On 04 July 2023, the Privy Council (“PC”) upheld the decision of the Supreme Court (“SC”) and ruled in favour of the Mauritius Revenue Authority(“MRA”) in the Blue Lagoon case (2023 UKPC24).
Blue Lagoon Beach Hotel & Co Ltd (“Blue Lagoon”) enters into one-year contracts with travel operators under which each operator binds itself to buy a specified number of hotel rooms for each night of the contractual period at a specified price. That price includes VAT at 15%. Every month, the tour operator pays for the rooms in advance while deducting the amount already settled at the time of signature of the contract. Blue Lagoon does not refund the operator any night which the operator has bought but has been unable to sell to a client.
Blue Lagoon accounted for VAT to the MRA where a client of the tour operator stays overnight and uses the hotel facilities. However, where the client does not turn up, the money paid by the tour operator was treated as ‘special income’ and as not comprising the consideration for a supply of services. The MRA raised two VAT assessments on the ground that there is a chargeable supply of services even where the client does not use the hotel facilities.
The Assessment Review Committee (”ARC”) ruled that Blue Lagoon had performed ‘reservation’ services for a consideration by making the rooms available to the tour operators. The ARC decision was upheld by the SC. The PC now confirms that the ARC’s findings are correct.
Our Comment:
This judgment is relevant to the hotel and hospitality industry who commonly have ‘no show’ policies. The PC clarified that hotels should account for VAT on all payments received even if the customer does not use the services they have paid for.
The Blue Lagoon case however begs another question. Blue Lagoon, acting as an agent of the government, has collected VAT on the ‘no show’ and no refund of VAT was made to the tour operator. In doing so, does it not have the obligation to remit the VAT collected to the MRA?
