Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
THE HONOURABLE MR JUSTICE LINDSAY
Between :
| Talacre Beach Caravan Sales Ltd | Appellant |
| - and - |
|
| Commissioners of Customs & Excise | Respondents |
Mr Roderick Cordara Q.C. and Mr Andrew Hitchmough (instructed by Landwell) for the Appellant
Mr Rupert Anderson Q.C. (instructed by Solicitor for the Commissioners of Customs & Excise) for the Respondents
Hearing dates : 19th January 2004 – 21st January 2004
Judgment
Mr Justice Lindsay:
Talacre Beach Caravan Sales Ltd., the Appellant, carries on, in conjunction with its business as owner and operator of "Holiday home parks", the business of a retailer of new large static caravans. They are sold including within them standard features typically consisting of bathroom suites, floor coverings, curtain rails, curtains, cupboards, fitted kitchens (including cooking appliances), seating units with fitted banquettes, dining table, chairs, stools, coffee tables, display units, mirrors, wardrobes, beds and mattresses to fit them. The caravans in stock are sold on what might crudely be called a "take-it-or-leave-it" basis; the customer cannot say, for example, that he does not need the stools but would prefer to pay less or that he would prefer the curtains in a different textile or colour. If the given caravan in stock does not suit him he may, of course, prefer some other that is in stock but if he finds none that suits him he is left to buy none; he cannot require changes to a stock caravan to suit his taste.
The Appellant buys the new static caravans direct from the manufacturer, who supplies them to the Appellant with an invoice which ascribes part of the price to the caravan itself, referring to its model name, and another part, typically describing the goods as "cooker/carpets/furniture/curtains", to such goods. Such latter specified amount of the overall price is shown on the manufacturer’s invoice to be susceptible to VAT at the standard rate and a separate figure for such VAT is shown as within the total sum payable by the Appellant. On the retail sale to the end-customer, the Appellant (under a trading name) would invoice the purchaser with one invoice giving a description by reference to the caravan’s model name without separately mentioning any of the standard features included within it but including a "site fee". The one all-in invoice would include one all-in sum making no mention of, or provision for, VAT. That, avers the Appellant, is the correct treatment, a treatment open to it to adopt. A typical invoice, including a site fee of £1,500, would be of the order of £15,000-£16,000.
Section 1 subsections (1) and (2) of the Valued Added Tax Act 1994 provide:-
Value added tax shall be charged, in accordance with the provisions of this Act-
on the supply of goods or services in the United Kingdom (including anything treated as such a supply),
……………, and
……………,
and references in this Act to VAT are references to value added tax.
VAT on any supply of goods or services is a liability of the person making the supply and (subject to provisions about accounting and payment) becomes due at the time of supply."
However, section 30 (1) and (2) of that Act provide:-
Where a taxable person supplies goods or services and the supply is zero-rated, then, whether or not VAT would be chargeable on the supply apart from this section –
no VAT shall be charged on the supply; and
it shall in all other respects be treated as a taxable supply;
and accordingly the rate at which VAT is treated as charged on the supply shall be nil.
A supply of goods or services is zero-rated by virtue of this subsection if the goods or services are of a description for the time being specified in Schedule 8 or the supply is of a description for the time being so specified."
As subsection (2) twice uses the word "supply" one does not need to find it in Schedule 8 although for grammatical convenience it is quite often used there.
Schedule 8 - headed "Zero-rating" - of the Value Added Tax Act 1994, provides at its Group 9 (upon correcting two small errors agreed to be merely typographical errors) as follows:-
Caravans exceeding the limits of size for the time being permitted for the use on roads of a trailer drawn by a motor vehicle having an unladen weight of less than 2,030 kilogrammes.
Houseboats being boats or other floating decked structures designed or adapted for use solely as places of permanent habitation and not having means of, or capable of being readily adapted for, self-propulsion.
The supply of such services as are described in paragraph 1 (1) or 5 (4) of Schedule 4 in respect of a caravan comprised in item 1 or a houseboat comprised in item 2.
Note: This Group does not include –
removable contents other than goods of a kind mentioned in item [4] of Group 5; or
the supply of accommodation in a caravan or houseboat."
