Commissioners of Customs and Excise v Hartwell Plc

This is an appeal from an order made on 12 December 2001 by Mr Justice Patten allowing an appeal under section 11 of the Tribunals and Inquiries Act 1992 from a decision of the VAT and Duties Tribunal (Dr J F Avery Jones CBE, chairman, and Mr R L Jennings FCA FTII). The tribunal had dismissed an appeal by Hartwell Plc, a taxable person for the purposes of the Value Added Tax Act 1994, from a ruling by the Commissioners of Customs & Excise contained in a letter dated 21 December 1999. The commissioners appeal to this Court with permission granted by Lady Justice Arden on 19 February 2002.

Hartwell Plc carries on business as a supplier of and dealer in motor vehicles. In the course of its business it supplies new and used cars (“replacement cars”) to customers, including individual members of the public. In common with most other motor dealers it frequently accepts the customer’s existing car in part exchange. In many cases the balance of the purchase price (or part of it) is provided by a finance company. In those cases, on a strict analysis, the replacement car is supplied to the finance company.

As a taxable person for the purposes of the 1994 Act, Hartwell is required to account for value added tax (“VAT”) on the supplies which it makes. The amount of VAT chargeable on those supplies is determined by reference to the consideration actually received for the goods or services actually supplied. Where that consideration includes a non-monetary element – as will be the case where the supplier accepts goods in part exchange – it is necessary to attribute a monetary value to that non-monetary element. It was held by this Court in Lex Services Plc v Commissioners of Customs & Excise [2001] STC 1568 that, where the monetary equivalent to be attributed to a part exchange car had been agreed between the parties for the purposes of the particular transaction, it was that value which was to be taken for the purposes of ascertaining the consideration actually received for the supply of the replacement car – see paragraphs [80], [85] and [87] in the judgment of the Court (ibid, 1601a-d, 1602h-1603e). In particular, in ascertaining the taxable amount by reference to the consideration actually received for the supply of the replacement car, it was not correct to substitute some other value – say, the market or trade value of the part exchange car - for the monetary equivalent which the parties had actually agreed.

As the facts in the Lex appeal demonstrated, it is (or was) common practice in the motor trade for the dealer to offer a part exchange price which is higher than the market or trade value of the customer’s existing car in order to ‘make the deal’. An alternative course, which would have the same economic effect as between the parties, would be to allow a discount on the list price of the replacement car. It might be thought that the only figure of real interest to the customer would be the amount which he would have to pay (or raise from the finance company); that is to say, the difference between the part exchange price and the price for the replacement car. But it seems that inflating the part exchange price, rather than discounting the list price of the replacement car, is seen as an effective marketing tool. It appears, also, that inflating the part exchange price may assist the customer in meeting the borrowing ratios imposed by finance companies. The effect of the practice, as this Court held in the Lex appeal, is that the taxable amount, for the purposes of the VAT for which the dealer is accountable, is higher than it would be if the alternative course were adopted.

The principal issue on this appeal arises in the context of a voucher scheme by which Hartwell seeks to avoid the effect, in relation to VAT, of the practice which I have just described. At the time of agreeing the sale and part exchange, the company issues to the customer a “Purchase Plus Discount Note”. The note, or voucher, identifies the replacement car and the customer and states the amount of the “Purchase Plus entitlement”. It continues in these terms:

“. . . in accordance with the terms and conditions shown on the order form I have agreed a price for the purchase of the above vehicle, but wish to accept Hartwell’s offer to use my Purchase Plus entitlement shown above (due to me in respect of this vehicle purchase) as part of my deposit requirement. The purchase plus entitlement is specific to the purchase of the above vehicle. If the purchase does not proceed in the manner agreed, or is subsequently cancelled for whatever reason, then the purchase plus entitlement is cancelled.”

The voucher is signed by the customer. The issue between the parties, as argued before the tribunal and the judge, was whether the voucher operates as a discount in the purchase price of the replacement car – so as to reduce the amount of the consideration received by Hartwell on the supply of that vehicle – or as an accretion to the price allowed in respect of the part exchange car. If the latter were the correct analysis, then the effect would be as if the part exchange price were inflated; with the VAT consequences identified in the Lex appeal.

A second, and discrete, issue on this appeal arises from Hartwell’s practice of issuing MOT vouchers to its customer at the time that it supplies a replacement car. Those vouchers could be used to meet the cost of a vehicle inspection for the purposes of the MOT test (where applicable). They could not be exchanged for cash. Hartwell contends that an amount equal to their face value may be deducted from the company’s taxable turnover under the provisions of paragraph 5 of schedule 6 to the 1994 Act. The commissioners contend that those provisions have no application. In such cases, it is said, the supply of the replacement car and the supply of the MOT vouchers must be treated as a single supply; the supply of the vouchers being ancillary to the supply of the replacement car. For all VAT purposes the supply of the vouchers is subsumed into the supply of the car.

The judge found it convenient to set out the findings of fact made by the tribunal. As he said “much of the Tribunal’s reasoning turns on its assessment of how the relevant transactions were structured”. I will take the same course:

“Purchase Plus

4.

In a transaction not involving a finance house, the customer sells his existing car to the Appellant [Hartwell] at a price which the Appellant’s sales manager estimates at its market value using Glass’s Guide or CAP. This figure is inserted by the sales manager in the appraisal form, a pre-contractual document on which the salesman notes the condition of the existing car. The same price is shown on the order form, which is signed by the customer, as the part exchange price. The order form also contains particulars of the replacement car which the customer also signs as an offer to purchase. Sometimes the cash sale price of the replacement car is reduced by the Appellant in order to obtain the sale. On occasions this will not be possible, particularly with a new car because of the small margin on particular makes of car or the effect on the manufacturer’s bonus scheme for dealers, although we were given one example (tab 6, in paragraph 7 below) of purchase plus being given on a used car purchased for cash where there was apparently no reason why a discount on the price of the replacement car could not have been given instead. In a case where purchase plus is used, the Appellant gives the customer a purchase plus discount note . . . [describing it]. The purchase plus allowance is deducted on the order form from the amount payable under the transaction after deducting the part exchange value of the existing car. Because the Appellant’s computer system cannot cope with purchase plus, a separate credit note is raised by the Appellant in the name of the customer for the purchase plus allowance, but this is an internal document which is not given to the customer. Purchase plus is often given where there is also a discount in the purchase price of the replacement car. This is found in all but one of the examples we were shown and which are summarised in paragraph 7 below. Mr Boden [group finance and insurance manager of the Appellant] said that some type of discount is given in 99.9 per cent of cases

5.

