The case, brought by HM Customs and Excise, concerned the VAT
liability of Scottish firm Robertsons Electrical Limited in respect
of goods sold on-line and, in particular, goods sold and paid for
prior to the end of an accounting period, but not accounted for
until the next accounting period.
Customs and Excise argued that the VAT should have been
accounted for at the time the payment was made or the goods
sent.
Robertsons, on the other hand, argued that the sales, as they
had been made over the internet, were subject to the cooling off
period required under the Distance Selling Regulations – which had
not passed by the date the accounting period ended. Accordingly,
the VAT liability fell into the next accounting period.
The Distance Selling Regulations came into force on 31st October
2000 and gave new rights to consumers in the area of home
shopping.
Under the Regulations, consumers shopping for goods and services
by telephone, mail order, fax, digital television, the internet and
other types of distance communication have additional rights
including rights to clear information, further protection against
fraudulent use of a credit card and a cancellation period of seven
days – although there are exceptions.
Because of the statutory cancellation requirement, said
Robertsons, the payments made by customers were treated as a
refundable deposit until the cancellation period had expired.
Considering the matter, the three-member Tribunal panel looked
to a provision in the 1994 Value Added Tax Act which states, in
general, according to the Tribunal:
"a supply of goods shall be treated as taking place if the goods
(being sent or taken on approval or sale or return or similar
terms) are removed before it is known whether a supply will take
place, at the time when it becomes certain that the supply has
taken place or, if sooner, 12 months after the removal."
The Tribunal found that a supply of goods in the circumstances
faced by Robertsons was a supply on similar terms to goods sent on
approval or sale or return.
"We consider," said the Tribunal, "that the essential ingredient
is that the person to whom the goods are supplied has the
unqualified right to return the goods or to decline to proceed with
or cancel the transaction, usually without penalty."
"The unqualified right to cancel is, in practical terms, the
same as the right to disapprove. Until the time for cancelling or
disapproving passes, the supplier does not know whether the goods
will be retained and must accept them back if the consumer
timeously declines to accept them by cancelling the transaction or
intimating disapproval," added the Tribunal.
Accordingly the firm was not accountable for VAT on the goods
until the statutory cancellation period had expired.