Unless that Note (a) is to be denied effect it can be seen at a glance that it presents a difficulty to the Appellant, which appears by Mr Cordara Q.C. and Mr Hitchmough. It is the Appellant’s case that not just the caravan but all its contents, removable or not, are properly to be zero-rated. The Manchester Tribunal, Mr Colin Bishopp, Chairman, held otherwise; it was held that whilst the supply of a caravan to include such standard features as I have described represented, for VAT purposes, one single supply, such of the consideration as is attributable to items falling within Note (a) is taxable at the standard rate, whilst the rest is zero-rated. The Appellant appeals.
A reading of Group 9 supra leads one to expect that there would be problems on the boundaries; just what is to be included within the meaning of "caravan"? Would it include, for example, the built-in framework of a bed within the caravan and would that be included even if the framework was not required to contribute or contribute substantially to the structure of the caravan? As to "removable contents", what test for removability would be employed? A mattress, for example, could be expected to be lifted and put out through a window or door without disturbing anything else but what of an unfixed dining room table, put inside the caravan before fitting-out was completed and which, by reason of its size and shape, was no longer capable of being put through a door or a window? What of a cooker that could be removed but only if it or its surround was first dismantled? What, say, of a cupboard or wardrobe that could be removed but only by way of unscrewing or unstapling and perhaps with the effect of weakening or changing the structure or changing the internal partitioning of the caravan? Plainly difficult factual questions could arise but I emphasise that this appeal is not concerned with any such because the Appellant’s case is that, in principle, however removable the contents might be, so long, (as is likely), as they fall within a single supply for VAT purposes of a caravan they must be zero-rated. Thus if a new static caravan were to be supplied on a "turn-key" basis such that the purchaser would, on paying his one all-in price, walk in to a static caravan fully fitted out (without the customer having a choice to decline these items) with a lady’s hairdryer, a man’s trouser-press, a coffee percolator, a kettle and a television all within the caravan, those items, whilst undeniably "removable contents", would, argues Mr Cordara, be no less zero-rated than the standard features in fact included. So long, argues Mr Cordara, as there is one single supply properly regarded for VAT purposes as being of a static caravan within the Group 9 description, all its contents take their VAT rating from the rating attributable to the dominant component, the static caravan, and hence have to be zero-rated. Note (a) is thus, on his argument, consigned to dealing effectively only with removable contents which are supplied by way of an "independent supply", meaning, in this context, a supply other than by way of the single supply of the caravan.
The Respondents, the Commissioners of Customs & Excise, who appear by Mr Rupert Anderson Q.C., resist that. Mr Anderson emphasises that the ability of Parliament to confer zero-rating was conferred upon it by way of a derogation. In creating the zero-rating categories of Schedule 8 to the 1994 Act Parliament was not enacting anything of community-wide applicability but a purely domestic provision that it was entitled to enact by virtue of a derogation carved out of the powers conferred by the Directives relating to Value Added Tax. Even if the supply of removable contents were properly to be regarded as a single supply of a Group 9 caravan, effect is to be given, he argues, to the plain domestic provisions of Note (a). Given that the Community has, by derogation, empowered Parliament to deal with the subject, there is, he urges, no applicable principle of Community law which is capable of overriding the plain meaning of Note (a), which is to deny zero-rating to all removable contents.
The argument between the parties can thus be reduced to a single compound question; where, applying the authorities, a supply, albeit of disparate goods, is taken to be a single supply for VAT purposes, does the finding of single supply so powerfully impose upon all the goods supplied the zero-rated character applicable to the dominant goods that effect is necessarily to be denied to the express terms of a domestic provision, made in implementation of a permitted derogation, which, by denying zero-rating, would impose the standard rate? More simply, perhaps, there are three questions that arise: is there a general rule that a finding of a single supply without more imposes the rating of the dominant element on all components of that single supply? If there is, does the general rule admit of exceptions? If it does, do the facts here fall within an exception?
If I am right in seeing such questions as arising in this matter then it will be seen that the answers may have repercussions well beyond any effect on static caravans and I confess to seeing there to be questions appropriate for a reference to the European Court of Justice. Neither sides’ skeleton argument invited a reference Had either party asked me to refer to the ECJ I would have been likely to do so but, on the contrary, I understood both sides to indicate that they wished me not to refer; any references, I took it to be agreed, was to be left to a higher Court. In the circumstances I have pressed on with my own answers.