Where the customer finances the purchase of the replacement car using a finance house the mechanism of sale is that the customer sells his existing car to the Appellant with the transaction value being fixed in the same way as described above. By a linked contract, the Appellant sells the replacement car to the finance house for an amount which if purchase plus has been agreed is fixed in the same way as above. By a further linked contract, the finance house sells the replacement car to the customer on credit terms. Purchase plus is sometimes used in cases where a finance house is involved in order to satisfy the finance house’s requirements for a minimum deposit. For example, in the specimen case at tab 7 (see paragraph 7 below) the finance house’s statement starts with the total cash price of goods as £16,500. The next line is “Less deposit/allowance £1,650” which is made up as to £1,500 part exchange and £150 purchase plus. If the price of the replacement car had been discounted by the same amount as the purchase plus it would have been £16,350 with the result that the part exchange price of £1,500 would not have met the requirements of the finance house for a 10 per cent deposit. The arrangements for the issue of a purchase plus discount note and a credit note are identical to the case where no finance house is involved. Although a finance house is involved as purchaser the purchase plus discount note is still issued in the name of the customer.

6.

So far as the customer is concerned he is interested in how much he has to pay. The way in which this is achieved does not make any difference to him.

7.

We have already referred to some specimen cases. Details of these (except that we have not included the one at tab 10 where there was no purchase plus allowance, and we have excluded references to cash-back which is not material to this case) are summarised as follows.

Example in Tab: 6 7 8 9 15

Replacement car used used new new used

Finance company no yes no yes yes

Basic price 12,495 18,995 14,310 17,000 7,500

Less discount (260) (2,495) (1,305) (239) 0

Factory fitted options 0 0 416 508 0

Car tax 0 0 0 0 85

Insurance 199

Dealer fitted options 222 0 180 415

Subtotal ex VAT 12,456 16,500 13,601 17,684 7,784

Total VAT @ 17.5% 38 0 2,348 3,067 0

Total sales price 12,495 16,500 15,950 20,752 7,784

Less part exchange 4,750 1,500 100 5,500 0

Total payment due 7,745 15,000 15,850 15,252 7,784

Purchase Plus Voucher 500 150 600 1,500 1,000

Balance due 7,245 14,850 15,250 13,752 6,784”

It is convenient, also, to set out the judge’s commentary on those findings of fact. He went on to say this:

“6.

A number of points arise from this factual analysis. The first is that Purchase Plus is an allowance which is offered to customers regardless of whether finance is involved in the transaction. In the table of transactions set out at paragraph 7 of the decision are two in which no finance was necessary. In the first example which involved the sale of a used car the Purchase Plus discount note was issued in standard form in the sum of £500. On the computer generated order form which constitutes the contract between Hartwell and its customer for the sale of the car the basic price of £12,495 is shown after adding in and then discounting the cost of a warranty plus VAT in the sum of £260.85. This sales price is then shown as reduced further by two credit items. The first is the agreed value of the car accepted in part exchange (in this case £4750). The second is the Purchase Plus voucher in the sum of £500. The customer is required to pay the balance. The reference to the Purchase Plus voucher is entered in manuscript as “PPV” replacing the typed words “Less Deposit Paid” which are generated by the computer software. This method of documenting the sale also applied in the second example of a cash purchase where the replacement car was new. The only difference in the sales invoice is that VAT on the price of the new car is included. VAT is not normally payable by customers on the purchase of used cars: see SI 1992/3122 art. 8. The trader can elect (as in this case), subject to certain conditions, to be taxed on the profit margin on the supply instead of by reference to its value. But the calculation of the profit margin still requires a determination of what value is received on the sale.

7.

When finance is used to meet part of the cost of the replacement car then the sales invoice issued to the customer is the same. It sets out a calculation of the total sales price and then details the value of the part exchanged car and the Purchase Plus allowance. In the example involving the sale of a used car the total sales price (after a discount of £2495) was £16,500. The part exchange value of the car traded in was £1,500 and the deposit of £150 was accounted for by the Purchase Plus voucher. This left the sum of £14,850 to be paid. The customer was able to obtain finance based on a purchase price of £16,500 in the sum of £14,850. The difference of £1,650 which was paid partly in the form of the part exchange and partly by means of the Purchase Plus voucher represents the 10% deposit required by the finance company. On the invoice to Land Rover Financial Services which was before the Tribunal this is clearly shown as made up of these two elements.

8.

The documentation relating to the sale of a new car involving finance is similar save for the addition of VAT on the sale price in the sales invoice and the deletion in manuscript of the typed word “Less Deposit Paid” coupled with the insertion again in manuscript of “PPV”. It was accepted by Mr Anderson on behalf of the Commissioners both before me and the Tribunal that nothing turns on these changes nor indeed on the form and layout of the sales invoice as such. The correct tax treatment falls to be determined by analysing the substance of the transaction and not simply on the basis of the software used. However, for the reasons which I shall explain later in this judgement, that does not mean that the form of the invoice can or need be ignored.

9.

The second point to come out of the evidence is that Purchase Plus is also available in cases where no part exchange is involved. The example given in the table was a sale through a finance company. The total sales price was £7,784.25 of which £6,699 was financed. The balance of £1,085.25 was paid as to £1000 through the use of the Purchase Plus allowance and by payment of £85.25 from the customer.

10.

The third point which needs to be explained at this stage is that the Purchase Plus Discount Note was obviously settled on the basis that the Purchase Plus allowance would be used in all cases involving finance in order to assist the customer in meeting the deposit requirements laid down by the finance companies. The Tribunal heard evidence from Hartwell (which is referred to in paragraph 24 of its decision) that in about 1999 the company decided to change the way in which it structured its order form and invoices in cases involving hire purchase or finance. In a letter to G. E. Capital dated 18th February 1999 Mr Boden, the Group Finance Manager of Hartwell, explained the proposed changes in these terms:

“Following a series of internal discussions Hartwell plc, are intending to change the way we structure our order form/invoices. As this will affect the way we present the figures to you when proposing deals I would like to invite your comments on the change. Specifically I need to know that the change is acceptable to you before we implement it in April.

The change relates to the way we show the value of the part exchange on the order/invoice. Currently it is an industry standard to show an allowance price that, in truth, bears no relation to the true value of the part exchange. Hence the plethora of “minimum part exchange” offers currently in the market place.

In future Hartwell will not show any over-allowance on any part exchange. Instead we will show the true value. Over allowance will be shown separately as “Purchase Plus”. This will be raised as a credit note to the customer, with the proviso that the “Purchase Plus” can only be used as a deposit on the vehicle they are buying.

