance of injustice; and its general formulation, "without taking into account", avoids any traps of quasi-statutory language which otherwise might seem to require that the cross-claim must arise out of the same dealings as the claim, as distinct from vice versa. Thus, if the Newfoundland Railway test were applied as if it were a statute, very few of the examples of two-contract equitable set-off discussed above could be fitted within its language. I note that in Chitty on Contracts, 30th ed., 2008, Vol. II, at 37-152, the test for equitable set-off is formulated in terms of Lord Denning?s test."

35. Black L.J. adopted Rix L.J.'s formulation in Autoworld Systems Limited v. Kito Enterprises LLC: see paragraph 25 of the Judgment.
36. It was HMRC's submission that the test of "close connection" was to be decided on a case-by-case basis, and that as both VAT and the direct taxes arose out of the same "dealings and transactions", that is, Global's mobile telephone business and the fiscal relationship between Global and HMRC, there was the required "close connection" in the present case, which enabled HMRC to apply the general principle of set-off identified by Lord Walker of Gestingthorpe in Mellham v. Burton.

(b) Emblaze's submissions

37. Emblaze submits that since Parliament enacted Sections 130 to 133 of the Finance Act 2008 as a result of which there is now a statutory right of set-off in respect of all credits and debits (as defined in Section 130) demonstrates that prior to the coming into force of those provisions, no such right of set-off existed. If there had been such a right, there would have been no need to enact Sections 130-133. During the course of his submissions, Mr Chivers QC referred (without any objection from Mr Moser) to a number of Consultation Documents that had been circulated by HMRC prior to the enactment of those provisions.
38. Mr Chivers pointed out that VATA makes no provision concerning set-off other than that contained in Section 81, which is a set-off of credits and debits in respect of VAT, and also that Section 81 does not say that the provisions of that section are without prejudice to any other power of HMRC to set-off amounts, in contrast to the provisions of Section 130(8) of the Finance Act 2008. He also submitted that the reference in Section 130(8) of the Finance Act 2008 to a "power" of HMRC must be to a statutory power, and not to a right. Indeed, he submitted that it was significant that there was no reference to a "right" of set-off.
39. Mr. Chivers drew attention to passages in the Consultation Document issued by HMRC on 25th June 2007, and, in particular, to a section entitled "Setting off Repayments of one tax against debts of another":

"3.5 HMRC?s current practice is to set established repayments off against established debts where they can be linked. While few object in practice, if they did HMRC would normally reverse the set-off, make the repayment and then pursue the debt ..."

40. Mr. Chivers submitted that it would be unlikely that HMRC would reverse a set-off where the taxpayer objected if it had the right (which it claims it does have in the present proceedings) to do so. Mr. Chivers also pointed out the passage which identified the "significant overlaps between the different taxes, particularly for business": 850,000 companies pay both corporation tax and VAT, or receive repayments. He submitted that what was being said in the Consultation Document was that set-off would enable the different taxes to be dealt with on a net basis, and that if HRMC had such a right in 2007, such a consultation would have been unnecessary.
41. The reference in the consultation to the passage in the speech of Lord Walker of Gestingthorpe in Mellham v. Burton quoted above is, so Mr. Chivers Q.C. submits, put forward as an argument for introducing statutory right of set-off to enable different taxes to be dealt with on a net basis.
42. In further support of his submission that it was implicit in the Consultation Document that no right of set-off existed in 2007, Mr. Chivers emphasised the principle of legal certainty which "requires that rules imposing charges on the taxpayer must be clear and precise so that he may know without ambiguity what are his rights and obligations and may take steps accordingly": Administration des Douanes v. SA Gondrand Frères (Case 169/80 ECJ).
43. Further, the Consultation Document refers to the desirability of a statutory set-off, which "could provide taxpayers with a comprehensive and clear picture of what they were owed and what they need to pay. Instead of having to manage different taxes, repayments would be set-off and only the net balance would need to be paid or repaid": see Paragraph 3.11. It is to be noted that there is no reference in that passage, or in the Consultation Document as a whole, to any existing common law or equitable rights of set-off. Mr. Chivers submitted that such an omission was extraordinary if it were thought that such rights did exist.
44. Mr. Chivers also pointed out that in the later Consultation Document issued on 10th January 2008, following responses received to the June Consultation Document, it was stated that "set-off, where repayment is used to clear all or part of a debt, is a normal business principle". The Consultation Document continued:

"The draft legislation, if enacted, would build on HMRC?s current practice of setting-off repayments against payments within a single tax and between tax and National Insurance Contributions. The draft legislation would allow the principle of set-off to be extended across the whole range of debts administered by HMRC. It would only be done for established debts where HMRC could take action for sums it is owed and where the right to repayment has been established."