Mr Cordara first takes me to Card Protection Plan Ltd –v- Customs & Excise Commissioners [1999] S.T.C. 270 ECJ, which was concerned with a bundle of services offered together to credit card holders. CPP offered them to its customers as an indivisible package which included insurance. Article 13B (a) of the Sixth Directive (77/388) exempted from VAT insurance transactions and some related services. Popplewell J., reversing the London VAT Tribunal, held that the package was, for VAT purposes, of two separate supplies, one of insurance and one of services of convenience. On appeal, the Court of Appeal held that there was a supply of a card registration service with an insurance element that was merely incidental. On further appeal, the House of Lords referred questions to the ECJ.
In the ECJ, Advocate-General Fennelly, after winningly referring to the "mystic twilight of VAT legislation" said, at his paragraph 42 page 286:-
I would immediately make two observations. Firstly, as the Commission says, the VAT legislation contains no provisions concerning the treatment of mixed transactions. The Sixth Directive does not envisage any mechanism for the separation of the elements of single transaction so as to enable them to receive different VAT treatment. Secondly, the order for reference shows that the issue is raised in the present case only because of the presence of an insurance element, claimed to confer exemption, in whole or in part, on the transaction.
I would accordingly reformulate the first and second questions as asking what criteria are to be applied for the purposes of the Sixth Directive when a single transaction comprises the supply of several distinguishable services, one of which is a subject of exemption of insurance transactions provided by Art 13B (a)."
Mr Cordara relies on that passage but the Advocate-General does not say that there is no mechanism of the kind he describes on the ground that none, in principle, could ever be needed. In its judgment the ECJ does not echo the Advocate- General’s reference to the absence of any machinery and in paragraphs 27 on says as follows, at p. 293:-
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.
However, as the court held in Faaborg-Gelting Linien A/S –v- Finanzamt Flensburg (Case C-231/94) [1996] STC 774 at 783, [1996] ECR I-2395 at 2411-2412, 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.
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.
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 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).
………….
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."
Mr Cordara refers, in particular, to the definite article in the passage in paragraph 27 where a singular rate is referred to in the expression (with my emphasis) "for applying the rate of tax". However the ECJ is careful to point out that exhaustive guidance is not possible for all cases. Whilst what is, economically regarded, a single service (or supply) "should not be artificially split", that does suggest that a split that is not artificial is not necessarily forbidden. Moreover, there is some ambiguity in the first sentence of paragraph 30 ("which share the tax treatment of the principal service") and the last of paragraph 32 ("so that it receives the same tax treatment as the principal supply"). It is not entirely clear whether "so that" means "necessarily having the consequence that" the ancillary services share the same tax treatment in all respects as the principal supply or whether the questions to be referred to the national Court are not only whether one supply is principal to the other which is ancillary but whether, separately and in addition, it is for the National Court to determine also whether the principal-ancillary relationship is to have a consequence upon the ancillary such "…. that it receives the same tax treatment as the principal supply".
On the return of CPP supra to the House of Lords Lord Slynn, with whom all others of their Lordships hearing the appeal agreed, took there to be only one question for their Lordships’ House:-
"Do the arrangements made constitute a single supply with some ancillary services or are there two independent supplies, an exempt insurance supply and a non-exempt card registration service?"
He observed also at his paragraph 22:-
"It seems that an overall view should be taken and over-zealous dissecting and an analysis of particular clauses should be avoided."
He had no doubt but that the insurance element was the dominant amongst the 15 benefits conferred by the whole package and concluded at paragraph 29:-
"I would therefore hold in response to paragraph 32 of the Court of Justice’s judgment …. that the transaction performed by CPP for [the taxpayer] is to be regarded for VAT purposes as comprising a principal exempt insurance supply and the other supplies in the transaction are ancillary so that they are to be treated as exempt for VAT purposes."
It is notable, though, that the exemption for insurance transactions with which the House of Lords was dealing was a direct implementation by our domestic legislation of Article 13B of the Sixth Directive which required such exemption throughout the Community. Moreover, when our domestic legislature came to prescribe the nature of the exemption it included no relevant exception from the exemption of a kind that in any way corresponds to Note (a) of Group 9 of the 8th Schedule to the 1994 Act. The House was dealing with a community-wide exemption from which the domestic legislature had made no exception. Had either of those features not been present it is far from clear that Lord Slynn would still have regarded there to be only one question before the House or would necessarily have regarded the tax characteristics of the dominant without more to identify the tax characteristics of the ancillary.