The benefits of the system are manifold:

We as a company will benefit from streamlining our VAT flow.

Deals that are unwound at a later date due to problems will no longer face the problem of a customer having a legal right to the allowed price of the part exchange rather than the true value.

The finance companies will be able more accurately to see the true deposit on any deal helping them to make a more accurate decision.”

11.

The introduction of this change is apparent from the documentation I have described. In the specimen transaction involving the purchase of a used car for £16,500 the invoice to the finance company (as I have already indicated) shows quite clearly that the 10% deposit is made up of the part exchange value of £1,500 and the Purchase Plus allowance of £150. This is then reflected in the regulated agreement between the finance company and the customer which in this case describes the £1,650 as a “Deposit/Allowance”. It is accepted by the Commissioners that the practice detailed in Hartwell’s letter of 18th February 1999 was transparent and that the finance companies it dealt with were fully aware of and agreeable to the Purchase Plus vouchers being used in this way.”

The tribunal stated the issue, succinctly, at paragraphs 18 and 19 of its decision:

“18.

Historically in the motor trade, an overvaluation was made of the existing car, which is disadvantageous for the trader’s VAT but worked well for the customer in relation to the finance house. The Appellant wished to stop the overvaluation, but in about 5 percent of cases something equivalent to it was needed. In Lex Services the dealer paid the overvaluation for the existing car but separated out the overvaluation element arguing that for VAT the real purchase price was the market value. This argument did not succeed because the dealer and the customer both agreed that the higher price was the sale price. . . .

19.

The Appellant appears to overcome the main difficulty in Lex Services by specifying the lower, true price for the sale of the existing car and introducing what in Lex Services was the overvaluation, or additional allowance, as purchase plus. What we have to determine is the true nature of purchase plus.”

The tribunal examined the position where there was a finance company involved – that is to say, where the dealer sold the replacement car to the finance company. It observed that, from the point of view of the finance company, purchase plus must be value provided by the customer – see the statements (at paragraphs 23 and 25 of the decision) that “in other words, it is equivalent to additional price for the existing car, which is what the customer provides in the transaction” and “The finance house treats purchase plus in the same way as an overvaluation of the existing car”. It explained (at paragraph 26 of the decision) that the dealer’s invoice to the finance company was consistent with the treatment of purchase plus not being a discount in the cost of the replacement car. At paragraph 27 of the decision the tribunal said this:

“Our conclusion is that, in the Appellant’s relations with the finance house, purchase plus is, and necessarily has to be, treated by both parties in the same way as an increase in the value of the existing car. There is nothing in the relationship that is consistent with its being a discount in the price of the replacement car. This treatment is commercially necessary if the finance house is to treat purchase plus as part of the customer’s deposit. Accordingly, we do not think that the Appellant can treat it differently in its relations with the Commissioners. . . . The stated part-exchange price for the existing car is the manager’s valuation rather than an agreed price. The customer agrees the transaction as a whole but the allocation of value makes no difference to him and so the stated price is only agreed in this sense. Accordingly we think it is necessary to go behind the price for the existing car which is stated to be agreed in the documents. The only treatment of purchase plus that is consistent with the Appellant’s relationship with the finance house is that purchase plus must be an increase in the value of the existing car. In other words, the differences between this case and Lex Services are cosmetic rather than real. In saying this, we are not rewriting the subjective value agreed between the parties, which Lex Services decided one cannot do, but finding what is the real subjective value looking at the transaction as a whole, which for VAT purposes necessarily involves altering the stated price of either the existing car or the replacement car.”

The tribunal then considered (at paragraph 28 of the decision) whether a sale by the dealer to the customer (with no finance company involved) required a different analysis; and held that it did not. It said this:

“For VAT purposes we have to change either the part-exchange value or the sale price of the replacement car by the amount of purchase plus. In our view, it is more consistent with the documents to increase the part-exchange value of the existing car for the same reasons as in the case where a finance house is involved. If the Appellant wanted purchase plus to be a discount on the value of the replacement car it could have shown this as a discount on the invoice rather than as part payment of the full price.”

The tribunal recognised, however, that a different analysis was required where there was no part exchange of an existing car but, nevertheless, the customer used a purchase plus voucher as part payment of the price of the replacement car – a case illustrated by the example under tab 15 of the table in paragraph 7 of the decision. The tribunal acknowledged (in paragraph 29) that, in such a case, “the Commissioners do not seek to say that purchase plus is anything other than a discount on the price of the car being sold by the Appellant” It went on to say this:

“We agree with this. There is no alternative way of analysing it, although we would point out that purchase plus is still presented to the finance house as a deposit paid by the customer.”

The tribunal dismissed the appeal against the commissioners’ ruling, in the letter of 21 December 1999, that the purchase plus allowance must be treated as part of the part-exchange value which the parties have agreed in respect of the customer’s existing car.

The judge took a different view. He identified the issue in relation to a Purchase Plus Voucher as being “whether it forms part of the consideration for the relevant supply and if so what monetary value is to be ascribed to the voucher” – see paragraph 12 of his judgment. He reminded himself of the provisions in article 11A 1 and 3 of the Sixth Directive on the harmonisation of the laws of Member States relating to turnover taxes (77/388/EC) and of the provisions in domestic legislation which were enacted in order to implement that article – now found in section 19(1) and (3) of the 1994 Act. He referred to the judgment of this Court in Lex Services plc v Commissioners of Customs and Excise [2001] STC 1568 for the principles by which the monetary equivalent of non-monetary consideration is to be ascertained. At paragraph 19 of his judgment he said this:

“In the present case the value attributed by the parties to the part exchanged cars was agreed at the market value of those vehicles as at the date of the transaction. The practice of inflating the value in order to satisfy the deposit requirements of the finance companies has been expressly discontinued. Instead the balance of the deposit (in cases where finance was involved) was provided by means of the Purchase Plus allowance. In that sense the use of these vouchers to provide part of the payment for the replacement vehicle (and its attribution to the deposit) makes the voucher part of the consideration received by Hartwell in respect of the car it supplies.”

On the basis that the voucher is properly to be regarded as part of the consideration received by the supplier for the taxable supply, it was necessary to address the second limb of the question which the judge had posed in paragraph 12 of his judgment – “what monetary value is to be ascribed to the voucher?”. The judge recognised that when he said, at the end of paragraph 19:

“But the Discount Note is provided by the company at no cost to the customer and in economic terms represents a reduction in the amount they receive in payment for the new vehicle. The amount specified in the Discount Note should, it is said, therefore be treated as a price reduction or discount within the provisions of Article 11A(3) of the Sixth Directive and for the purposes of s.19(3) should be given a nil value.”

