Telewest Communications Plc & Anor v Customs & Excise

The issue in this case is whether the provision of television listing magazines to subscribers to the cable television services provided by companies in the Telewest group is, for the purposes of VAT, zero-rated or subject to the tax at the standard rate. The former represents the correct treatment if the supply of the magazines stands alone as a separate supply. The latter is the correct treatment if both magazines and television services are the subject matter of a single supply.

This issue arises on an appeal and a cross appeal from a decision of the VAT and Duties Tribunal (Chairman Dr. Nuala Bruce) released on 20th January 2003. The Tribunal held that the magazines were supplied as part of a single supply the character of which was, for the purposes of VAT, determined by its dominant element, the provision of television services, and hence subject to VAT at the standard rate. From this decision the appellants, whose identities I shall explain in a moment, have appealed. They do not dispute that if the Tribunal was right to hold that there was a single supply, the characterisation of that supply and its VAT consequences were as the Tribunal found. But they contend that the Tribunal should have held that there were two separate supplies, one of television services and the other of magazines, and that the latter is zero-rated by virtue of the Value Added Tax Act 1994, Schedule 8, Group 3, Item 2, the effect of which is that "Newspapers, journals and periodicals" are zero-rated.

The cross appeal arises from the fact that although the Tribunal, in reaching its decision, accepted one line of argument advanced on behalf of the Commissioners of Customs and Excise ("the Commissioners") it rejected alternative arguments which were put forward by the Commissioners. By the cross appeal the Commissioners seek to rely on these arguments in case the argument on which they succeeded before the Tribunal is held to be wrong.

The Telewest corporate group consists of a considerable number of companies at the head of which is Telewest Communications PLC, the first named appellant ("Telewest PLC"). The principal activity of the corporate group is the provision of television and telecommunications services to customers who are within the area of the cable network owned by one or more companies within the group and who subscribe to the services offered. It is convenient for the purposes of this appeal to ignore the telecommunications service and to treat the provision of television services as the only relevant service. There is no dispute that the supply of such services for consideration attracts VAT at the standard rate.

The actual provision of the television services is undertaken not by Telewest PLC but by some twenty eight regional companies each of which is an indirect but wholly-owned subsidiary of Telwest PLC. In most, but not all, cases the name of each regional company consists of the words "Telewest Communications" together with a description of a geographical area. An example is Telewest Communications (Midlands and North West) Limited. Each subscriber enters into a contract with one of these regional companies.

For the purpose of accounting for VAT the Telewest companies have formed a group referred to as the Telwest VAT group. The principal company in this VAT group is Telewest PLC. Each of the regional companies is a member of this VAT group. There may be other members but they do not matter for present purposes. The important point to note is that not every company which is within the Telewest corporate group is a member of the Telewest VAT group. One effect of membership of a VAT group is that supplies made by each member of the group are deemed to be made by the principal company in the group. Telewest PLC is thus the accountable party in respect of supplies made by each of the regional companies. It is not the accountable party in respect of supplies made by those of its subsidiaries which are not members of the VAT group.

In connection with the provision of its television services the Telewest group produces magazines which contain listings of the television programmes which can be viewed by subscribers to the service. Until July 2001 there was a single magazine, named Cable Guide, which was produced by a company named Cable Guide Limited of which Telewest PLC itself is, either directly or indirectly, the majority shareholder. Cable Guide is published monthly and has a cover price of £3.25 a copy. It could, and still can, be purchased from newsagents at this price, but the overwhelming majority of copies were, until the end of 1999, distributed by regional companies to their customers without any charge being made over and above the monthly subscription for the television services. In other words the monthly subscription was paid in return for a package consisting of the television services and the magazine.

Until the summer of 1999 the Commissioners allowed Telewest PLC to account for VAT on the supplies made by the Telewest VAT group by attributing £3.25 out of each monthly subscription to the magazine Cable Guide and treating this as consideration for a zero-rated supply. The balance of each monthly subscription was attributed to the television services and treated as consideration for a standard-rated supply. However, on 2nd July 1999 the decision of a VAT and Duties Tribunal in the case of BSkyB (British Sky Broadcasting PLC v CEE [1999] V&DR 283) was released. The Tribunal held that this treatment was incorrect in relation to the supply of television services and a magazine made by BSkyB. As the arrangements adopted by the Telewest companies were substantially the same as those adopted by BSkyB the Commissioners gave notice to Telewest PLC that as from 1st August 1999 they would require Telewest PLC to account for VAT on the whole of each monthly subscription on the basis that it was paid in consideration of a single standard-rated supply.

The Tribunal’s decision in BSkyB was to a large extent based on the reasoning of the European Court of Justice in CPP (Card Protection Plan Ltd v CCE, case C-349/96, [1999] STC 270, [1999] 2 AC 601). This decision was applied by the House of Lords when CPP was restored for final hearing (see [2001] STC 174). The Telewest companies concluded that BSkyB must be accepted as correct and that it would have the same impact in relation to the Telewest arrangements if they were left unchanged. The Telewest companies therefore set about devising new arrangements with a view to establishing that Cable Guide would in future be the subject of a separate zero-rated supply.