45. That passage would seem to refer back to the passage in the earlier Consultation Document in which it was stated that HMRC would "normally reverse the set-off" if the taxpayer objected. VAT is "a single tax" and under VATA, a statutory set-off would apply in any event.
46. It is implicit in the Consultation Documents that legislation is required in order for the "principle of set-off" to extend across all taxes. Mr. Chivers also pointed out that if the law already provided for a right of set-off, the legislation would be wholly unnecessary since HMRC stated that it only intended to use it "for sums it is owed and where the right to repayment has been established".
47. Mr. Chivers submitted that equitable set-off could not possibly arise in the present case because there was no mutuality of the right of set-off. Set-off would not have been available to Global or Emblaze. On this point there was agreement between Mr. Chivers and Mr. Moser. However, Mr. Moser submitted that although set-off was not available to Global or Emblaze against HMRC, that would be no bar to HMRC's set-off because there would be "mutuality of outcome" if HMRC could set-off credits against debits irrespective of whether the debits or credits arose out of direct or indirect taxes. Mr. Moser submitted that there was nothing in VATA which prohibited set-off of direct and indirect tax, and that no intention to prohibit such a set-off was to be imputed to Parliament by reason of the fact that it had enacted the specific provisions for set-off in the Finance Act 2008.
48. Finally, Mr. Chivers submitted that as HMRC had acknowledged that prior to the enactment of the Finance Act 2008, it would only set-off debts relating to different taxes with the consent of the taxpayer, it was not open to HMRC now to change its position to the prejudice of Emblaze, or of the taxpayer from whom Emblaze took the benefit of the assignment. Mr. Chivers submitted that both Global and Emblaze had a legitimate expectation that the only set-off against VAT repayment would be VAT indebtedness of Emblaze or of Global. That set-off had already taken place, and no further set-off was to be permitted.

DISCUSSION

(a) Statutory Set-Off

49. Although HMRC limit their claim to be entitled to a set-off in the present case to an equitable right, it is, I hope, helpful to consider the right of set-off more generally. It will be recalled that in the Statement of Grounds HMRC relied upon statutory set-off pursuant to Sections 130-133 of the Finance Act 2008 as well as "general principles of equitable and/or common law set-off".
50. It is common ground that HMRC did not have, at the relevant time, a statutory right to set-off credits and debits between different taxes, although it did have the power in respect of VAT to set-off credits and debits pursuant to Section 81 of VATA. Section 81(3) appears to me to be mandatory in requiring sums owed by HMRC to the taxpayer to HMRC to be set against sums due from HMRC to the taxpayer ("shall be set against").
51. It is also common ground that since the 21st July 2008, when Sections 130 to 133 on the Finance Act 2008 came into force, the statutory power to set-off in respect of credits and debits is specifically defined. "Credits" and "debits" are separately defined in Section130: see Section 130(4) and 130(6) respectively.
52. During the course of the hearing I asked Mr. Moser whether, prior to the merger of Customs & Excise and the Inland Revenue in 2005, the Inland Revenue had the power to set-off sums owed by it to a taxpayer against sums owed by the taxpayer to it, or whether the Customs & Excise had a corresponding right. Mr. Moser was not aware of the existence of any such power, although he did refer me to In re DH Curtis (Builders) Ltd [1978] 1Ch 162, in which it was held that the Crown was entitled to set-off the input tax repayment due to the company against the moneys owed to other government departments. But, Curtis was a case in which the company was in liquidation, and the provisions of the Bankruptcy Act 1914 were being considered. Brightman J expressed the principle at page 173E:

"The purpose of set off in insolvency is to do substantial justice between the bankrupt and his creditors."

In the present case, the Court is not dealing with the special provisions relating to mutual debts, mutual credits or mutual dealings under what is now the Insolvency Act 1986.

53. If the position is that the Inland Revenue had no power to set-off sums owed to it, for example, in respect of corporation tax against sums owed by it in respect of some other tax, notwithstanding that the monies were all under the care and management of the Commissioners of the Inland Revenue, it seems to me to be unlikely that there was any power to set-off sums as between the Inland Revenue and the Customs & Excise.
54. I have referred in [39] above to the statement in Paragraph 3.5 of the Consultation Document issued by the HMRC on the 25 June 2007. The Consultation Document itself had been introduced in the following terms:

"1.1 HM Revenue & Customs (HMRC) inherited the frameworks and legislation for the taxes it administers from the Inland Revenue and HM Customs and Excise. Many taxpayers interact with HMRC across a range of taxes. But the regimes within which they do so differ significantly in design and effectiveness. The current review of HMRC?s powers, deterrents and safeguards provides an opportunity to modernise areas that are not working well, such as the lack of focus on promoting behaviours that support compliance, and to address the extra costs to taxpayers that arise from different regimes."