The judge observed that the value to be ascribed to vouchers or coupons issued by retailers to their customers had been considered on a number of occasions by the Court of Justice. He referred to the judgments in that Court on the references in Boots Company plc v Customs and Excise Commissioners (Case C-126/88) [1990] STC 387 and Elida Gibbs Ltd v Customs and Excise Commissioners (Case C-317/94) [1996] STC 1387; and to paragraph [40] in the judgment of this Court in Lex Services ([2001] STC 1568, 1590b-c), where the effect of those decisions was summarised in these terms:

“The monetary equivalent to the supplier of a voucher which the supplier has undertaken to accept as payment for goods is the money which the supplier has received (or will receive) in respect of that undertaking. In a case where the voucher is issued by the supplier against payment, the monetary equivalent of the voucher will be the amount of that payment. In a case where the voucher is, itself, issued for no payment or consideration, the monetary equivalent of the voucher will be nil (see the decision of the Court in the Boots case). In neither case is the face value of the voucher determinative of its monetary equivalent to the supplier.”

The judge pointed out that the commissioners had recognised that it could not be said that “the mere fact that a Purchase Plus Discount Note with a face value of £150 is tendered in part payment for a replacement car means that for the purposes of s.19 or Article 11A(1) the consideration received by Hartwell for the supply of that vehicle includes the sum of £150 represented by the voucher”. As the judge said, at paragraph 22 of his judgment:

“This is recognised in the fifth of the five specific cases where no vehicle was taken in part exchange [the example taken under tab 15 in paragraph 7 of the tribunal’s decision]. The Purchase Plus allowance of £1000 was treated by the Commissioners as a discount in the purchase price.”

Why, then, had the tribunal accepted the commissioners’ contention that, in a case where the customer’s existing car was accepted by the dealer in part exchange for the replacement car, the Purchase Plus allowance had to be treated as part of the value attributed by the parties to the part exchange car?

After setting out the tribunal’s reasoning (taken from paragraphs 22 to 29 of its decision) the judge addressed that question in paragraph 23 of his judgment:

“The Tribunal was undoubtedly correct in finding that Purchase Plus was intended in all finance cases to assist the customer to satisfy the deposit requirements of the finance company. It is also correct (as is evident from the documentation) that the Purchase Plus allowance was treated by Hartwell both in its dealings with the customer and those with the finance company as part payment of the deposit together with the part-exchanged car. The evidence was that the transaction was deliberately structured in this way with the knowledge and approval of the finance company involved. The critical point, however, in the Tribunal's reasoning is its acceptance of the Commissioners’ argument that the use of the allowance as part of the deposit cannot co-exist with its treatment as a discount against price. It seems to me that this is where the Tribunal fell into error.”

The judge explained why he took the view that the tribunal had fallen into error in accepting the commissioners’ argument that the use of the purchase plus allowance as part of the deposit (in a case involving a finance company) was inconsistent with treatment of the allowance as a discount against the price of the replacement car. He said this, at paragraph 24 of his judgment:

“The Purchase Plus allowance is negotiated and agreed as a reduction by Hartwell in the amount which the customer will have to pay for the replacement car. No consideration is given for it. It is simply a concession made by the salesman as an inducement to the customer to purchase. It is given and can be used whether or not any finance is involved. In the latter case the customer simply pays less. In cases where the balance of the purchase price over the agreed value of the part exchanged car is provided by a finance company the Purchase Plus is treated by Hartwell and the finance company as a contribution by the customer to the necessary deposit. . . . But this is not in my judgment decisive of the real issue. The use of the Purchase Plus Discount Note effectively as part payment of the balance of the purchase price is no different from the use of the coupons or vouchers which were considered in the Boots and the Elida Gibbs cases. . . . The significance and effect of Purchase Plus being used or treated as part of the deposit makes it part of the consideration received but it does not determine the value to be placed upon it as part of that consideration.”

He went on, at paragraphs 27 and 28:

“27.

In paragraph 25 of its Decision the Tribunal stated that “the finance house treats Purchase Plus in the same way as an over-valuation of the existing car”. What that seems to mean is that the finance house, as is evident from the documentation, was content to treat the allowance as a contribution to the deposit just as the car taken in part exchange. In economic terms the same result would [be] (and formerly was) achieved through the over-valuation of the existing car. This is not however a finding by the Tribunal that in the example used the Purchase Plus allowance was actually an over-valuation of and therefore part of the value attributed by the parties to the existing car. If it was intended to be such a finding then it was unsupported by any evidence. As the Tribunal itself accepted earlier in its decision the practice of over-valuing part exchanged vehicles was deliberately discontinued with the agreement of the finance companies. It seems to me that it would be wholly inconsistent with this to treat Purchase Plus as part of the agreed value of the existing car when both parties had deliberately agreed to do the contrary.

28.

Notwithstanding that the transaction was deliberately structured so as to treat Purchase Plus as a separate item in the transaction from the part exchange of the existing car the Tribunal nonetheless concluded that it should have the same effect for VAT purposes as if the amount of the Purchase Plus allowance had been added to the agreed value of the car.”

And, after setting out the tribunal’s reasoning in paragraph 27 of its decision (supra), he said this:

“In my judgment this confuses the treatment of the Purchase Plus allowance as part of the consideration with the question of the monetary value to be attributed to it and in effect elides two separate questions. It seems to me that despite its protestations to the contrary the Tribunal has re-written the transaction and has determined the “subjective value” of the non-monetary parts of the consideration otherwise than in accordance with the principles laid down by the Court of Justice in the Boots and the Elida Gibbs decisions. Absent any suggestion of a sham this approach to the transaction which dictated its tax treatment was impermissible and wrong.”

The judge allowed Hartwell’s appeal from the tribunal’s decision on the Purchase Plus issue.

The starting point, as the judge recognised, is the requirement, in article 11A 1 of the Sixth Directive, that the taxable amount in respect of supplies of goods and services is:

“ . . . everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies . . ”

The first question, therefore, is: what does the supplier obtain for the replacement car which it supplies? The answer, as it seems to me, is not in doubt. In each of the five specimen cases considered by the tribunal, the dealer obtains (a) a monetary payment (shown in the table at paragraph 7 of the decision as “balance due”) and (b) a Purchase Plus Voucher. In four of those specimen cases (tabs 6, 7, 8 and 9 in the table) the dealer also obtains (c) the customer’s existing car.

