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1. Prior to 1977, Value Added Tax was imposed in relation to the sale of goods and supply of services in most, if not all, of the then members of the European Community. However, such taxes were not applied uniformly, and in particular exemptions from liability to Value Added Tax varied from State to State. The Sixth Council Directive of the European Community dated the 17th May 1977, inter alia, obliged member States to exempt certain types of transactions or activities from liability to Value Added Tax. The relevant provision under Article 15 of that Directive is as follows:

2. Under Article 3 a destination outside the territory of the country meant basically, a destination outside the European Community. One of the principle effects of this provision was to permit tourists from outside the European Community to purchase goods for export by them to their home country without the payment of Value Added Tax.

3. As can be seen, it was a matter for each member State to lay down the conditions under which this exemption would operate, which in the case of this State was done by way of statutory instrument. The relevant statutory instrument in operation at the time we are concerned with was Statutory Instrument 438 of 1992 namely the Value Added Tax (exported goods) Regulations 1992, which makes it mandatory on the Respondents to refund Value Added Tax paid by any qualified person on goods being exported from what is now the European Union.

4. The system operated in several alternative ways. Firstly, the vendor of the goods could simply supply them free of Value Added Tax, but this necessitated the vendor receiving the relevant evidence of export from the purchaser subsequently, so as to enable the vendor to get relief from Value Added Tax himself. Secondly, the vendor may charge the Value Added Tax to the purchaser, and refund it to him when evidence of export is provided. Neither of these methods are particularly satisfactory from a practical point of view, particularly where the amounts involved are small as is frequently the case.

5. The third method of obtaining the exemption is through the use, by the trader, of what the revenue call VAT refunding agencies. The Applicant in the present case is one such agency. The basic procedure is that when the purchaser buys goods in a shop which operates a scheme through a VAT refunding agency, he authorises the agency to purchase the goods on his behalf, agrees to the agency being paid a commission at a stated rate, and acknowledges that he has taken possession of the goods. After the goods are exported, the agencies obtain the necessary evidence of exportation and then claim a refund of the Value Added Tax which they forward to the purchaser. The whole scheme operates on the basis that the agency is at all times, both in buying the goods and obtaining the refund, acting as an agent for the purchaser.

6. Each such agency is registered with the Respondents for Value Added Tax. They make the normal two monthly return on which they claim a repayment of tax in relation to all transactions which they have conducted in this manner during the relevant two month period. In due course, the Respondents remit the tax and the agencies will then pass it on to the individual purchasers, less their commission.

7. This rebate is claimed under Section 20(1) of the Value Added Tax Act, 1972, which reads as follows:

8. While I have some doubts as to whether the scheme, as operated, strictly complies with the Sixth Directive and Section 20 of the 1972 Act, nevertheless it is a fact that it has been operating in this way for many years with the blessing and co-operation of the Respondents, and indeed neither party seeks to challenge the scheme as such. Therefore, I propose to assume, for the purpose of this decision only, that the scheme, properly operated, is perfectly valid and within all relevant statutory provisions.

9. To turn to the facts of this case, the Applicant has been operating this scheme since 1986, and the first time that difficulties arose appears to have been as a result of a Value Added Tax audit in January 1994. While this audit did not throw up anything which was in itself unlawful in relation to the Applicant's Value Added Tax affairs, the Respondents were not happy with the accounting systems operated by the Applicant, and suggested certain updating and modernisation of the records. A further Value Added Tax inspection took place in January 1995, which resulted in some considerable correspondence whereby the Respondents sought further information and reconciliations of figures. Several meetings were held with the Applicant's advisers in August 1995, and some considerable information was given to the Respondents by the Applicant's Accountants on 18th August 1995. The matter then seems to have gone into abeyance until January 1996 when further meetings took place and further details were requested by the Respondents. At this stage the Respondents were questioning discrepancies which appeared in the Applicant's books and which seemed to show that the refunds claimed by the Applicant had not all been passed on to the original purchasers. This also led to enquiries being made into the personal tax affairs of Mr O'Reilly, who is the principal shareholder in the Applicants, and an investigation as to the source of his assets. It is now alleged by the Respondent that a sum of at least £600,000.00 is unaccounted for.

10. While I am not concerned with the question of whether the Respondent's allegations are well-founded, particularly with regard to Mr O'Reilly's personal affairs, I am quite satisfied that the Respondents had every reason to question the activities of the Applicant and seek information from it. I am also quite satisfied that the Applicant and Mr O'Reilly acted quite improperly in that he, in his personal capacity, purported to conduct foreign exchange transactions with the Applicant, whereby he offered an exchange rate as low as $1.05 to the £1, thus making a huge profit for himself to the detriment of the persons on whose behalf the Applicant was collecting the Value Added Tax refunds. I am also quite satisfied that these persons never authorised this procedure nor were they aware of it. As the Respondents have already referred this matter to the Director of Public Prosecutions, I will make no further comment.

11. I have felt it necessary to go into the background facts of this dispute in some detail, as the Respondents rely on these facts to justify their actions. When the Respondents suspected that there were serious discrepancies in the conduct of the Applicant's business, they stopped paying the tax refunds to the Applicants. This first occurred in relation to the claim for refunds made at the end of April, 1996, and no sums have been paid by the Respondent to the Applicant since that date. The Applicant was not formally notified that payments were being withheld until a letter of 30th July, 1996, when it was stated that "as advised V.A.T. repayments will not be certified until above points have been satisfactorily dealt with". This was repeated in a letter of 22nd August, 1996. It should be noted that the Respondents have simply refused to make the repayments, they have not issued a ruling or finding that the repayments are not due. Had that been done, of course, the Applicant would have been in a position to appeal, but it now finds itself in the position that it is still trading, which means that more and more purchasers of goods who are relying on the Applicant to collect their refunds have not and cannot be paid because the Respondents have not made those refunds. The Respondents, having now referred the matter to the Director of Public Prosecutions, there is no indication when, if ever, they intend to make payments to the Applicant.