The initial step in the new arrangements was the incorporation of a new company, named Telewest Communications (Publications) Limited ("Publications") , which took place on 18th October 1999. Publications is a wholly owned subsidiary of Telewest PLC. It is thus a member of the Telewest corporate group. It did not, however, become a member of the Telewest VAT group. The object of the new arrangements was that Cable Guide would, from 1st January 2000, be the subject of a separate supply made, not by the appropriate regional company as had previously been the case, but by Publications which, not being a member of the Telewest VAT group, would be separately accountable for VAT on its own supplies without those supplies taking their character from other supplies.

It will be necessary to examine the new arrangements in some detail, but it is appropriate to state at once that the Commissioners do not accept that they have the desired effect. By a letter dated 24th May 2001 the Commissioners notified Telewest PLC of their decision that Telewest PLC should account for VAT at the standard rate on the full amount paid by customers of the regional companies both for the television services and for the magazine. In the same letter the Commissioners notified Publications of their alternative decision that Publications should account for VAT at the standard rate on the amounts paid by customers for the magazine.

The Tribunal’s decision from which the appeal and cross appeal which are before me are brought was given on Telewest PLC’s appeal against the first decision and Publications’ appeal against the alternative decision.

The primary facts are not in dispute. They are set out in paragraphs 10 to 53 of the Tribunal’s decision. However I must summarise many of them in order that this judgment may be understood.

Before January 2000 a customer wishing to arrange for a supply of cable television services was first shown a leaflet describing different packages at different prices. For example a standard service package was available for £17.99 per month and was described as

At the bottom of the leaflet was printed the words

The Tribunal mentions in paragraph 18 what seems to have been a slightly later version of the leaflet the language of which was substantially the same.

A customer desiring to accept what was offered would be required to enter into a formal written contract on a printed form. The Tribunal recorded in paragraph 19 of its decision a contract for a combined television and telephone package Clause H which provided

In relation to this the Tribunal found that "Services" were defined in clause Q as "the services which you have ordered and which are described overleaf" and that "Overleaf the services were described by reference to the particular package chosen by the customer, which of course included Cable Guide magazine".

The Tribunal noted that in the contracts with the Yorkshire Cable regional company ("YCCL") the provision for changing the agreement was worded somewhat differently and read

After Publications had been incorporated it entered into an agency agreement with the regional companies. This agreement was originally made orally, although a draft of a written agreement was in existence at the time when it was made. The written agreement was not signed until 16th May 2000, but it was expressed to commence on 1st December 1999 and the Commissioners accepted that the oral agreement which preceded it was to the same effect and operated from that date. It was made between Publications and twenty seven out of the twenty eight regional companies. The twenty-eighth regional company, Cable London Limited, had been recently acquired by the group and it took some time for its procedures to be aligned with the other regional companies. It was not a party to the original oral agreement, but by a separate written agreement dated 16th May 2000 it became a party to the main agency agreement with effect from 1st April 2000.

The relevant terms of the agency agreement may be summarised as follows:

In December 1999 customers of the regional companies were notified of certain changes in the arrangements for the provision of Cable Guide. The Tribunal described these notifications as follows:

Some alterations in the arrangements were also made in the case of new customers subscribing after the beginning of January 2000. Such customers would be shown a leaflet describing various packages at different prices. The packages would be described by reference to the various television channels included after which the words

On the reverse of the leaflet there appeared the following text

A customer deciding to subscribe for a selected package is, after the beginning of January 2000, required to enter into a formal contract in printed form. This seems to be on the same lines as the form of contract used before January 2000, but there are certain changes. The form is printed on two sides of an A3 sized page. On the first side, when completed, there are such matters as the customer’s name and address, particulars of the package ordered, places for the signatures of the customer and the representative of the regional company and a form of direct debit mandate (completion of which seems to be optional) authorising the customer’s bank to pay direct debits initiated by "Telewest Communications".

On the reverse side are printed detailed conditions which are prefaced by the following words

The main obligation of the regional company is described in clause B.1 in the following words:

Section Q of the printed terms is as follows;

Section R contains definitions including one of "Services" which reads

From January 2000 onwards Cable Guide Limited invoiced Publications for the printing, posting, mailsort and wrapping of the copies of Cable Guide supplied to customers of the regional companies. The regional companies continued to collect from their customers their monthly subscriptions, but £3.25 out of each month’s subscription was re-allocated to Publications by the group’s central treasury function.

