UK Tribunal finds that there was a “supply” of goods which were paid for but not delivered

In David Peters Ltd v Revenue & Customs [2012] UKFTT 124, the First Tier Tribunal found that the taxpayer was entitled to an input tax credit where it had paid for goods but those goods were not delivered.  The essential issue in the case was whether there was a “supply” of the goods to the taxpayer, notwithstanding that delivery never occurred.  While we usually think of GST or VAT as a “transactions tax” or a “practical business tax”, this case is an example of how the law (in this case constructive ownership) can sometimes intrude.

The facts of the case are simple.  The taxpayer entered into a contract to purchase a number of pieces of equipment.  The price included VAT and payment was made, an invoice was provided and the taxpayer claimed input tax credits.  Not all of the equipment was delivered and the Commissioner contended that the taxpayer was not entitled to input tax credits for the goods which were not delivered.  The Commissioner’s argument was that there was no supply of goods where, though payment was made, the goods were never physically supplied.

In finding for the taxpayer, the Tribunal referred to section 18 of the Sale of Goods Act and found that where there is an unconditional contract for the sale of specific goods, which are in a deliverable state, the property in the goods passes to the buyer when the contract is made.  Further, the Tribunal found that there was constructive delivery of the goods, which was to say that while there was no change in the physical possession of the goods, the buyer acquired the immediate right to possession on payment.  The completion of the sale was therefore separate from the physical delivery of the goods.  The seller became a bailee of the goods for the buyer, who was the owner of the goods.  As noted by the tribunal at [44]:

Thorneycroft, while in physical possession of the goods, were not the owners of the goods.  Rather the owners were the Appellant.  A distinction is made in English law between ownership (the Appellant) and possession (Thorneycroft) and that distinction is appropriate in this case.  The owners will take priority to the title of the goods since on payment for the goods they acquired an immediate right to possession and an attendant right to sue in conversion.  Thorneycroft therefore held the goods for the buyer, the Appellant.

Based on this reasoning, there was a supply of the goods and the taxpayer was entitled to the input tax credits.

It is unclear how such a case would be treated in Australia.  The GST Act does not have “time of supply” rules, but some guidance can be found in s 6(2) of the GST Transition Act which provides that “a supply or acquisition of goods is made when the goods are removed“.  The word “removed” is not defined, and it is unclear whether it is referring to removal of the goods in a physical sense, or in a constructive sense.  If the focus is on physical delivery of the goods, this may conflict with section 22 and 23 of the Sale of Goods Act 1958 (Vic) (other jurisdictions have similar provisions, I believe) which are to the effect that, unless the contract otherwise states, where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made.

The case can also be distinguished from cases involving the provision (or non-provision) of the supply of services, such as the domestic air travel at issue in the Qantas matter (the Commissioner’s appeal from the decision of the Full Federal Court is to be heard by the High Court later this year).

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