Flashback on ECJ cases C-395/02 (Transport Service) – A Member State can recover VAT if a taxable person wrongly invoiced a supply of goods free of charge

On March 3, 2004, the ECJ issued its order in the case C-395/02 (Transport Service).

Context: Article 104(3) of the Rules of Procedure – First and Sixth VAT Directives – Principle of fiscal neutrality – Application of VAT to each production or distribution transaction – Recovery)

Article in the EU VAT Directive

Article 21(1)(a) and 28(c)A(a) of the Sixth VAT Directive (Article 193 and 138 of the EU VAT Directive 2006/112/EC).

Article 138 (Exemption – Intra-Community supplies)
1. Member States shall exempt the supply of goods dispatched or transported to a destination outside their respective territory but within the Community, by or on behalf of the vendor or the person acquiring the goods, where the following conditions are met:
(a) the goods are supplied to another taxable person, or to a non-taxable legal person acting as such in a Member State other than that in which dispatch or transport of the goods begins;
(b) the taxable person or non-taxable legal person for whom the supply is made is identified for VAT purposes in a Member State other than that in which the dispatch or transport of the goods begins and has indicated this VAT identification number to the supplier.

Article 193 (Liability of VAT)
VAT shall be payable by any taxable person carrying out a taxable supply of goods or services, except where it is payable by another person in the cases referred to in Articles 194 to 199b and Article 202.

Facts

The referring court states that, according to an invoice of 18 January 1994, Transport Service sold two Mercedes vehicles, at a cost of BEF 2 061 646, to Mr Schellinck, residing in Luxembourg.
It is apparent from the judgment of referral that, following an inspection on 30 September 1998, in the course of which the genuineness of the supply of the vehicles in question to the Luxembourg customer was put in question, the Finance Ministry drew up, on 22 February 1999, a final report stating that Transport Service was liable to the Belgian State for BEF 422 637 in respect of VAT and BEF 845 274 by way of statutory penalty and for interest for delay in payment. A final demand was served on that company on 26 May 1999.
On 24 June 1999, Transport Service lodged an objection to that demand. In its action against the Belgian State before the Rechtbank van eerste aanleg te Antwerpen, it joined Bea Cars BVBA (hereinafter ‘Bea Cars’), a company governed by Belgian law, as intervener and third party.
The national court makes clear that, according to the Belgian State, the supply did not take place between Transport Service and Mr Schellinck, but between that company and Bea Cars. Therefore no exemption from VAT can be invoked for the supply of the vehicles in question and, therefore, Transport Service is liable for the VAT on the supply of the two vehicles.
Transport Service contends that it sold the two vehicles to Mr Schellinck on the express order of Bea Cars. In that respect, it acted in good faith and has evaded no VAT. Accordingly, if the referring court should hold that it remains liable for the VAT, Bea Cars, which misled it, should indemnify it and compensate it for the loss which it has suffered.
Bea Cars maintains that it is not in any way concerned with the objection raised by Transport Service, or, at least, that it cannot be liable for any amount of VAT, penalties or interest. It states that it paid the Belgian State the VAT due in respect of the resale of the two vehicles in question.
In addition, both Transport Service and Bea Cars argue that the Belgian State has infringed the principle of the neutrality of the common system of VAT, in that it is claiming from them the payment of the VAT and a penalty, even though it is not in any way disputed that that tax has been paid by the end user.

Questions

Does the principle of the neutrality of value added tax preclude a Member State from claiming additional VAT from a taxable person which has issued an invoice, correctly or otherwise, in accordance with the VAT exemption applicable to intra-Community supplies (Article 39(a) of the Belgian VAT Code) where it is evident that the VAT has been paid by the end user and transferred to the Member State by the person who drew up the invoice issued to that end user?

AG Opinion

None

Decision (Order)

The principle of the neutrality of the common system of value added tax does not preclude a Member State from recovering value added tax, after the event, from a taxable person which has wrongly invoiced a supply of goods as being exempt from that tax. It is irrelevant, in that regard, whether the value added tax on the later sale of the goods concerned to the end user has been paid to the public purse or not.

Summary

The principle of the neutrality of the common VAT system does not preclude a Member State from recovering VAT from a taxable person who has wrongly invoiced a supply of goods free of charge. Whether or not the VAT on the subsequent sale of the goods in question to the final consumer has been paid to the Treasury is irrelevant in that respect.

Source