A BUILDING firm disputing a €20 million VAT assessment against it by the Revenue Commissioners six years ago is not entitled to cross-examine a tax inspector in its appeal against that assessment, the High Court has ruled.
The Revenue raised the €20 million assessment against Menolly Homes in 2004 after claiming a scheme involving Menolly and related companies was an attempt to avoid VAT payments “on a large scale” in six separate estates.
In an important judgment clarifying the powers of the Revenue Appeals Commissioners under the VAT Act 1972, Mr Justice Peter Charleton found, unless there is evidence of capriciousness by a tax inspector in raising a VAT assessment, the commissioners may only hear appeals against the amount of an assessment and not against its validity.
In this case, the Appeals Commissioner who refused to allow Menolly cross-examine the inspector did so on grounds there was no evidence that the inspector acted capriciously in raising the assessment or had no reason to believe the sum of tax was due. That ruling was within the powers of the commissioner, he said.
In those circumstances, Menolly was not entitled to cross-examine the tax inspector who raised the assessment, the judge ruled.
The judge said the fact Menolly had delayed five years after the assessment before applying to cross-examine the inspector also disentitled it to cross-examination.
It was not within the scheme of the “ordered collection of tax” that a definite ruling on a point of such magnitude should be sought so late, he said.
The decision means the Menolly appeal, which began in 2007 but was adjourned in 2009 pending the outcome of Menolly’s judicial review, may now proceed to a conclusion.
The Revenue previously unsuccessfully sought to have the judicial review fast-tracked before the Commercial Court, arguing the collection of tax is more of a concern in the current economic climate, but Ms Justice Mary Finlay Geoghegan found this “classic public law dispute” as to whether Menolly was accorded fair procedures was not admissible under the Commercial Court rules.
In his judgment, Mr Justice Charleton said a tax inspector had in 2004 assessed Menolly for just under €20 million VAT on the sale of new houses. Such sales are normally subject to VAT but these sales took place apparently in the context of a scheme of leasing between closely related companies, he said.
The Revenue disputed Menolly’s claim its scheme carried a VAT exemption and carried out an audit after which the €20 million assessment was raised. Menolly appealed, arguing it did not owe the €20 million sum or anything like it and it has paid nothing under the assessment. In 2009, Menolly sought to cross-examine the inspector on his state of mind in 2004 but the Appeals Commissioner refused that application.
The judge said the 1972 VAT Act provides a tax inspector can raise an assessment if they have “reason to believe” an amount of tax is due. The inspector must have a cause, an explanation or a justification to “believe” the tax is due but is not required to have “a concluded belief” or to have reached a “final conclusion” in that regard before raising the assessment.
“What is required is that any tax inspector should act only where their belief is backed up by reason,” he said.