From January 2000 onwards customers have been sent monthly invoices specifying the amount due in respect of "Package and advance charges". On the reverse of each invoice there appears, in addition to details of how to pay and similar matters, the following statement:

There was a variation of this language in the case of customers in Yorkshire and West London on whose invoices the statement was

Cable Guide is for residential customers who subscribe to the analogue television service. Since September 2000 customers who subscribe to the digital television service which is also provided by the Telewest regional companies have received a different magazine called Zap. Like Cable Guide this is a monthly magazine with a cover price of £3.25. The Tribunal accepted that, in relation to Zap, there was an oral agreement between the regional companies and Publications similar to the written agency agreement in relation to Cable Guide. Subscribers to the digital service enter into a written agreement which is in substantially the same terms as the agreement referred to above, references to Zap being substituted for references to Cable Guide. Money paid by customers for Zap magazine has been collected by the regional companies and remitted or credited to Publications in the same way as money paid for Cable Guide magazine.

The Tribunal addressed three questions, namely

On the first question the Tribunal’s main concern was whether there were two contracts (one between the regional company and its customer, the other between the regional company and Publications) or three (the additional contract being between the customer and Publications). It rejected the argument of the appellants that each regional company had used its powers of variation under the pre-2000 contracts and the authority given to it by the agency agreement to bring into existence the third contract. Its analysis was largely, although perhaps not exclusively, a contractual one. Its conclusion, stated in paragraph 76 of its decision, was that

The Tribunal considered that its conclusion on the first question meant that the appeal of the Telewest companies must be dismissed as the other two questions would only arise if the supply of the magazines was made by Publications. Nevertheless it went on to consider those two questions, as it understood them, on the hypothesis that the supply was, contrary to their earlier decision, made by Publications.

On the second question the Tribunal held (paragraph 96) that

On the third question the Tribunal concluded that, if the supply of magazines was by Publications, it was not ancillary to, and so not part of a single supply cable television services made by the regional companies because it was made by a separate taxable person.

On this appeal the issues addressed in argument have not been quite the same as those decided by the Tribunal. There were two main strands of argument. The first was whether, as a matter of VAT law, the magazines are to be regarded as supplied by the regional companies or by Publications. The second, which only becomes relevant if it is decided that the magazines are supplied by Publications, was whether that supply is ancillary to the supply of television services by the regional companies and, if it is, whether that supply takes the taxable character of the dominant supply, with the result that what would otherwise be a zero-rated supply of magazines is to be treated as if it were a standard-rated supply.

The words "as a matter of VAT law" which I have emphasised in describing the first strand of the argument are of some importance. Where a supply is made pursuant to a contract the answer to the general question "who makes the supply?" must, one would suppose, depend for purposes of the domestic law of England and Wales on the true analysis of the contract in the light of the relevant facts. But this cannot be conclusive where the issue relates to VAT because VAT law is European Community law and there cannot be two different answers to the question according to which system of domestic law is applied to the contract.

Accordingly although both sides on this appeal were content to accept that the analysis of the arrangements under the English law of contract is the starting point (c.f. Lloyd J in WHA v CCE [2003] STC 648 at 653), it is necessary also to consider whether the requirements of VAT law necessitate a modified analysis. I will refer to the analysis of the arrangements under the domestic law of contract as "the contractual analysis" and to the possible modification of this as "the VAT analysis".

The appellants argued that, on a true analysis of the documents, there are two contracts, one between the regional company and its customer for the provision of television services, the other between Publications and the customer for the supply of the magazine. The Commissioners argued that there is only one relevant contract, namely a contract between the regional company and its customer for the supply of a package consisting of the television services and the magazine. The fact that, by the agency agreement, the regional companies have arranged for their obligations in respect of the supply of the magazine to be performed by Publications, does not alter this.

In evaluating the appellants’ argument it is necessary to consider separately the positions of existing companies, by which is meant those customers who contracted under the arrangements in force before January 2000, and new customers, who are those who contracted under the arrangements in force after that time.

There is no doubt that, at the time when they entered into their contracts, existing customers contracted only with the relevant regional company. The issue is whether the original contracts were modified in such a way as to bring into existence a new contractual relationship between the customer and Publications under which Publications, not the regional company, was to supply the magazine. Three routes were suggested by which this new contractual relationship was brought into existence, namely novation, assignment and variation pursuant to a contractual power to vary.

Novation is described in Chitty on Contracts, 28th edition, para 20-084 as follows

The appellants relied upon the fact that each regional company was, by the agency agreement, appointed to be the agent of Publications for the purpose, inter alia, of

It was contended that this is what the regional companies did by means of the notices to their customers referred to above.

I am prepared to assume that the regional companies intended the notices to have this effect and also that, despite the inconspicuous size and position of those notices which were included in the talk section of Cable Guide and the informality involved in the use of outserts by YCCL, the customers are to be taken to have received these notices. The difficulty which lies in the way of the appellants’ argument is to show that the customers accepted the substitution of Publications for the relevant regional company as the contracting party in respect of the supply of the magazine.