It is immaterial, as article 11A 1 makes clear, whether what is obtained by the supplier for the goods supplied is obtained from the purchaser alone, partly from the purchaser and partly from someone other than the purchaser, or wholly from someone other than the purchaser. In the present context there are specimen cases in which no finance company is involved (tabs 6 and 8 in the table). In those cases whatever is obtained – monetary payment, Purchase Plus Voucher and part exchange car – is obtained from the customer as purchaser. There are also specimen cases in which a finance company is involved (tabs 7, 9 and 15). In those cases all or part of the monetary payment is obtained from the finance company as purchaser; the other part (if any) of the monetary payment and the non-monetary elements (the Purchase Plus Voucher and the part exchange car, if any) are obtained from the customer who, in those cases, is not the purchaser. But, in seeking an answer to the question “what is the taxable amount in respect of the supply?”, there is no reason in principle to make any distinction between those cases in which the monetary payment, the Purchase Plus Voucher and the part exchange car (if any) are all obtained from the customer as purchaser and those cases in which all or part of the monetary payment is obtained from the finance company and the other part of the monetary payment, the Purchase Plus Voucher and the part exchange car (if any) is obtained from the customer. The relevant inquiry is “what is obtained for the supply”; not “from whom is it obtained”.

There is no doubt – and it has not been in dispute – that in a case where what is obtained for the supply comprises only (a) a monetary payment and (b) a Purchase Plus Voucher, the voucher is properly to be regarded as a non-monetary element of the consideration for the supply. It is not – at least in a case where the purchaser is a finance company and the voucher is obtained from the customer – to be regarded as a discount; although the VAT treatment is the same. The point is made both by the Advocate General and by the Court of Justice in Argos Distributors Ltd v Customs and Excise Commissioners (Case C-288/94) [1996] STC 1359; see the approach of each to the reference questions, and see paragraph [36] in the judgment of this Court in Lex Services ([2001] STC 1568, 1586j-1587a). There is no reason – when seeking an answer to the question “what is the taxable amount in respect of the supply?” - to make a distinction in principle between cases in which what is obtained for the supply is only a monetary payment and a voucher (of which the tab 15 case is an example) and cases where, in addition to a monetary payment and a voucher, there is a further non-monetary element – the part exchange car. In my view the tribunal fell into error in making the distinction which it did between the tab 15 case and the other specimen cases. The judge was right to ask himself whether the Purchase Plus Voucher formed part of the consideration for the supply of the replacement car; and right to conclude that it did.

On the basis that the Purchase Plus Voucher is an element in the consideration for the supply of the replacement car, the next question (as the judge recognised) is: “what monetary value is to be ascribed to the voucher?”. The need to ascertain whether any (and if so what) monetary value is to be ascribed to a voucher of this nature arises because the voucher (notwithstanding that it has a face value) is not itself monetary consideration. It is an element of non-monetary consideration – see the decisions of the Court of Justice in the Boots case and the Argos case and the analysis at paragraphs [32] to [40] in the judgment of this Court in Lex Services ([2001] STC 1568, 1585c-1590c).

The answer to the question “what monetary value is to be ascribed to the voucher?” (as the judge also recognised) is provided by the passage at paragraph [40] of the judgment in Lex Services (ibid, 1590b-c), to which he referred:

“The monetary equivalent to the supplier of a voucher which the supplier has undertaken to accept as payment for goods is the money which the supplier has received (or will receive) in respect of that undertaking. . . . In a case where the voucher is, itself, issued for no payment or consideration, the monetary equivalent of the voucher will be nil . . . ”

It is no answer to say, as the commissioners do in the skeleton argument prepared for this appeal, that “in the context of the transactions of which they formed part, the purchase plus discount notes had had attributed to them a real value by the parties”. As this Court pointed out in its judgment in Lex Services (paragraph [32], ibid, 1585c-d) ‘the transaction value’ expressly or impliedly attributed by the parties to the supply of goods will not, necessarily, be determinative of the monetary equivalent of non-monetary consideration in cases where the non-monetary consideration takes the form of vouchers or redeemable coupons. That is because the supply of the goods is not the relevant transaction in that context. The relevant transaction – in the context of ascertaining the monetary equivalent to be ascribed to the voucher - is the issue of the voucher to the customer. The parties to that transaction are the dealer and the customer. In the context of that transaction the relevant question is not “what value did those parties attribute to the voucher”; but “what consideration (if any) did the supplier of the voucher (in these cases, the dealer) obtain for the supply of the voucher”. The answer, in a case where the voucher is issued to secure a sale, is “the agreement of the other party to the sale”. But no attempt has been made by the commissioners to show that the agreement of the customer to an arm’s length sale is itself to be given any value; and, in my view, the judge was correct to treat the value of the consideration obtained by the supplier for the supply of the voucher as nil.

In those cases in which the other element of the non-monetary consideration obtained by the dealer for the supply of the replacement car is the customer’s existing car, it is necessary to ascribe a monetary equivalent to that element also. But, as the judge pointed out, the parties to that transaction have made it as clear as can be that the value which they have attributed to the existing car is its “true” value – that is to say, its trade or market value. The purpose of the Purchase Plus Voucher scheme – as appears from the letter to the finance company to which the judge referred at paragraph 10 of his judgment – is to make it clear that there is no over-valuation of the part exchange car. The over-allowance is provided through the issue of the Purchase Plus Voucher. The fact that finance companies are prepared to treat the face value of the voucher as part of the deposit paid by the customer for the purposes of satisfying the requirements of their borrowing ratios provides no answer to the question “what monetary equivalent is to be ascribed to the part exchange car?” That question is answered by identifying the value which the parties to the relevant transaction (in this context, the supply of the replacement car) have given to the part exchange car; not by reference to the way in which the finance company has treated the voucher for the purposes of its borrowing ratios. The judge was right to describe the tribunal’s approach as a ‘re-writing’ of the transaction; and right to hold that that approach was impermissible and wrong.

For those reasons I would dismiss the appeal on the issue raised by the Purchase Plus Voucher scheme.

The tribunal found that on the sale of a replacement car Hartwell gave to the customer (whether or not the actual purchaser was a finance company) three vouchers specifying the customer’s name, the replacement car and the date of sale. It went on, in paragraph 8 of the decision:

“Each voucher entitles the customer (in respect of any vehicle), or the vehicle (in respect of any owner), to a free MOT test by the Appellant [Hartwell] at any participating location. The order form contains the following words under the heading factory fitted options: “three MOT vouchers total value £96.33” with no cost being shown against this item. The invoice also contains the words “included in the car price are three MOT inspection vouchers with a total value of £96.33.” If the customer keeps the replacement car for more than three years further vouchers for free MOT tests are given to the customer year by year. The reason the Appellant issues these vouchers is to increase its repair business; we were told that it was successful in doing so.”

