The State could lose the right to charge a higher rate of VAT for certain utility connection fees if it loses a crucial 14-year legal battle with NTL that will be heard in the Supreme Court this month, writes Jamie Smyth, Technology Reporter

The case could have major implications for a range of utilities such as Eircom, ESB and Bord Gáis and may substantially reduce the amount of VAT the State can collect for connections.

Both the High Court and the Appeals Commissioner have already found in favour of NTL, which is claiming the right to pay a VAT rate of 13.5 per cent for all its network cable connections.

The company claims that connecting a customer to its cable should attract the 13.5 per cent VAT rate that is levied for an "immoveable good".

But the Revenue Commissioners claim NTL should pay the 21 per cent rate that is applicable for services.

The Revenue is appealing a decision by the High Court that went in favour of NTL in April 2003.

This judgment ruled that parts of NTL's cable television service should be eligible for the lower rate of 13.5 per cent VAT.

The dispute over VAT rates dates back 14 years to 1989 when Cablelink - the firm that NTL later bought - disputed the Revenue's decision to charge its monthly subscriptions and connection fee at the higher rate of VAT. Cablelink initially challenged the VAT decision with the Appeal Commissioner, which ruled in favour of the cable television firm in 1995. But the Revenue subsequently took a High Court case against Cablelink, which was finally heard in 2002.

The High Court found in favour of NTL and issued a judgment in April 2003.

The Revenue will now appeal the High Court's decision at a hearing on November 24th in the Supreme Court.

If it loses the case, the Revenue will face a bill worth millions of euro for legal fees. But crucially it could lose the ability to levy other utility firms at the higher 21 per cent rate for connections.

Eircom, one of the biggest utility firms in the State, confirmed last night that it currently paid the higher rate of 21 per cent VAT for its connection fees levied on customers.

It is likely to follow the Supreme Court case with interest later this month. A decision in the court case is expected to be issued next year.

But the ESB said it paid the lower VAT rate of 13.5 per cent for all its connection fees.

Since winning the Appeals Commissioners ruling in 1995 it is believed NTL has paid the lower rate of VAT at 13.5 per cent and so is unlikely to be eligible for a large pay-out from the Revenue.

If NTL loses the case, it may have to repay millions of euro that it failed to pay to the State in VAT collected on connections.

Neither NTL nor the Revenue was prepared to discuss the Supreme Court case yesterday.

A decision in the case is expected to be made next year.