In paragraph 20-085 of Chitty it is stated that

In my view this is wholly insufficient to establish the requisite acceptance. The wording of the notices does not suggest any change in the contracting parties. Indeed, even on the appellants’ own case, the regional company continued to be the contracting party as regards the television services. I think that particular care in the wording is needed where the intention is to split what has previously been a single contractual obligation into two separate obligations, one of which is owed by a new party in exoneration of the old. Here the customer was not asked to agree to anything and was not given any choice of action in case he did not agree. On the contrary the whole transaction was framed in such a way as to suggest that nothing had really changed and that Publications was being introduced as part of some internal reorganisation within the Telewest group. The conduct on the part of the customer which is relied upon was essentially passive conduct. The customer continued to receive the television service, which was presumably his main interest, from the same regional company; he paid an unchanged monthly subscription to the same recipient as previously; and the magazine continued to arrive at his home as hitherto. In my view, the changes which occurred, namely that Publications became responsible for the delivery of the magazine and that the regional companies accounted to Publications for the monthly cover price of the magazine, savour of an internal reorganisation under which Publications agreed with the regional companies to discharge part of the regional companies’ obligations to their customers, not of a new contract between Publications and each customer.

The appellants sought to draw a parallel between what was done in this case and the situation in Hart v Alexander (1837) 2 M&W 484. It seems to me that that case depended entirely on its own facts. The issue in that case was whether the customer of a banking business which had failed could seek to recover money deposited with the firm from a partner who had been a partner at the time when the money was deposited but had subsequently retired from the firm. In summing up to the jury at the trial the Chief Baron, Lord Abinger, directed the jury that

On appeal the issue was whether there was evidence which could properly be left to the jury on the question whether the plaintiff had knowledge of the relevant fact. It was held that there was.

There was no challenge in Hart v Alexander to the correctness of Lord Abinger’s direction on the law and in the present case Mr. Vajda, on behalf of the Commissioners, has not criticised it. But the facts of that case were very different from those of the present case. In particular that was a case where it was contended that the retired partner was fully relieved from the whole of the burden of the original contract, not just a part of it. Further the circumstances were such that the identity of the partners in the business must have been a matter of concern to the plaintiff (c.f. Lord Abinger’s remarks at the foot of page 491 of the report in M&W). Here the identity of the party responsible for the supply of the magazine can hardly have been a matter of concern to the customer. Finally the element of entering into new contracts, which was a prominent feature of Lord Abinger’s direction to the jury in Hart v Alexander, is wholly absent from this case.

As to assignment, the appellants accepted the principle that the burden of a contract cannot be assigned without the consent of the other contracting party. They cited passages from the speech of Lord Macnaghten in Tolhurst v The Associated Portland Cement Manufacturers (1900) Limited [1903] AC 414. In that case the House of Lords affirmed the decision of the Court of Appeal where Sir Richard Collins MR said ([1902] 2 KB 660 at 668)

As I understood the appellants’ argument on this point they relied upon the fact that Lord Macnaghten had said that there was nothing in the nature of the contract in that particular case, for the supply of chalk from particular quarries for particular cement works, which could not be performed by any person for the time being possessed of the quarries. They also relied upon the actual decision, which was that an assignment of the contract was effective. But it is clear that what was in issue in that case was the effectiveness of an assignment of the benefit, not the burden, of the relevant contractual obligation. Moreover there was no doubt that such an assignment had been made. Here I find it impossible to spell out of the agency agreement, which is the only possible source, an assignment from the regional companies to Publications of any contractual obligation. In any event, what would be required for the appellants’ argument on this point to succeed would be an assignment of the burden of the contract in the form of the obligation to supply the magazine. This would require the consent of the customers, which is wholly absent.

The argument that the original contracts were varied by the exercise of a contractual power to vary was based on the contractual terms concerning changes to the agreement. It will be recalled that in most cases it was stipulated that

The argument was that these provisions gave each regional company the right, without any customer consent, to substitute a new party for itself in respect of any contractual obligation. As to this I need say no more than that the introduction of a new party as the person contracting with the customer is quite a different matter from the alteration of the terms and conditions of the existing contract. The notices given to customers did not purport to do the former and, if they had done so, this would, in my judgment, have been unauthorised and ineffective. As Lord Millett said in Homburg Houtimport BV v Agrosin Private Limited, The Starsin [2003] 2All ER 785 at 848, para 175

The argument that a contract was entered into between Publications and new customers depends largely upon the wording of Section Q of the printed terms of contract which, for convenience, I set out again. It reads

There is no doubt that the regional companies had, by virtue of the agency agreement, authority to bring into existence a contract between Publications and each customer for the supply of Cable Guide magazine (and after July 2000 Zap magazine) by Publications in return for the cover price of the magazine which was to be collected by the relevant regional company as agent for Publications. The issue is whether this is what the regional companies have in fact done. The appellants argued that Section Q shows clearly that the answer must be in the affirmative.