Schedule 6 to the 1994 Act, in conjunction with section 19(1) of that Act, contains provisions for valuation of the taxable supply in the particular cases described in that schedule. Paragraph 5 of schedule 6 is in these terms:

“Where a right to receive goods or services for an amount stated on any token, stamp or voucher is granted for a consideration, the consideration shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds that amount.”

Hartwell contends that the MOT vouchers are supplied for a consideration; they are not provided free. The consideration for the three vouchers is part of the consideration given by the purchaser on the supply of the replacement car. Whatever the amount of such part of the overall consideration, paragraph 5 of schedule 6 requires that that amount must be disregarded “except to the extent (if any) that it exceeds [the face value of the voucher]”. So the taxable amount of the overall consideration for the supply of the replacement car and vouchers must be reduced by the amount of the face value of the vouchers.

The tribunal asked itself whether the transaction under which the dealer provided to the customer both the replacement car and the MOT vouchers should be treated for VAT purposes as a single supply, or as two distinct supplies – that is to say, a supply of the replacement car and a separate supply of the MOT vouchers. It reminded itself of the guidance given by the Court of Justice in Card Protection Plan v Customs and Excise Commissioners (Case C-349/96) [1999] STC 270, 293c-e:

“28.

. . . where the transaction in question comprises a bundle of features and acts, regard must be had to all the circumstances in which that transaction takes place.

29.

In this respect, taking into account, first, that it follows from art 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, second, that a supply which comprises a single service from the economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained, in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal services or with a single service.

30.

There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it does not constitute for the customers an aim in itself, but a means of better enjoying the principal service supplied (see Customs and Excise Comrs v Madgett and Baldwin (trading as Howden Court Hotel) (Joined cases C-308/96 and C-94/97) [1998] STC 1189 at 1206, para 24).”

Although the Court was directing its observations in that passage to a supply of services – which was the context in which the reference question arose – it is not in dispute that the guidance has equal force in relation to the provision of goods.

The tribunal was satisfied that the MOT vouchers were likely to be regarded by the customer as ancillary to the supply of the replacement car. That was the principal supply. The vouchers were merely ancillary. It followed that no apportionment of the overall consideration to the value of the MOT vouchers was required.

The judge took the view that it was unnecessary to decide whether the transaction should be treated as a single supply of the replacement car or as two distinct supplies – the one of the replacement car and the other of the vouchers. Even if it were correct to treat the transaction as a single supply – as to which he preferred to express no view – it remained necessary to give effect to the provisions in paragraph 5 of schedule 6 to the 1994 Act. As he put it, at paragraph 36 of his judgment:

“That provision is entirely general and appears to apply regardless of whether the supply of the voucher is an ancillary or single supply in the circumstances of the particular case. Consistently with the provisions of s. 19 there is no reason to give it a limited application. It simply dictates (for the reasons I have already indicated) that any consideration received on the supply of the voucher is to be disregarded in computing the turnover of the supplier for VAT purposes. Whether that supply and therefore that part of the turnover is to be standard rated or treated as an exempt supply is quite a separate matter. On the Commissioners’ argument the supply of a voucher for consideration would be disregarded under paragraph 5 if made as part of a single supply yet treated as part of the supplier’s taxable turnover if made as part of a multiple supply. The consequence of deciding that the supply of the vouchers was merely ancillary to the supply of the car would therefore be not merely to dictate the rate of tax applicable to the supply of the voucher but also to remove from the supplier the benefit of the double taxation provisions regardless of whether the single supply fell to be treated as standard rated or exempt. I cannot accept that this is what Parliament intended or that this result can be justified by the application of any established principles of community law. On the contrary it seems to me entirely capricious. It is important to note that paragraph 5 of Schedule 6 does not refer or turn on whether the issue of the voucher is a separate supply or merely part of a larger supply to which it is ancillary. What falls to be disregarded is the amount of the consideration given for the voucher, not the basis on which it was supplied.”

Accordingly he allowed the appeal from the tribunal’s decision on the issue raised by the MOT vouchers also.

In my view it is clear that the transaction under which the dealer provides to the customer both the replacement car and three MOT vouchers ought to be treated for VAT purposes as a single transaction. That, I think follows from the guidance given by the Court of Justice in Card Protection Plan v Customs and Excise Commissioners (Case C-349/96) [1999] STC 270, 293c-e, and from the decision of the House of Lords in Customs and Excise Commissioners v British Telecommunications plc [1999] STC 758 (see, in particular, the observations at 765g and 767e-h). But, even if I were to take a different view (which I do not) I would not think it right to differ from the tribunal on a finding which it made after considering the evidence before it and directing itself correctly in the light of the authorities.

Nevertheless, I agree with the judge that a decision that the transaction is to be treated as a single supply is not determinative of the question whether paragraph 5 of schedule 6 to the 1994 Act has any application. The single supply is plainly a supply of goods; and, if it were necessary to classify that supply, it would take its character from the dominant or principal element – the supply of the replacement car. But, as it seems to me, that does not lead to the conclusion that the goods supplied do not include the MOT vouchers. And so it remains necessary to consider whether the consideration for the single supply includes some separable element of consideration attributable to the vouchers. If it does, then that element of the consideration for the single supply must be disregarded except to the extent (if any) that it exceeds the amount of the face value of the vouchers. That is what paragraph 5 of schedule 6 requires.

In considering whether the MOT vouchers were supplied for consideration the tribunal asked itself whether, if Hartwell failed to honour the undertaking expressed in the vouchers (to provide an MOT test), the customer could enforce that undertaking. The tribunal thought that the customer could do so. In my view it was correct to reach that conclusion. But the conclusion that the undertaking to supply a service (the MOT test) in the future would be enforceable – because that undertaking is supported by consideration, in the sense recognised by domestic law – does not answer the question whether anything which has been obtained by the dealer (Hartwell) for the single composite supply (within which the supply of the MOT vouchers is comprised) can be treated, for the purposes of article 11A 1(a) of the Sixth Directive, as a separate consideration for the supply of the vouchers. In my view the commissioners are correct in their contention (raised, without objection, by their appellants’ notice) that there is nothing which constitutes a separate consideration for the supply of the vouchers; and that no part of the consideration for the single composite supply can be attributed to the vouchers. It is, I think, significant, as the tribunal found, that no cost is shown on the order form against the item “three MOT vouchers total value £96.33” and that the invoice includes the words “included in the car price are three MOT inspection vouchers with a total value of £96.33”.