55. Later in the same Consultation Document there appear the following statements:

"3.11 Statutory set-off, within the context of a single view of their financial affairs, could provide taxpayers with a comprehensive and clear picture of what they were owed and what they need to pay. Instead of having to manage different taxes, repayments would be set-off and only the net balance would need to be paid or repaid. This would be clearer, reduce the need for contact with HMRC, and reduce unnecessary payments and banking costs. It would also ensure that the non-compliant, who may currently receive a repayment even when they have an outstanding debt which they do not plan to pay, do not gain a cashflow benefit over compliant taxpayers.

3.12 Set-off would be expected to operate as a matter of principle, but initially HMRC would operate it only in some taxes. This is partly because of the complexity of a taxpayer?s interaction with all of HMRC and also because of the constraints of HMRC?s current accounting systems. The range could then be expanded to more taxes as and when systems were in place to do so."

56. After responses had been received, on the 10 January 2008, HMRC issued a further Consultation Document, in which, under the same heading of "Setting-off repayments of one tax against debts of another" the following statements appeared:

"2.12 Set-off, where a repayment is used to clear all or part of a debt, is a normal business principle. Most respondents to the consultation supported the principle of setting-off tax repayments against tax debts, seeing this as an opportunity to both reduce indebtedness to HMRC and reduce the number of interactions with HMRC. Annex A gives a more detailed summary of the responses.

2.13 The draft legislation, if enacted, would build on HMRC?s current practice of setting-off repayments against payments within a single tax and between tax and National Insurance Contributions. The draft legislation will allow the principle of set-off to be extended across the whole range of debts administered by HMRC. It would only be done for established debts where HMRC could take action for sums which is owed and where the right to repayment had been established.

2.14 Several respondents felt that set-off should only take place at the taxpayer?s request and this view found support at the workshop with businesses and their advisors. However, this would enable those taxpayers intentionally seeking to avoid paying their debts to do so, while continuing to receive prepayments from HMRC. For this reason the legislation, as currently drafted, allows only HMRC the discretion to set-off.

As a safeguard, HMRC will have clear operational criteria for when such set-offs would take place."

The draft legislation to which reference is there made became Sections 130 to 133 of the Finance Act 2008.

57. It is to be noted that setting-off is described by HMRC in its first Consultation Document as the "current practice", and that description is repeated in the second consultation document. Indeed, it is made clear that if the practice was objected to, the set-off would, "normally" be reversed. Mr. Moser pointed out that merely because a set-off was described as HMRC's "current practice" the existence of some other right of set-off was not excluded. That submission is, undoubtedly correct, but it takes the debate nowhere. More important, in my judgment, is the fact that nowhere in the Consultation Documents do HMRC assert that it has the power, far less the right (whether statutory or in law or equity) to set-off sums owed to the taxpayer in respect of one tax against sums owed by the taxpayer in respect of another tax, whether those taxes are direct or indirect.
58. The power to tax is entirely statutory. Article 4 of the Bill of Rights 1688 provides:

"That levying money for or to the use of the Crown, by pretence of Prerogative without Grant of Parliament for longer time or in other manner than the same is or shall be granted, is illegal."

Contrary to the submissions made by Mr. Chivers on behalf of Emblaze, I do not accept that the setting-off of sums owed to HMRC against sums owed by HMRC, if there is a power so to do, is tantamount to the levying of a tax. In my judgment, it is properly described as the recovery of tax. Parliament has already passed legislation requiring the tax to be paid: the practice of setting the one off against the other is only in respect of established credits and debits.

59. One of the issues which I raised is whether, when Parliament used the phrase "set-off" in Section 81 of VATA, it was talking about "set-off" as that phrase is understood by lawyers, that is, legal or equitable set-off or whether it was describing the familiar accounting practice of balancing a running account. An indication that the phrase may have been used in the latter sense may be found in the exclusion of the set-off when an insolvency procedure has been applied to the taxpayer ("the person entitled to the credit"). In such circumstances, Rule 4.90 of the Insolvency Rules 1986 requires the set-off of mutual credits, debits and dealings. Thus, a different regime, requiring mutual set-off is statutorily imposed in the event of insolvency.
60. I, therefore, conclude that there was no general statutory right to set-off in either sense described above sums owed to HMRC against sums owed by HMRC to the taxpayer. The position is a fortiori in the case of an assignee, such as Emblaze.
61. This conclusion is consistent both with Section 130(8) of the Finance Act 2008 and Section 133 of the Finance Act 2008. In respect of Section 130(8), the power that HMRC has, as referred to in that subsection, is such power as was specifically given to HMRC by statute (see, for example, Section 81 VATA). It was not a right, as the consultation documents made clear. In respect of assignees, Section 133, which came into force on the 21 July 2008 and which applied to assignments on or after the 25 June 2008, clearly is intended to impose a set-off on an assignee where no such set-off had been permissible prior to that date.