The Tribunal did not accept this argument and neither do I. Looking only at the language of Section Q, this is not, to my mind, appropriate to show that the customer was contracting not only with one of the regional companies but also with Publications. It is stated that the magazine "will be provided to you" by Publications. It is not said that Publications, acting by the regional company, agrees to supply and the customer agrees to acquire the magazine. The price of the magazine is not stated and the regional company’s agency is only mentioned in the context of collection of the unspecified price. The customer’s agreement to the provision of his name and address to Publications sounds as if it is directed to data protection laws. If it has any significance I think it points away from the appellants’ argument. If the customer was really contracting with Publications there would be no need for the customer to consent to Publications being told his name and address.

These views concerning the effect of Section Q are strongly reinforced when the context is looked at. As I have already noted, the printed terms state that they set out the terms of the agreement between the customer and a regional company, not an agreement between the customer and any other party. The magazine is to be provided as part of "the Services" and it is the regional company, not some other party, which engaged itself to provide "the Services". The reference to the regional company collecting the money for the magazine as agent for Publications does not, in my view, conflict with this. Nor does the fact that this money is described as "the due amount" for it does not indicate to whom the money is contractually due.

For the reasons which I have given, which are in substance the same reasons as the Tribunal gave, I conclude that no contract for the supply of the magazine was entered into with either existing or new customers.

Both sides accepted before me that the contractual analysis cannot be regarded as conclusive of the result for the purposes of VAT. The situation was described as follows by Laws J in CCE v Reed Personnel Services Ltd [1995} STC 588 at 595:

It is well settled, as the result of a number of decisions of the European Court of Justice, that the concept of "supply" in connection with VAT is an autonomous concept of Community law that cannot be determined by how the matter is classified under the national laws of member states. The most recent decision is Auto Lease Holland BV v Bundesamt fur Finanzen (Case C-185/01, judgment dated 6 February 2003. In that case the court said

On this point I was referred not only to the Shipping and Forwarding Enterprise case [1991] STC 627] and Auto Lease but also to Muys’ en De Winter’s Bouw v Staatssecretaris van Finanzen (Case C-218-01, [1997] STC 665), Town and County Factors Ltd v CCE (Case C-498-99, [2002]STC 1263) and Maierhofer v Finanzamt Augsburg-Land (Case C-315-00, 16th January 2003).

On behalf of the appellants on this part of the case Mr. Milne referred first to the test laid down by the ECJ in Tolsma v Inspecteur der Omzetbelasting Leeuwarden (Case C-15/93; [1994] STC 509) which concerned a claim that a Dutch street musician was liable to account for VAT on the contributions made by passers by. Having referred to earlier decisions the court said

The necessary legal relationship may exist even though the arrangements are not legally enforceable. Thus in Town and County Factors Ltd v CCE (Case C-498/99, [2002] STC 1263) it was held that a sufficient legal relationship existed between the organisers of a spot the ball competition and participants in the competition, even though the obligation of the organisers to pay prizes was expressed to be binding in honour only. The Court said ([2002] STC at 1281):

Given this broad approach to what is required to constitute the necessary legal relationship, the appellants argued that the key requirement in a case of the present kind is that there shall exist the element of reciprocal performance. Here the remuneration received by Publications in the form of the cover price of £3.25 constitutes the value actually given by the customers in return for the magazines supplied by Publications. There is thus a taxable supply made by Publications, albeit one which is zero-rated, which excludes the possibility that the same goods are the subject of a taxable supply made by the regional companies.

The appellants also relied upon the decision in Auto Lease, to which I have already referred. In that case a company which leased vehicles to customers issued to participating customers a card enabling them to purchase fuel from filling stations in the name and at the expense of Auto Lease. The filling stations were paid for the fuel by Auto Lease, which recouped the cost from its customers by instalments. The principal issue in the case was whether the fuel was supplied by the filling station to Auto Lease or to the customer. As appears from the passage I have already quoted from the judgment of the ECJ, the court began its answer to this question by referring to the definition of ‘supply of goods’ in the Sixth Directive. It followed that it was necessary to determine to whom the right to dispose of fuel as owner was disposed. The court held that this was the lessee, who alone had the right to decide how the fuel would be used, Auto Lease having no power of decision. The court rejected the argument that, as the fuel was purchased in the name and at the expense of Auto Lease, it was supplied to Auto Lease. It said

The appellants argued that similar reasoning applies to the present case. Property in the magazines starts with Cable Guide Limited and passes thence to Publications. From Publications it goes direct to the customer without ever residing in the regional companies. Insofar as the Tribunal found that the correct analysis is that Publications supplies the magazines to the regional companies which then supplies them to customers, there was no justification for this. The fact that the price followed a different route from the property in the magazines is immaterial. The regional companies are mere conduits for the price paid by customers for the supply of the magazines by Publications. That price is the consideration for that supply.