I would allow the appeal on the issue raised by the MOT vouchers on the ground that the vouchers are not granted for a consideration to which paragraph 5 of schedule 6 of the 1994 Act can have any application.

I would dismiss the appeal on the issue raised by the Purchase Plus Voucher scheme; but allow the appeal on the issue raised by the MOT vouchers.

I agree with the judgment of Chadwick LJ for the reasons he gives. The conclusion of the court is consistent with that of the European Court of Justice in a case decided since argument took place, namely Yorkshire Co-operatives Ltd v Commissioners of Customs & Excise, case C-398/99, judgment January 16^th 2003. In this case the seller of goods accepted in part payment from the purchaser of goods, a coupon issued by the manufacturer of the same goods. The coupon was redeemed by the manufacturer who had provided the coupon. The taxable amount included the face value of the coupon if the retailer was reimbursed by the manufacturer. In those circumstances, as opposed to the circumstances in the present case, the coupon had a reality and a value.

I agree with Chadwick LJ that on the facts of this case a transaction, under which the dealer provides to the customer a replacement car and three MoT vouchers, is to be treated for VAT purposes as a single transaction for the reasons which Chadwick LJ gives in paragraph 33 of his judgment. I also agree with the conclusion that he reaches on this part of the appeal. However, whereas Chadwick LJ prefers the alternative argument of the appellants, in my judgment, their primary contention is also correct and to be preferred.

The primary contention of the Commissioners relies on Card Protection Plan Ltd v Customs & Excise Commissioners [1999] STC 270 in which the European Court of Justice established what is now recognised as a general principle of community law in relation to Value Added Tax. The decision deals with the situation where a supplier supplies more than one service or item. The question arises whether they are multiple supplies or principal and ancillary supplies. The principle which the Card Protection Plan case establishes is that if the supply of items represents a principle and ancillary supply, the tax treatment of the ancillary supply is the tax treatment of the principal supply.

The material paragraphs of the judgment of the European Court of Justice in the Card Protection Plan case are as follows:-

“27.

It must be borne in mind that the question of the extent of a transaction is of particular importance, for VAT purposes, both for identifying the place where the services are provided and for applying the rate of tax or, as in the present case, the exemption provisions in the Sixth Directive. In addition, having regard to the diversity of commercial operations, it is not possible to give exhaustive guidance on how to approach the problem correctly in all cases.

28.

However, as the court held in Faaborg-Gelting Linien A/A v Finanzamt Flensburg (Case C-231/94) [1996] STC 774 at 783, [1996] ECR –2395 at 2411 – 2412, paras 12 to 14, concerning the classification of restaurant transactions, where the transaction in question comprises a bundle of features and acts, regard must first be had to all the circumstances in which that transaction takes place.

29.

In this respect, taking into account, first, that it follows from art 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, second, that a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal services or with a single service.

30.

There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal services, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied (see Customs and Excise Comrs v Madgett and Baldwin (trading as Howden Court Hotel) (Joined cases C-308/96 and C-94/94) [1998] STC 1189 at 1206, para 24).

31.

In those circumstances, the fact that a single price is charged is not decisive. Admittedly, if the service provided to customers consists of several elements for a single price, the single price may suggest that there is a single service. However, notwithstanding the single price, if circumstances such as those described in paras 7 to 10 above indicated that the customers intended to purchase two distinct services, namely an insurance supply and a card registration service, then it would be necessary to identify the part of the single price which related to the insurance supply, which would remain exempt in any event. The simplest possible method of calculation or assessment should be used for this (see, to this effect, Madgett and Baldwin (at 1208, paras 45 and 46)).

32.

The answer to the first two questions must therefore be that it is for the national court to determine, in the light of the above criteria, whether transactions such as those performed by CPP are to be regarded for VAT purposes as comprising two independent supplies, namely an exempt insurance supply and a taxable card registration service, or whether one of those two supplies is the principal supply to which the other is ancillary, so that it receives the same tax treatment as the principal supply.”

The effect of the Card Protection Plan case is that the ancillary supply is subsumed into that of the principal supply and is taxed as if it were the principal supply. Thus in the Commissioners of Customs & Excise v United Biscuits (UK) Ltd [1992] STC 325 (a decision of the Inner House of the Court of Session) where biscuits were supplied with a tin, biscuits being zero-rated but the supply of the tin being VATable, the court held that the correct treatment was that the tin should be also treated as zero-rated. The tin was not disregarded. It was taken into account in determining the consideration for the transaction.

Mr Roderick Cordara QC, for the respondent, submits that the Card Protection Plan principle can only apply where the exemption from VAT is one which is founded within article 13 of the Sixth VAT Directive. In the present case, the critical provision in paragraph 5 of schedule 6 to the 1994 Act does not reflect any express provision of the Sixth VAT Directive. Rather, its purpose is to avoid double taxation. Such might arise if a retailer sold a gift voucher and paid VAT on that transaction and VAT was also paid when the voucher was used to pay for goods. Double tax could not occur in the present instance because the supply of a used replacement car (the only case in which MoT vouchers is issued by the respondent) is not subject to VAT, but on Mr Cordara’s submission, that does not matter because what matters is the express provisions of the domestic statute.

In my judgment, the Card Protection Plan principle is a general principle of Community law which is not to be restricted to the situation where an exemption can be seen in the express provisions of the Sixth Directive (see the Card Protection Plan case, paragraph 27). It is not suggested that paragraph 5 of schedule 6 to the 1994 Act is incompatible with Community law. Indeed it would seem to be compatible with the character of VAT as a consumption tax and its objective of competitive neutrality. In my judgment, in those circumstances the Card Protection Plan principle must be applied consistently in relation to provisions dealing with the chargeability to VAT of the consideration for the ancillary supply. Accordingly, paragraph 5 of schedule 6 to the 1994 Act has no application. The right to receive the MoT vouchers cannot be said to have been granted for a consideration. The result in the present case, is that the supply of MoT vouchers is deemed to be part of the principal supply and to be VATable at the same rate as the principal supply. Accordingly, when the MoT voucher is used by the customer in a subsequent transaction, that transaction will be separately VATable.

For these reasons, I would dismiss the appeal on the purchase plus vouchers point and allow the appeal on the MoT vouchers point.

I have had the advantage of reading in draft the judgments prepared by Chadwick and Arden L.JJ and that makes it unnecessary for me to repeat much of the facts and the law.