(b) Equitable set-off

62. I turn now to the issue of whether HMRC had a right of equitable set-off against either Global or Emblaze.
63. As has been stated, HMRC contend that it has the right of equitable set-off in respect of sums owed by Global to it, but it also contends that Global has no corresponding right of equitable set-off against it. As Rix L.J. made clear in Geldof, an equitable set-off must work in both directions. Thus, as he formulated it the test is whether the cross-claim by HMRC is so closely connected with Emblaze's demands that it would be manifestly unjust to allow Emblaze to enforce payment without taking into account HMRC's cross-claim.
64. It will readily be seen that the test as formulated is not easy to apply when, as in the present case, Emblaze is an assignee and the real cross-claim is in respect of the assignor's right to payment which has been assigned to Emblaze. I, therefore, start by considering what the position would be if it were Global who was trying to enforce payment. Would it then be "manifestly unjust" to allow Global to enforce its claim for payment without taking into account HMRC's cross-claim? The cases in which a claim for equitable set-off have arisen are either single contract cases or cases in which two contracts which are closely connected are involved. That is not the present case. Global's liability to pay VAT and corporation tax are both statutory liabilities. HMRC's liability to repay Global's input tax is likewise a statutory liability. Global's liabilities arises under two different statutes. In one of those statutes, VATA, there is an express right to set-off credits and debits. I was not informed whether there was a corresponding right in relation to corporation tax, where advanced corporation tax ("ACT") was, before its abolition, credited against mainstream corporation tax ("MCT").
65. In these circumstances, I find it difficult to conclude that the liability to pay VAT and the right to receive repayment in respect of corporation tax are so closely connected as to bring into existence a right corresponding to the equitable right of set-off in closely connected contracts. Furthermore, I do not think it manifestly unjust to deny the right of equitable set-off in such circumstances.
66. As an assignee Emblaze takes subject to the equities. However, as I have concluded that HMRC had no right of set-off against Global, there cannot be a right of set-off against the assignee, Emblaze. That conclusion becomes a fortiori when it is recalled that Parliament has, since the date of the assignment, specifically enacted provisions for set-off both as between the taxpayer and the Revenue and HMRC and between assignees and HMRC.
67. Mr. Moser placed considerable emphasis on the passage in the speech of Lord Walker of Gestingthorpe in Mellham Limited v. Burton (Collector of Taxes) which is set out in [33] above.
68. That passage must, of course, be read in the context of the facts of the particular case that Lord Walker was considering. In that case, Mellham had received a substantial sum by way of dividends from an American subsidiary. Subsequently, Mellham paid its holding company a dividend of £1.4 million and consequently became liable to pay Advance Corporation Tax (ACT) of £350,000. That sum was due on 14th January 1998. However, Mellham did not pay that sum, and interest began to accrue on the unpaid sum from 14th January 1998 and continued until the date of payment. Mellham was entitled to double taxation relief on the dividend paid by the American subsidiary. However, the Inland Revenue did not concede Mellham's entitlement until 4th December 2001. Taking the double taxation relief to which Mellham was entitled into account, Mellham's Mainstream Corporation Tax (MCT) liability for the relevant period was £100,000 payable on 1st October 1998. If Mellham had paid the ACT which it was due to pay, it would have been entitled to a repayment of £250,000, the difference between the ACT liability and the MCT liability.
69. Mellham was late in submitting its MCT return for the repayment claim. The Inland Revenue obtained judgment against Mellham for the MCT liability of £100,000 in July 2001. No interest was awarded on that sum. On appeal to the Birmingham Mercantile Court, the Inland Revenue was awarded interest on the unpaid ACT from 14th January 1998 to 4th December 2001, the date upon which the Inland Revenue conceded that Mellham was entitled to double taxation relief. The Court rejected Mellham's submission that no interest was due since the Inland Revenue's obligation to repay the surplus ACT created a set-off in its favour: the Court expressed the view that the relevant statutory provision did not encompass a set-off.
70. Mellham's appeal to the Court of Appeal was dismissed, but the House of Lords allowed Mellham's further appeal. Lord Walker of Gestingthorpe (with whom Lord Nicholls of Birkenhead, Lord Hoffmann, Lord Phillips of Worth Matravers and Lord Brown of Eaton-under-Heywood agreed) described the issue raised as "a fairly short point of statutory construction", although he accepted that it took some time to get to that point as a consequence of having to consider "not only the basic statutory provisions about late payment of tax and repayment of overpaid tax, but also some of the very complex provisions" then in force relating to double taxation relief on foreign income dividends.
71. Lord Walker first explained what the position would have been if Mellham had complied with the statutory timetable. He continued:

"[7] For reasons which have never been explained, Mellham did not pay the ACT due on 14 January 1998. The reason can hardly have been a shortage of funds, as it had recently received a dividend more than 60 times the size of the ACT liability. A subsidiary contention put forward by the Revenue is that Mellham?s unexplained failure to comply with its statutory obligation (which it eventually admitted, to the extent of £100,000, but only after the Revenue had commenced proceedings) is (together with other shortcomings in its compliance with its obligations) a reason for withholding relief by way of equitable set-off."

72. Lord Walker explained that interest ran on the unpaid ACT under the provisions of Section 87(1) of the Taxes Management Act 1970, and that, in fact, Mellham did not file its MCT return until 24th December 1998, that is, nearly three months late. If it had filed that return on or by the due date of 1st October 1998, it would have been necessary to consider whether it had any liability to pay any further MCT, and insofar as it had paid ACT in excess of its MCT liability, on its entitlement to foreign income dividend relief.
73. Lord Walker then referred to Section 246N(2) of the Income and Corporation Taxes Act 1988, which provides:

"In a case where -

(a) the company pays an amount of Advanced Corporation Tax in respect of qualifying distributions actually made by it in the relevant period,

(b) the amount, or part of it, is available to be dealt with under this section, and

(c) there is as regards the company an amount of notional foreign source advance corporation tax for the relevant period, an amount of the advance corporation tax paid shall be repaid to the company, or set-off, or partly repaid and partly set-off, in accordance with this section and section 246Q."

74. Section 246Q(2) provides:

"If at the time when it falls to be determined whether the amount mentioned in sub-section (1) above is to be repaid or set-off -

(a) advance corporation tax paid (or treated for the purposes of section 239 as paid) by the company in respect of distributions made by it in the relevant period has so far as possible been set against its liability to corporation tax for the period under section 239(1), but

(b) the company?s liability to corporation tax for the period is to any extent undischarged, the amount mentioned in sub-section (1) above shall so far as possible be set-off against the company?s liability to corporation tax for the relevant period (and an amount of that liability equal to the amount so set off shall accordingly be discharged); and any excess of the amount mentioned in sub-section (1) above over the amount so set-off shall be repaid."