The argument for the Commissioners took as its starting point the principle that, in order to determine what is being supplied one must ascertain the essential features of the transaction irrespective of the way in which it might be artificially presented (see CPP in the ECJ [1999] STC 270 at 293 para 29; in the House of Lords [2001] STC 174 at 185 para 19; and Maierhofer at para 39). This is certainly the case when the issue is to characterise the supply (e.g. whether it is a supply of insurance services as in CPP or a letting of immovable property as in Maierhofer). I accept that it must also be so where the issue is the identification of the supplier.

The next step in the Commissioners’ argument is that there must be a direct link between the supply made and the consideration received. This is, I think, well established. But it does not, to my mind, assist in the identification of the supplier of the magazines for VAT purposes in the circumstances of the present case. There is such a direct link, whether the supply is made by the regional companies or by Publications.

It is the next stage which is the crucial one. The Commissioners argued that the supplier of the magazines must be the regional companies, not Publications, because the magazines are only provided by Publications as part of a single package marketed and contracted for by the regional companies and thus supplied by the regional companies. Once this is recognised the only remaining issue is the characterisation of the package and, in accordance with BSkyB, this, as the appellants accept, is the supply of television services.

At some stages of the argument the Commissioners seemed to be asking what had changed, so far as the essential features of the transaction are concerned, as a result of the modifications made at the end of 1999. It seems to me that this is an unreliable argument for, in respect of customers who have subscribed for the first time in or after January 2000, there have been no changes in the arrangements. Yet, once the contractual arguments have been cleared away, the VAT position must be the same for these customers as it is for those who began to subscribe before 2000. I think, therefore, that the Commissioners’ argument must be evaluated by reference to the current position in which the only contract is that between the customer and the relevant regional company, payment for the magazine is made to the regional company as part of a single monthly subscription, the regional company is obliged to and does account to Publications for the cover price of the magazines and property in each copy of the magazine passes from Cable Guide Limited to Publications and thence to the individual customer without going to the regional company itself at any stage.

The Commissioners relied upon the following features, most of which have been mentioned already:

Although the Commissioners did not emphasise it I think that it is also of significance that Publications is required to supply one copy of the appropriate magazine to every customer whose name and address are notified to it by a regional company and is not permitted to supply the magazines anyone else. The picture is therefore one in which the regional companies are in complete control and Publications only exists to do what the regional companies require it to do.

The Commissioners drew a parallel between the present case and The Commission v France (case C-404/99 [2001] ECR 1-1105). There the Commission successfully challenged an administrative concession allowed to French restaurateurs under which, subject to certain conditions, they were entitled to exclude from the amount on which VAT is payable compulsory service charges made to their customers. In paragraph 40 of his opinion, Advocate General Mishco said that

The analogy with The Commission v France is not perfect. There is a natural unity about the elements comprised in the supply of a meal in a restaurant which may be said to be absent from the supply of television services accompanied by a listings magazine. But it seems to me that the crucial factor is the way in which the elements are offered to the customer. If the television services and the magazine were the subject of separate offers, one made by the regional companies and the other by Publications, each separately charged for, it would be relatively easy to say that there are two separate supplies. But I have reached the conclusion that the offering of the two elements as a package governed by a single contract, brings in its train the result that the regional companies supply both elements. The fact that the regional companies employ the agency agreement with Publications as the means of making the supply does not mean that the magazines are to be regarded as being supplied, for the purposes of VAT, by Publications.

I find this analysis more convincing than the line of argument, based on the transfer of the property in the magazines, which represented the substance of the appellants’ case.

There are a number of additional points which I find it convenient to deal with before coming to the ancillary supply issue.

First, as I have mentioned earlier, the Tribunal identified, as the second matter which it had to consider, the question whether, if the obligation to supply the magazines became that of Publications, the economic substance of the transactions was that the supply was by the regional companies. The Tribunal understood this question to be raised by a line of argument advanced on behalf of the Commissioners. Before me the Commissioners disavowed any such argument. I do not, therefore consider it in this judgment.

Secondly, the Commissioners made it clear that they wished to keep open an alternative argument based on the decision of the VAT and Duties Tribunal in Halifax PLC v CCE [2001] VATTR 71. The issue in that case has been referred to the ECJ and the Commissioners considered that it would not be profitable to argue it in this court before the outcome of the reference is known. However if that outcome is favourable to the Commissioners and this case proceeds further the Commissioners reserved the right to rely on it on any appeal.