12. While I have very little sympathy for the Applicant, and none at all for Mr O'Reilly, I must consider the position, both from the point of view of the purchasers of the goods, who are the Applicant's principals, and I must consider the powers of the Respondents to withhold payments in this manner. Quite clearly the persons primarily suffering are the unfortunate purchasers, who are perfectly innocent in this entire matter, and who are entitled as of right under the Sixth Directive to be repaid their Value Added Tax. It seems to me that the Respondents are clearly frustrating this, and, having approved this method of collection of rebates of tax, are preventing it from taking effect.

13. The Respondents have sought to justify their position by saying, in effect, that the Applicant has ceased to be a bona fide V.A.T. refunding agency as envisaged by the scheme. This may well turn out to be correct, but even if it is, I do not think the course of action taken by the Respondent is either the correct one, or is legally permissible. If they consider that the Applicant is not a bona fide refunding agency, then they ought to notify it, and indeed the various retail outlets through which it trades, that it is not recognised as such, and that refunds will not be made to it. This would have the effect of forcing the Applicant to cease trading, and therefore, if the Respondents suspicions are correct, would protect innocent purchasers. While I realise that such a course would almost inevitably lead to litigation, it seems to me the only course open to the Respondents other than to make the repayments as claimed by the Applicant, once the Respondents are satisfied that they do represent genuine export claims. As this does not appear to be in dispute, at least to any serious degree, I think the Applicant must make the payments as there would not appear to be any grounds under the Value Added Tax legislation to refuse them. Section 20 of the 1976 Act only requires the Respondents to be satisfied in that the amount of tax actually paid together with the amount qualifying for deduction exceeds the amount payable if no deduction were made, and this does not appear to be the issue between the parties. While Section 20 could be construed as giving a discretion, in that it states that "they may refund the excess" both the Sixth Directive and the statutory instrument under which it now operates appears to make it mandatory that refunds shall be made. I can find no authority in relation to Value Added Tax which would permit the Respondents to retain monies otherwise payable by them, pending investigations, not into the Value Added Tax as such, but into the way in which the affairs of the Company have been run.

14. It has been argued on behalf of the Respondent on the authority of Ryll Brehon Airlines v. Ming (1995) 3 W.L.R. 64, that if they made the payments to the Applicant they might be said to be assisting the Applicant's dishonesty, and incur some liability themselves. I do not accept that this is so. The Respondents have certain statutory functions which they are obliged to discharge, and unless they have statutory authority to withhold monies during an investigation of the type being made in this case, they must discharge those obligations.

15. It has also been pointed out by the Applicant that the Respondents own statement of practise expressly states:

16. In the absence of some form of licensing of V.A.T. refunding agencies, this seems to me to be a correct statement of the law. The purchasers have authorised the Applicant to collect their V.A.T. refunds for them and the validity of those authorisations is not being challenged. That being so, the Respondent must make the payments to the body nominated by the person entitled to the payment, that is the purchaser. What happens as between the purchaser and the refunding agency is a matter over which the Respondents have no authority. Of course, the Respondents are perfectly within their rights, and indeed would have at least a moral obligation, to notify the authorities of any fraudulent practices which they believe may be being carried out, and the Respondents in the present case, very properly, have done this. However, that is as far their powers go to interfere in the relationship between the purchasers and the Applicant.

17. There is one final matter to which I must allude. In the grounding Affidavit sworn by Mr O'Reilly, which of course grounded the application for leave to apply for Judicial Review, it was sworn by Mr O'Reilly at paragraph 6:

18. At paragraph 9 he then swears:

19. An Affidavit by Mr Seamus Daly, the Applicant's tax adviser was also filed in which he refers to a letter written by him on 2nd October, 1996 requesting the reasons for the refusals be stated clearly, and he avers that at the date of the swearing of the Affidavit no reasons had been stated either orally or in writing in response to the letter. This may, of course, be literally correct, but it should be noted that Mr Daly was only brought in to advise the Applicant at the end of August, 1996. It may well be that he was totally unaware of the letters of 30th July and 22nd August. However, Mr O'Reilly was clearly aware of those letters as they were addressed to him by name, and he saw fit to make the averments in his Affidavit without referring to or exhibiting those letters or any of the correspondence with his Accountant, and I also note that the Applicant saw fit not to file any Affidavit by the Accountant who of course was well aware of the entire background. In my view the Applicants misled the Court in the application for leave to apply for Judicial Review and, while I do not think in the circumstances that this is a grounds for striking out the application, it is a matter which I intend to deal with when it comes to the question of costs.

20. With regard to the relief to be granted, I had considered merely directing the Respondents to process the claims for refunds, but on reflection it appears to me that as the basis on which they have refused to pay is not valid, it would be unfair on the ultimate purchasers or payees to put any further obstacles in the way of their being paid. The refunds being claimed are due to those purchasers. On the other hand I am very conscious of the allegations that large sums of monies are being diverted by the Applicant or its officers, and I will hear arguments from the parties as to the best method of ensuring that the refunds reach their proper destination.