75. As Lord Walker explained, if Mellham had duly paid its ACT and had then put in its MCT return more promptly, and if the Revenue had promptly accepted its claims for an income dividend and double taxation relief, the consequences would have been apparent on 1st October 1998 that Mellham's liability to MCT was limited to £100,000 and that the other £250,000 paid in ACT attracted relief under Sections 246N and 246Q of the Income and Corporation Taxes Act 1988. The relief would have taken the form of a repayment, and the repayment would have carried interest. Interest would have run from 1st October 1998.
76. In his judgment in the Court of Appeal, Buxton LJ with whom Brooke LJ and Morland J agreed, gave four reasons for dismissing the appeal. Lord Walker described all of the reasons as calling for "respectful attention", but explained why he did not agree with Buxton LJ. In respect of the first reason given by Buxton LJ (that "payment" in Section 246N(2) cannot extend to a set-off) Lord Walker expressed the view that Buxton LJ may not have "stood back and considered the position in the round". Although feeling some sympathy with Buxton LJ's view, Lord Walker described as "startling" the proposition that a failure to pay tax should carry a statutory liability to pay interest forever afterwards, even if the principal liability were discharged or satisfied other than by payment. He summarised his view in respect of the first reason in the following words: "….a perpetual liability to pay interest, subject only to a discretionary (and possibly dubious) official power of remission would be so disproportionate a penalty as to raise real doubt whether Parliament could have intended the system to work like that".
77. As to Buxton LJ's second reason, namely, that the statutory language distinguished between "paid" and "repaid" and also referred expressly (in another context) to set-off, Lord Walker again expressed the view that Buxton LJ's views must be given due weight but concluded that the reference in Section 246N(2) to tax being set-off was looking forward to the provisions of Section 246Q(2) which refers to an amount being "set-off against the company's liability to corporation tax for the relevant period". Lord Walker said that this was "not an ordinary set-off of cross-claims. It is treating a payment of ACT by a company to the Revenue as discharging in advance a liability for MCT to be paid by the same company to the Revenue".
78. In respect of Buxton LJ's third reason, namely, that the statutory purpose of ACT was to help the Revenue's cash flow, Lord Walker repeated that the notion of perpetual liability to pay interest, subject only to the possibility of administrative remission, could not be justified on grounds of policy.
79. Finally, in respect of Buxton LJ's fourth and final reason, namely, that if Parliament had intended the complicated concept of equitable set-off to apply "in this area", it would have said so expressly, Lord Walker said that he again had some sympathy with that view. It was in this context that Lord Walker said that set-off was a general principle founded in simple convenience and fairness, even if it had some arcane fringes.
80. The issue which Lord Walker was considering was whether Mellham was liable to pay interest on the ACT which it should have paid notwithstanding the subsequent discharge by set-off of its liability. The Revenue's contention was that interest continued to run even after the date upon which the statutory set-off under Section 246N(2) had taken place. Although Lord Walker's statement is in the broadest terms, he was plainly not considering the set-off between different taxes payable under different tax regimes. Nor it seems to me was he specifically considering whether or not an equitable right of set-off accrued. Rather, as I understand his judgment, he was simply applying the set-off, which he described as being not an ordinary set-off of cross-claims as an accounting exercise which brought to an end Mellham's liability to pay interest.
81. It follows that I do not believe that Lord Walker's statement in Mellham provides the assistance to Mr. Moser that he sought to derive from it.

(c) Summary

82. It seems to me that there are three possible methods of set-off which must be considered. There is the statutory power of set-off which Parliament has now provided for, but which prior to the Finance Act 2008 was limited. There is the right of set-off, whether legal or equitable, that might arise where there are cross-claims as described by Rix LJ and where it would not be manifestly unjust to deny the set-off, and there is the simple accounting practice of setting-off sums on a running account between the same parties.
83. In my judgment, none of these methods of setting off debits and credits is available to HMRC in the present case. For the reasons explained above, I have concluded that HMRC's claim to set-off does not arise under its statutory power of set-off; that there is no equitable right of set-off; and that although it may be convenient to set-off sums owed by way of Corporation Tax and PAYE against repayments due in respect of VAT, that is an accounting practice, which is a matter of convenience but not a matter of right.
84. Finally, I would point out that Parliament clearly had in mind the distinction between the statutory power to set-off and the legal or equitable right of set-off when it enacted Section 130(8) of the Finance Act 2008. It is significant, in my judgment, that Parliament did not provide in that section that set-off generally was without prejudice to any other right of the Commissioners to set-off amounts, but that it was without prejudice to any other power of the Commissioners to set-off amounts.
85. For all of these reasons, I have concluded that the HMRC's claim to set-off the sum owed to it by Global in respect of Corporation Tax and PAYE against Emblaze's right as assignee to repayment of the VAT input tax must be rejected.

(d) Legitimate Expectation

86. In the alternative, Emblaze submits that it is not open to HMRC to change its position to the prejudice of Emblaze, or of Global, from whom Emblaze takes the benefit of the assignment, because Emblaze had a legitimate expectation at the date when it took the assignment that HMRC's publicly stated position and practice was that they only set-off against sums owed by it to a taxpayer sums owed by the taxpayer to HMRC if the taxpayer consented. That is the policy stated in the Consultation Documents to which I have referred earlier in this Judgment.
87. Emblaze submits that to seek now to contend that HMRC has an equitable right of set-off is a change of position which is not open to HMRC. Emblaze submits that it and Global were entitled to rely upon the publicly stated practice of HMRC, and that HMRC's claim to a right of set-off was first made after the date of the change in the legislation contained in the Finance Act 2008. As the public statements were made prior to both the change of law and the assignment no rational ground had been put forward as to why the Finance Act 2008 practice of HMRC was to be changed in circumstances in which the legislation had specifically excluded from its ambit an assignment prior to 24th June 2008. Mr Chivers submitted that to permit HMRC to depart from the Finance Act 2008 would be to condone an abuse of power.
88. Mr Chivers did not suggest that the statements in the Consultation Documents were made to either Emblaze or to Global. Rather, he relied upon those public statements in support of his submission that Emblaze had a legitimate expectation that the stated policy would not change. He relied upon passages in the judgment of Sales J. in Oxfam v. Her Majesty's Revenue and Customs [2009] EWHC 3078 (Ch), a case concerned with a representation made by HMRC to an individual, and R. v. Secretary of State for Education and Employment ex parte Begbie [2000] 1 WLR 1115, a case in which, as Sedley LJ expressed the position in that case as:

"... the Government has made known how it intends to exercise powers which effect the public at large. ..."