Thirdly the Commissioners raised an argument based on Section 47(2A) of the VAT Act 1994 which provides that

This provision is said to implement Article 5(4)(c) of the Sixth Directive which provides that

The Tribunal dealt with the argument as, in effect, an addendum to the contention, which it rejected as I have done, that there is a contract between Publications and the customer. It said, at the end of paragraph 69 of the Decision,

It is not clear to me whether or not the Tribunal thought that a consequence of this was that Section 47(2A) was applicable and that this was what caused the supply to be made by the regional companies. If it did, I do not accept this part of the Tribunal’s reasoning. In particular it does not appear to me to be right to say that the magazines were supplied to the regional companies before being supplied to the customers. In my view the property in the magazines passed direct from Publications to the customers, without residing in the regional companies at any stage. The reason why I consider that this results, for the purposes of VAT law, in a supply made by the regional companies, not by Publications, is that Publications was doing what it did as part of a package supply marketed and contracted for by the regional companies.

I cannot for my part see that Section 47(2A) has any part to play in this case. In the first place it does not appear to me that the magazines are being "supplied through an agent". The regional companies are not the agents of Publications for the purpose of making such supply (their agency extends only to the making of a contract with the customer on behalf of Publications, which in my view they did not do, and the collection of the cover price); nor is Publications the agent of the regional companies. Secondly I think that the appellants were correct in arguing that Section 47(2A) applies only where an agent supplies goods for an undisclosed principal. This, in my view, is what must be meant by the requirement that the agent "acts in his own name". But here, if there was an agency, the parts played by the regional companies and Publications respectively were apparent on the face of the contract.

The views which I have expressed so far are sufficient to result in the dismissal of this appeal. But in case I took a different view the Commissioners advanced an alternative argument which was fully deployed before me as it had been before the Tribunal. This was to the effect that even if, as a matter of VAT law, the magazines are supplied by Publications this supply is ancillary to the main supply of television services by the regional companies and so must take the same VAT treatment.

This proposition was said to be supported by a number of recent authorities. In the order in which they were decided they were Skatteministeriet v Henriksen (Case 173/88, [1990] STC 768); CPP in the ECJ [1999] STC 270 and in the House of Lords [2001] STC 174; the "French Laboratories" case (Commission v France, Case C-76/99, 11th January 2001) and CCE v Primback Ltd (Case C- 34/99,[2001] STC 803. I think it is necessary to discuss each of them briefly.

Henriksen concerned liability for VAT on a development of 12 separate garages erected in conjunction with a building development of 37 linked one-family houses. Some of the garages were let to residents of that development and others to neighbouring residents. The question was whether the lettings of the garages fell within the exemption for the leasing or letting of immovable property or the exclusion from that exemption of the letting of premises and sites for parking vehicles. It was argued for the taxpayer that the exclusion only applied to open spaces for the short-term parking of vehicles. The ECJ rejected this, but recognised that this gave rise to a problem where the letting of the parking space is closely linked to the letting of another property which falls squarely within the exemption. It decided

It seems probable that the two circumstances mentioned in paragraph 16 must both exist if the letting of the parking place is to fall within the exemption. But whether this is so or not, I do not think that the decision provides any real assistance to the Commissioners’ argument. The case concerned the definition of the boundary line to be drawn between the exemption and the exclusion. It says nothing about one transaction sharing the tax treatment of the other.

CPP concerned a plan to protect credit card holders against loss arising from the loss or theft of their cards or other important documents. It comprised various elements, including insurance protection and card registration services. The insurance was provided by a third party under a group policy arranged by CPP. Payment for participation in the plan was made by card holders to CPP. There were thus at least three types of services involved, namely (i) the card registration services; (ii) the arrangement and keeping up of the group policy; and (iii) the provision of insurance cover. The case concerned only the first two types, which were provided by CPP. Liability for VAT in respect of the insurance cover, provided by the third party, was not in issue. The question was whether services falling within the first two classes fell to be treated as a single supply or as two or more separate supplies. If there was only a single supply the further question arose of how it should be categorised. In particular was it a standard-rated supply or exempt by reason of being an insurance transaction within the meaning of article 13B(a) of the Sixth Directive?

The House of Lords referred a number of questions to the ECJ, including the question what is the proper test to be applied for the purpose of deciding whether a transaction consists for VAT purposes of a single composite supply or two or more independent supplies and the question whether what was done by CPP consisted of or included an insurance transaction. The answers given by the ECJ led inexorably to the conclusion that CPP’s making of arrangements for effecting and keeping up the group policy was an insurance transaction. It is, however, the answer to the other main question which is more relevant for present purposes.

On this the ECJ held ([1999] 2 AC 601 at 527) that

In giving effect to these rulings Lord Slynn, with whom the rest of their lordships agreed, asked himself

Although CPP thus speaks in terms of principal and ancillary supplies, the context in which this was relevant was very different from the circumstances of the present case. In particular it was clear that the services in issue there were supplied by CPP alone. The premise in which the Commissioners’ ancillary services argument becomes relevant in the present case is that there are two separate supplies, one made by the regional companies and the other by Publications. I find in CPP nothing to justify the proposition that where this is the case the supply made by one supplier, Publications, takes the tax treatment applicable to the supply made by the other.

