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.