89. This is not a case in which HMRC made it known how they intended to exercise its powers. The Consultation Documents were documents in which HMRC stated how they did exercise their powers. They made those statements in the context of seeking a new statutory framework.
90. Mr Moser's first response was that Global commenced its appeal on 20th December 2006 long before the 2007 Consultation Document was published. Secondly, Mr Moser submitted that the 2007 Consultation Document did not state that the Commissioners would not apply a set-off: it stated that HMRC would apply set-off unless there was objection. Furthermore, Mr Moser relied upon a passage in the judgment of Lightman J in Rowland v. The Environment Agency [2003] (Chancery Division) 581 in which Lightman J stressed that:

"The relevant representation must be unequivocal and lack any relevant qualification."

Mr Moser submitted that there was no such representation in the present case.

91. In response to Mr Moser's submissions, Mr Chivers submitted first that the 2007 Consultation Document stated HMRC's practice and that a sufficient legitimate expectation could be drawn from the consistent practice of HMRC in relation to its dealings with the affairs of taxpayers. Furthermore, he submitted that HMRC's position was "unequivocal" and without "relevant qualification" so that the legitimate expectation was consistent with the practice.
92. In my judgment, the statements in the Consultation Documents do not give rise to a legitimate expectation on the part of the taxpayer in the sense contended for by Emblaze.
93. However, those statements do provide support for the conclusion that I have already expressed, namely, that there was no statutory power of set-off enjoyed by HMRC, such as that for which it now contends, and that there was no equitable right of set-off. The Consultation Documents spoke of the practice, which would be reversed if objection were made. I have no doubt that if there had been a statutory power to set-off or an equitable right to set-off, statements to that effect would have been made in the Consultation Documents.
94. I, therefore, reject Emblaze's submission that it had a legitimate expectation that the Revenue would continue to apply the practice that it had applied prior to the date upon which Emblaze took the assignment.

INTEREST

95. Emblaze claims interest in the sum found to be due to it by the FTT in its Decision released on 25th August 2010, at the rate prescribed by the JA 1938 of 8% per annum. HMRC resists the claim for interest, but, in the event that I conclude that Emblaze is entitle to interest at the JA 1838 rate, HMRC accepts that the rate is 8%.
96. It is common ground that the FTT Decision is not a judgment so that the Judgments Act 1838 does not apply to it: see Nader v. HMCE [1993] STC 806 (CA) per Farquharson L.J. at page 813. HMRC's position is set out in its letter dated 9th December 2011. HMRC there states:

"b) Why interest is not payable under the VAT Act;

Interest is not payable under the VAT Act because:

while section 85A VATA 1994 makes express provision regarding payment and repayment of sums following a Tribunal decision on a section 83A appeal; and

section 85A(2) provides that sums due to appellants following a decision "shall be paid or repaid with interest at the rate applicable under Section 197 of the Finance Act 1996",

section 85A(5) adds, however, that the section does not require HMRC to pay interest on any amount which has been increased by a repayment supplement.

Since a repayment supplement was due and paid, additional interest is not due under Section 85A. Section 85A(5) replicates the effect of Section 78(2) which is the general rule relating to the interaction between interest and repayment supplement.

c) Why interest is not also payable under the Judgments Act 1938 (JA) and/or the Senior Courts Act 1981 (SCA).

Interest is not payable under the JA or SCA in respect of Tribunal decisions. Tribunals do not fall under the Judgments Act 1938 and they are outside the civil court?s jurisdiction. Section 27 of the Tribunals, Courts and Enforcement Act 2007 (TCEA), provides for enforcement of sums due in consequence of Tribunal decisions. For the purposes of recovery such sums are treated as if they were payable under an order of a county court, high court or a decree arbitral in a Sheriff court (as appropriate). There is nothing in section 27 to suggest that it is anything other than a provision about enforcement, or that it changes the status of these payments for any other purpose. The fact that the sums need to be treated for the purposes of recovery "as if" they were payments under the decisions of other courts shows that they are in principle not such sums."

97. Mr Patchett-Joyce relied upon Section 27 of the TCEA 2007 which is in the following terms:

"(1) A sum payable in pursuance of a decision of the First-tier Tribunal or Upper Tribunal made in England and Wales -

(a) shall be recoverable as if it were payable under an order of a county court in England and Wales;

(b) shall be recoverable as if it were payable under an order of the High Court in England and Wales."

