On the question of chargeability of tax on stolen goods, there is an interesting case decided by the European Court of Justice which arose from a tax dispute in Belgium. As luck would have it, cigarettes, without stamps were stolen from an Antwerp tax warehouse. The owner of the cigarettes was British American Tobacco International (BATI). The Belgium tax authorities ordered to pay excise duty and VAT on the stolen cigarettes. The warehouse keeper and BATI challenged the action of Belgian State. The European Court of Justice held theft goods do not constitute taxable supply.
The VAT type taxes are chargeable only on a taxable supply. Where there is no taxable supply there is no tax. However, many complex issues can arise to determine the taxability made under the law. As per available facts, Newman was operating a tax warehouse in Antwerp, Belgium and stored therein manufactured tobacco products for the purpose of storage and packaging. The goods never suffered any tax stamping.
At a certain point of time a significant quantity of cigarettes was stolen from the warehouse. The Belgium Customs Authorities, after discovering the fact of theft, sent an assessment order on the warehouse keeper demanding payment of VAT on the stolen goods. Despite rejection of charges by the warehouse keeper, the tax authorities enforced the demand for VAT.
The action of levy of taxation on stolen goods was challenged before the court of first instance, Antwerp. The court framed legal issues and referred the matter to the European Court of Justice.
The local court framed the following questions:
1. Whether the theft of goods can be classified as a supply of goods for the purpose of levy of VAT in terms of Belgian law?
2. Whether the fact that goods being subject to excise duty can affect their classification for the purpose of VAT?
3. Whether or not in terms of Article 27(5) of the EC's sixth directive, the goods under dispute can suffer VAT
The court's observation on the above questions can be rephrased as under:
a) The theft of goods, by definition does not give rise to any financial gains. The act of theft therefore cannot be regarded as a supply of goods as there were no economic considerations involved.
b) The theft of goods is not covered under the term," Supply of goods".
c) The concept of supply covers a transfer of tangible property by one party by empowering the other party to dispose of it as if he was its owner.
d) The purpose of 'warehouse' is to facilitate monitoring of the charging of VAT by providing, in particular, that VAT is to be levied at the same time as excise duty is levied on the goods and the law is not concerned to determine chargeability of VAT on stolen goods, and cannot therefore create a new category of taxable transactions not provided in the law.
The court accordingly held:
I. The theft goods does not constitute a supply of goods for consideration within the framework of law and therefore, cannot be subject to value added tax. The argument that goods are like those at issue in the main proceedings relating to demand of excise duty does not affect the conclusion that good subject to theft does not constitute taxable supply.
II. The authorisation and empowerment to apply measures of facilitation or monitoring of the levy of VAT does not empower a State to subject transactions to a tax that is not specified in the law. Thus levy of VAT on goods subject to theft from warehouse are not within the framework of law.
(The writer is an advocate and is currently working as an associate with Azeem-ud-Din Law Associates Karachi)
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