The crucial task for the court is “to ascertain the actual money equivalent accruing to (the supplier) when it takes a voucher in payment”, taking this from paragraph 20 of the judgment of the Court of Justice in Argos Distributors Ltd. v Customs & Excise Commissioners [1977] QB 499, 529. Here, for its own internal purposes, Hartwell wished the trade-in vehicle to be given its full trade-in value and it was also unwilling to be seen to be discounting the price for the new or replacement vehicle. On the other hand it knew that unless either of those figures was adjusted there would be no deal and it knew the margins within which it was prepared to move in any particular transaction. The Purchase Plus voucher was, therefore, as the judge correctly identified it, “simply a concession made by the salesman as an inducement to the customer to purchase”. It was simply a piece of paper which enabled the deal to be done at a true price which made both supplier and customer happy. Its monetary equivalent was correctly held by the judge to be nil. I agree with him, and accordingly the appeal on this issue should be dismissed.

Both Chadwick L.J. and Arden L.J. agree that the appeal on this issue should be allowed, albeit on different grounds. Being in agreement as to the result, the appeal will be allowed and, perhaps fortunately, it may not matter much what I decide. Whilst, therefore, a little relieved, for I have not found it straightforward, that my views may not be strictly necessary, I would rather be thought to be wrong than too weak to express them.

Since the Value Added Tax Act 1994 is expected to comply with the Sixth Council Directive on the harmonisation of the laws of the Member States relating to turnover taxes – common system of value added tax: uniform basis of assessment (77/388/EEC), and I have no reason to think it does not comply, I start with the directive. Article 2 makes it plain that it is the supply of goods or services effected for consideration which is subject to VAT, the taxable amount under Article 11 being “everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, customer or a third party for such supplies [of goods and services]”.

It seems to me, therefore, that the starting point is to ascertain whether in the issue of these MOT vouchers there has been a supply of goods or possibly services. Mr Anderson, for the Commissioners submits that there is no supply because, applying Card Protection Plan Ltd. v Customs & Excise Commissioners [1999] STC 270, there is a single supply of the new or replacement motor car and the supply of MOT services is ancillary. Mr Cordara Q.C. strongly joins issue submitting first that Card Protection has no application here, secondly that even if it does apply, the ancillary service does not disappear and is not “rubbed out” as the Commissioners submit, and thirdly, in any event the MOT services are not a means for the better enjoyment of the principal supply.

After some initial hesitation, I have concluded that the application of the Card Protection principle serves a limited function and should not be called into play where the tax treatment of the dominant supply and the ancillary supply are similar. It should be confined to cases where that tax treatment is different, as, for example, where one supply is exempt or zero rated. That was the case in Card Protection itself and the cases considered in that decision. It was also relevant to Customs & Excise Commissioners Re Primback Ltd. [2001] STC 803 where the credit arrangement was exempt under Article 13 B(d)(i). So too in Customs & Excise Commissioners Re British Telecommunications plc [1999] 1 W.L.R. 1376 where the question was whether there was a distinct and independent supply of the services of transportation and delivery which could properly be regarded as separate from the supply of motor cars and thus outside the scope of the relevant Blocking Order. On the other hand Card Protection played no part in such decisions as Customs & Excise Commissioners v Professional Footballers’ Association (Enterprises) Ltd. [1992] STC 294 where the price of a ticket to the award ceremony covered both the dinner and the purchase of the relevant trophy. Nor was the point determinative in the voucher cases such as Argos, or Boots Co. plc v Customs & Excise Commissioners [1990] STC 387 or Kuwait Petroleum (GB) Ltd. v Customs & Excise Commissioners [1999] STC 488.

Thus it seems to me that Card Protection is really concerned with questions of classification and characterisation where the tax treatment of the ancillary service takes its colour from the principal service. As the Court of Justice said in paragraph 32 in Card Protection, the question is:-

“… whether transactions such as those performed by CPP are to be regarded for VAT purposes as comprising two independent supplies, namely an exempt insurance supply and a taxable card insurance service, or whether one of those two supplies is the principal supply to which the other is ancillary so that it receives the same tax treatment as the principal supply.” (Emphasis added by me.)

If it is right that Card Protection is about categorisation for VAT purposes, then I agree with Mr Cordara that even if ancillary elements of the supply are to be assigned to the tax category of the dominant supply, this does not mean that the ancillary supplies have ceased to exist.

Like Patten J. I am not persuaded that it is necessary to decide whether the supply of the MOT vouchers is ancillary to the supply of the motor car. If it were, I would uphold the decision of the Commissioners notwithstanding Mr Cordara’s eloquent submission that if the vouchers can be used by others than the customer for cars other than the replacement car then it cannot be said that the MOT vouchers are a means of providing better enjoyment of the principal service. In my judgment the vouchers are not “economically dissociable” from the main element of this transaction which is the supply of a new or replacement motor car. It is an ancillary supply. For my part I would uphold the decision of the tribunal in this regard.

I have, therefore, come to the conclusion that even if the transaction is to be treated as a single supply, that is not determinative of the question which arises which is whether the right to receive the MOT services was granted for a consideration. It is common ground that there was consideration for the promise in the technical sense which the English law of contract ascribes to consideration. But for VAT purposes consideration has an autonomous meaning. For the purposes of this case one might simply ask, as Mr Cordara does, whether the vouchers have been given away free of charge. If not then there was consideration and it becomes a matter of the valuation of that consideration.

In this regard it is instructive to consider Kuwait Petroleum. The Court of Justice held in paragraph 27:-

“It is for the national court to enquire whether, at the time of purchasing the fuel, the customers and Kuwait Petroleum had agreed – through the dealers, as the case may be – that part of the price paid for the fuel, whether identifiable or not, would constitute the value given in return for the Q8 vouchers or the redemption goods.”

In that case as in this the retail price of Q8 fuel, or the price of the new car, was the same whether or not the purchaser accepted the vouchers. The vouchers were simply included in the price.

Since the MOT vouchers were simply treated as included in the price and were given whether the customer wanted them or not, they were, in my judgment, given free of charge. That, as Mr Anderson points out in his skeleton argument, is “particularly apparent in the case of the supplies through finance houses, where the consideration is supplied by them, but the vouchers are supplied directly to the end customer”. I accordingly agree with the Commissioners’ submissions in this regard that the MOT vouchers were supplied for no consideration for VAT purposes within the meaning of paragraph 5 of Schedule 6 to the 1994 Act and that that provision is therefore of no application.

It follows that I would allow this part of the appeal on the alternative ground put forward by the Commissioners.