98. He also pointed out that the same phrase is used in Section 15 of the Industrial Tribunals Act 1996, which provides that enforcement in England and Wales of a decision of an employment tribunal "shall be recoverable by execution issued from a county court or otherwise as if it were payable under an order of a county court". That amendment was made by Schedule 8, paragraph 43 of the TCEA 2007. So, Mr Patchett-Joyce submitted, if the FTT decision is recoverable "as if it were payable under the order of the" Court, it must be recoverable as if it were a judgment and it must accordingly be entitled to interest. He pointed out that Section 27 provides that the sum is recoverable, and that must mean that it can be recovered. If it were not recoverable in the same way as a judgment, he submitted that there would be no incentive on any party ordered to make a payment be a decision of a Tribunal to make that payment.
99. A great deal of detailed argument was deployed in relation to this issue, but, in my judgment, Emblaze cannot succeed in this claim. Simply because a sum is recoverable as if it were payable under the order of the Court does not make a judgment: it merely stipulates the manner in which the order can be recovered or enforced. If Parliament had wanted tribunal decisions or all orders to be judgments, it would undoubtedly have said so and the TCEA 2007 would have provided the obvious occasion for it to do so.
100. I conclude, therefore, that Section 27 of the TCEA 2007 does not have the effect for which Emblaze contends.
101. I am fortified in that conclusion because VATA 1994 contains provisions in respect of interest. Those provisions were amended after the TCEA 2007 came into force. Prior to the repeal of Section 84(8) of VATA 1994, that section read:

"Where on an appeal it is found -

(a) that the whole or part of any amount paid or deposited in pursuance of subsection (3) above is not due; or

(b) that the whole or part of any VAT credit due to the appellant has not been paid, so much of that amount as is found not be due or not to have been paid shall be repaid (or, as the case may be, paid) with interest as such rate as the tribunal may determine; and where the appeal has been entertained notwithstanding that an amount determined by the Commissioners to be payable as VAT has not been paid or deposited and it is found on the appeal that that amount is due, the tribunal may, if it thinks fit, direct that that amount shall be paid with interest at such rate as may be specified in the direction."

102. That subsection was replaced in 2009 by Section 85A. That section provides:

(1) This section applies where the tribunal has determined an appeal under section 83.

(2) Where on the appeal the tribunal has determined that –

(a) the whole or part of any disputed amount paid or deposited is not due, or

(b) the whole or part of any VAT credit due to the appellant has not been paid, so much of that amount, or of that credit, as the tribunal determines not to be due or not to have been paid shall be paid or repaid with interest at the rate applicable or under Section 197 of the Finance Act 1996.

...

(5) Nothing in this section requires HMRC to pay interest –

(a) on any amount which falls to be increased by a supplement under section 79 (repayment supplement in respect of certain delayed payments or refunds)..."

103. Thus, as it seems to me Parliament has legislated for precisely the situation in which Emblaze now finds itself. Emblaze received a repayment supplement, and is not, therefore, entitled to any further sum by way of interest.
104. Mr Patchett-Joyce submitted that the principle of fiscal neutrality is a fundamental principle of the common system of VAT which operates around the European Union. The object of fiscal neutrality, he submitted, is to relieve the taxpayer entirely of the burden of the VAT payable or paid in the course of all his economic activities: see Case – 392/09 Uszodaépítö Kft. He further submitted that the mechanism for achieving fiscal neutrality is the right of deduction which is an integral part of the VAT scheme.
105. In my judgment, it was open to Parliament to decide how fiscal neutrality should be achieved, and the provision for the making of a repayment supplement was the manner in which Parliament decided that such neutrality would be achieved.
106. For all of these reasons, I conclude that the claim for interest fails.

SUMMARY

107. For the reasons set out in this Judgment I conclude that the answers to the issues which I have been asked to decide are:

(1) HMRC may not exercise a set-off as between Global Telecoms Distribution plc direct and indirect tax credits and/or debits whether on the ground summarised in sub-paragraphs 12(4) and (5) of the Statement of Grounds in the Acknowledgement of Service or at all.

(2) Emblaze is not entitled to interest in the sum due to it from the date of the decision until the date of repayment of that sum or any part.

COSTS

108. I will hear submissions on costs when I hand down this Judgment.

POSTSCRIPT

109. Before parting with this case I would like to thank Counsel for all of the assistance that they gave me in leading me through the intricacies of an arcane area of the law with which I have not previously come into contact.