Mr Cordara then took me to a number of authorities decided after CPP. I shall refer to six, in chronological order.
In British Sky Broadcasting Group plc –v- Commissioners of Customs & Excise, Tolley’s VATTR decision No. 16220 the late Mr P.W. de Voil dealt with whether BskyB supplied a standard-rated broadcasting service to which the Sky TV Guide was ancillary or whether the magazine represented a separate zero-rated supply. In his paragraph 16 Mr de Voil pointed out that neither the Sixth Directive nor our domestic provisions made any reference to a distinction between single and multiple supplies but, much as did my comment as to Advocate-General Fennelly’s remarks cited at paragraph 12 above, added that that is far from saying that there is none. On the facts, the magazine was held to be no more than an ancillary, simply a "means of better enjoying the principal service supplied" – paragraphs 38 and 46. There was thus a single supply. But there the provision that led to the standard-rating of broadcasting services contained no exception of possible relevance to magazines; there was no provision such as could arguably have excepted from the standard-rating magazines ancillary to broadcasting services. To that extent the case differs from that applicable to Group 9 caravans, where Note (a) constitutes an attempt at a material exception.
In Customs & Excise Commissioners –v- British Telecommunications plc [1999] STC 758 H.L., BT, which bought a large number of cars every year direct from the manufacturers, paid a price per car which included input tax on the cost of the delivery of that car. BT then sought to set-off the VAT on a delivery element of the supply against its liability for output tax. Under the Sixth Directive the taxable amount in respect of a supply is to include expenses such as the cost of the transport charged by the supplier to the customer. If there was simply a supply to BT of a delivered motorcar it could not deduct input tax on any part of the supply. However, if a transport element could be regarded as a separate supply to that of the supply of the car, BT could claim the input on that element, as, in that case, the impediment to deduction of input tax on the supply of a motorcar would be avoided. There would then instead be one transaction as to the car and one, separately, as to its delivery. Lord Slynn, with whom the others of their Lordships dealing with the matter agreed, held at p. 766 :-
"In my view here if the transaction is looked at as a matter of commercial reality there was one contract for a delivered car: it is artificial to split the various parts of the transaction into different supplies for VAT purposes. What BT wanted was a delivered car; the delivery was incidental or ancillary to the supply of the car and it was only on or after delivery that property in the car passed. The fact that delivery could have been arranged differently under a separate contract between BT and the transporter or by BT collecting the car itself does not mean that when there is a contract for a delivered car the two supplies must be kept separate. Of course BT had the option to make other arrangements as is argued but the fact is that BT did it this way as part of one contract and in my view as part of one supply."
A little later he added:-
"One result of this approach is that BT is in the same position in regard to VAT as companies buying a small number of cars from a dealer. They could not recover the input tax because of the provisions of the 1992 Order. If BT’s argument is right BT would have a considerable tax advantage over such other traders. That discrimination of this kind would be avoided may not be a reason for arriving at the conclusion which I have reached but the fact that such result is not discriminatory may be some indication that it is right."
Lord Hope of Craighead, whilst agreeing with Lord Slynn, added a reasoned judgment of his own which, at page 768, included this:-
"There is one other factor which, in my opinion, supports the view that the supply of the transport and delivery services were incidental or ancillary to the purchase of the motorcars and are not to be regarded as a separate and distinct supply for VAT purposes. As a matter of general principle comparable transactions should for VAT purposes, so far as possible, be treated equally. ….. If BT were able to recover as input tax the VAT charged by the manufacturers on the service of transporting and delivering the cars to their premises from the factory, they would be obtaining more favourable treatment than that available to others in the market for the purchase and delivery from authorised dealers of the same motorcars."
The authority may be taken to be a strong one in favour of looking for some "commercial reality" but two points may be noted; there the customer’s wish was clear. What BT wanted was a delivered car. In the case before me, by contrast, there is no ascertainment of what the customer wanted; he may have preferred different curtains, no stools or a rebate upon doing without the dining room table but he was given no choice. Moreover, a factor to be borne in mind (one to which I shall need to revert) was that the holding of there being one single transaction tended to reduce discrimination between customers.
