Talacre Beach Caravan Sales Ltd v Customs & Excise

J U D G M E N T

1. LORD JUSTICE PETER GIBSON: The sole issue which arises at this hearing, which is the mention of an appeal from Lindsay J relating to VAT, is whether this court should make a reference to the European Court of Justice pursuant to section 234 of the EC Treaty. The judge had indicated in his judgment that he saw questions arising, the answers to which might have repercussions well beyond any effect on the particular subject matter before him, and that there were questions appropriate for such a reference. He said that had either party asked him to make a reference he would have been likely to do so, but he understood that both the appellant, Talacre Beach Caravan Sales Ltd, and the respondents, the Commissioners of Customs and Excise, to indicate that they wished him not to refer, leaving the question of a reference to a higher court. In the circumstances, the judge had decided the case without a reference.

2. The facts of this case are clearly and accurately set out in the judgment of the judge, given on 5th January 2004. It is sufficient to identify the dispute in this way. The appellant is a retailer of new large static caravans. They are sold including within them standard features consisting of bathroom suites, floor coverings, curtain rails, curtains, cupboards, fitted kitchen, seating units, dining table, chairs, stools, coffee table, display units, mirrors, wardrobes, beds and mattresses. Many of the included items are removable. The manufacturer sells the caravans to the appellant and ascribes part of the price to the caravan and part to the "cooker/carpets/furniture/curtains", VAT on which latter part is shown on the invoice at the standard rate.

3. When the appellant sells the caravan with its contents, the invoice gives a single price with no VAT. That is because by virtue of Article 28 of the Sixth Directive, the United Kingdom is permitted derogations for then existing zero-rating provisions, subject to meeting certain conditions. The relevant derogation which has been made by the United Kingdom is to be found in Schedule 8, Group 9 to the Value Added Tax Act 1994. This provides for the zero-rating of caravans, but by note (a) there is an express exclusion of "removable contents other than goods of a kind mentioned in item [4] of Group 5" from the scope of the zero-rating.

4. The VAT and Duties Tribunal, in its decision on 27th March 2003, held that, pursuant to the principle laid town by the European Court of Justice in Card Protection Plan Ltd v Commissioners of Customs and Excise [1999] STC 270, there was a single supply by the appellant when it sold a caravan with its contents. That finding that there was a single supply was not challenged by the Commissioners before the judge. But the Tribunal also held that such of the consideration for the caravan as was attributable to items falling within note (a) was taxable at the standard rate, while the remainder of the consideration was zero-rated.

5. On appeal by the appellant Lindsay J agreed with the Tribunal that there can be different rates of VAT in respect of a single supply, in circumstances where to hold otherwise would extend the derogation which is permitted under Article 28. In seeking permission to appeal, the appellant criticised the judge for not making a reference to the European Court of Justice. The appellant has provided a draft of the questions which it says should be referred.

6. The application for permission to appeal to this court was put before Chadwick LJ, the appeal being a second appeal. He granted permission on paper for the appeal, identifying the issue arising in the case as being:

"... whether, in circumstances where - applying the principles explained by the ECJ in Card Protection Plan Ltd v Customs & Excise Commissioners [1999] STC 270 - it is held that a transaction should be treated as a single supply for VAT purposes, it follows necessarily that, if the dominant element in that supply is zero rated, the transaction as a whole must be treated as a zero rated supply ..."

He suggested that the parties should consider inviting this court to refer that question to the European Court of Justice.

7. The Commissioners in their skeleton argument said that there was no need for a reference as the judge was plainly right, and the essence of the case involved the scope and construction of a domestic provision permitted by way of derogation. However, they have, as Chadwick LJ suggested, considered and provided a draft of the questions which they say should be referred if, contrary to their submission, this court was minded to make a reference. In correspondence they have indicated that they are neutral on the question of a reference.

8. For my part, I do not think that this case raises simply a question of the scope and construction of domestic legislation. I agree with the judge, and with what appears to be the view of Chadwick LJ, that a reference is desirable so that the European Court of Justice can give guidance on the point raised. I would identify the question in this way:

"Where a member state has, pursuant to Article 28(2)(a) of the Sixth Directive, by its domestic legislation exercised its right of derogation so as to zero-rate a supply of specified goods but in the same provision has identified items that should not be included within the scope of the zero-rating ('excluded items') does the fact that there is a single supply of the goods (together with the excluded items) preclude the member state from charging VAT at the standard rate on the supply of the excluded items?"

9. The wording of that question has been the subject of some discussion and amendment in the course of the short hearing which we have had today. I believe that it is now in effect agreed. That is the question which I would refer. To the order should be scheduled a document containing the various matters which the practice direction relating to references, the Part 68 Practice Direction, requires. I would ask that counsel should agree the terms of the order and supply that to the associate in due course.

10. We have been asked by Mr Cordara QC, for the appellant, to make an order as to costs to reflect the fact that the Commissioners did not, immediately after the judge had given his judgment, agree to the making of a reference, and only belatedly took the stance that they were neutral on the question of a reference.

11. For my part, I think that the usual order should be made, viz that the costs should be costs in the case. Before the judge neither side wanted a reference. Both sides have therefore changed their position somewhat. There would have had to be a hearing in this court to obtain a reference and to agree the wording of the question.

12. Accordingly, that is the order as to costs which I would make.

13. LORD JUSTICE RIX: I agree.

ORDER: Question referred to the European Court of Justice; costs of today to be costs in the case; counsel to agree and lodge a draft minute of order.

(Order not part of approved judgment)