The French Laboratories case arose out of the system adopted in France for the taking and analysis of medical samples. In cases where the whole process could not, for reasons of French law, be carried out by the laboratory taking the sample three services were involved, namely (i) the taking of the sample (ii) the transmission of the sample to a specialist laboratory and (iii) the analysis of the sample by the specialist laboratory. It was accepted that items (i) and (iii) were exempt from VAT by reason of Article 13(A)(1)(b) of the Sixth Directive, under which there is exemption for

In answering this question the ECJ noted amongst other things that

The Commissioners fastened on the references to ancillary services in the judgment and in the opinion of the Advocate General and to the Court’s conclusion that the transmission, being closely related to the analysis, must be treated in the same way for fiscal purposes as supporting the proposition advanced by them in the present case. In my judgment they do not do so. The one and only question before the Court was whether the transmission service came within the exemption, which applied not only to "hospital and medical care" but also to "closely related activities". The concept of one service being ancillary to another was, it appears to me, introduced only as a test of whether one activity is closely related to another. I do not find in the case authority for any general proposition that, where one supply can be said to be ancillary to another even though they are made by separate suppliers, both supplies must share the same tax treatment.

In Primback a furniture retailer offered its customers the option of paying for goods by means of ‘interest free credit’. Customers taking advantage of this option entered into an agreement with a finance company nominated by the retailer under which they borrowed a sum equal to the advertised price of the goods purchased and agreed to repay this sum by instalments over a period. By a separate agreement between the finance company and the retailer, of which the customer was unaware, the finance company agreed to pay the retailer a sum equal to the advertised price of the goods less a ‘commission’ which represented the cost of the credit. The question was whether the retailer was accountable for VAT on the advertised price of the goods or only on the reduced amount received from the finance company. The ECJ held that the transaction between the retailer and the customer was a single transaction for the sale of goods at the advertised price, the full amount of which was the consideration for VAT purposes.

The part of the judgment of the ECJ which was relied upon on behalf of the Commissioners is that set out in the next two paragraphs, in which the court said

In my judgment this passage cannot sustain the weight which the Commissioners sought to place upon it. It has to be appreciated that the ECJ was concerned only with identifying the supply made by Primback and, having done this, ascertaining the consideration for this supply. The court was saying that the supply was a single supply of goods for the advertised price. In the two paragraphs relied on it went on to say that, even if that view had been wrong and the supply by Primback had two elements, one of goods and the other of credit, the result would be the same because the supply of credit would be ancillary to the supply of goods and would take its character, for the purposes of VAT from the dominant element. But all this was said in a context where the only relevant supply, whether of goods or of credit, was made by Primback. I cannot see how it applies where there are two separate supplies each by a different party, which is the hypothesis to which the Commissioners’ ancillary supply argument was directed in this case.

On behalf of the appellants I was referred to two English cases as showing that the proposition advanced on behalf of the Commissioners is fallacious. The first was CCE v Wellington Private Hospital Ltd [1997] STC 445 one of the issues in which was whether the supply of drugs to patients admitted to a private hospital was to be treated as part of the same supply as the provision of accommodation and nursing care or a separate supply. Millett LJ, with whom Hutchinson LJ agreed said (at page 462)

The second case was Nell Gwynn House Maintenance Fund Trustees v CCE [1999] STC 79 which concerned the liability to VAT of the trustees of a maintenance fund in respect of maintenance payments made by lessees, In relation to one issue it was accepted that if the maintenance had been undertaken by the lessor the supply of the relevant services would be exempt from VAT by virtue of the exemption applicable to the leasing or letting of immovable property. But it was contended that the position was different where, as in the Nell Gwynn case, the maintenance was undertaken by trustees who were separate from the lessor. Lord Slynn, with whom the rest of their lordships agreed, rejected an argument based upon Henriksen. He said (at page 92)

These passages from the Wellington Hospital and Nell Gwynn cases are directly contrary to the argument advanced on behalf of the Commissioners. I think Mr. Vajda found himself constrained to admit this. But he said that these cases were decided before the French Laboratories case (which, of course, is true) and he contended that if Millett LJ and Lord Slynn had had the benefit of knowing what the ECJ decided in that case they would have expressed themselves differently. I do not accept this. For the reasons which I have endeavoured to explain I consider that the French Laboratories case was concerned with a quite different issue. It is, in my view, distinguishable on much the same grounds as those on which Lord Slynn distinguished Henriksen.

I therefore reject the arguments advanced by the Commissioners on the ancillary supply issue. Mr. Vajda invited me, if I took this view, to refer the question to the ECJ. I decline to do this for two reasons. First I consider the matter to be sufficiently clear not to call for a reference. Secondly, having regard to my conclusions on other parts of the case, the point would not be determinative of this appeal even if I were wrong in rejecting it.

For the reasons which I have stated in dealing with the VAT analysis I conclude that this appeal fails and must be dismissed.