In Hartwell plc –v- Customs & Excise Commissioners [2003] STC 396 C.A. that Court dealt with the affairs of a car retailer and repairer who sold cars, very often on a part-exchange basis. When he did so he included in the sale two kinds of vouchers. As to one class of vouchers, he would sell the vehicle at a specified price and the invoice would say, for example, "Three MoT vouchers total value £96.33 ….. ….. 0.00". There was thus a specific attribution of no consideration to the vouchers despite their acknowledged value. The other kind of voucher, "purchase plus vouchers", were given as part of the trade-in and were to be used as part of the deposit towards a hire-purchase price or as a credit towards an outright immediate sale of the vehicle that was being acquired. In a reserved judgment Chadwick L.J., following CPP supra and BT supra held the transactions to be a single one of both the vehicles and the vouchers. Vouchers stating amounts were at that time subject to a very special regime – see 1994 Act Schedule 6 paragraph 5 – which required any consideration for which they were granted to be disregarded save to the extent, if any, to which it exceeded the amount stated on the voucher. At page 412 paragraph 34 Chadwick L.J., dealing with the MoT vouchers and after his holding that there was but a single transaction, said that:-
"Nevertheless, I agree with the Judge that a decision that the transaction is to be treated as a single supply is not to be determinative of the question whether para 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 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."
Mr Anderson sees that passage as opening the door to the possibility that within a single transaction there can, notwithstanding that unity, be more than one form of treatment for VAT purposes. By contrast, Mr Cordara sees it merely as an indication that even within a single transaction there can be an apportionment of consideration. In the same case, Ward L.J., dealing with MoT vouchers, said at page 417 paragraph 53:-
"If it is right that Card Protection Plan 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 the ancillary supplies have ceased to exist."
At his paragraph 55 he continued:-
"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."
He concluded that as the MoT vouchers were given whether the customer wanted them or not they were given free of charge. In that circumstance he held that paragraph 5 of Schedule 6 to the 1994 Act had no application. Again Counsel differ as to the import of the judgment; Mr Cordara sees it as merely permitting an apportionment of consideration in relevant cases and Mr Anderson sees it as an indication that it is not in all cases that, without more, a holding as to a single supply necessarily ascribes to the ancillary all the tax characteristics of the dominant supply. The reasoning in the third judgment, that of Arden L.J., differs from that of Chadwick and Ward L.J.J.. Arden L J. saw Card Protection Plan as a general principle of community law such, as it would seem, that without further inquiry and in all cases the ancillary supply was to be subsumed into that of the principal supply and to be taxed as if it were the principal supply – see paragraphs 42 and 44.
In Customs & Excise Commissioners –v- FDR Ltd [2000] STC 672 C.A. Laws L.J., with whom Bell J. and Ward L.J. agreed, cited a passage from the judgment, before CPP was decided, of Millett L.J. in Customs & Excise Commissioners –v- Wellington Private Hospital Ltd [1997] STC 445 at 462 which included this:-
"The proper inquiry is whether one element of the transaction is so dominated by another element as to lose any separate identity as a supply for fiscal purposes, leaving the latter, the dominant element of the transaction, as the only supply."
Continuing, at page 693 Laws L.J. spoke of the case where there was a single or core supply embodying an ancillary supply; he said:-
"….. They will, of course, be subject to the same tax treatment as the core."
That he was therefore dealing with a different type of question to that before me is, however, illustrated by his adding, still at page 693:-
"With respect I apprehend (but I by no means propose to lay down any rule) that where this sort of issue arises, the first question to be asked may be couched as Nolan L.J. put it: what is ‘the true and substantial nature of the consideration given for the payment’. That will identify the apex or the tabletop. The second question would be whether there are other supplies which are ancillary to the core?"
Moreover, firstly, he was dealing with community-wide exemption – Article 13B (d) (iii) of the Sixth Directive – which, as he pointed out at page 676, member States were required to introduce into their VAT legislation and, secondly, although Article 13B (d) (iii) contains an exception to the exemption, the Court was not, as I read the case, concerned with it.
In Customs & Excise Commissioners –v- Primback Ltd [2001] STC 803 ECJ the Court dealt with a triangular situation involving a furniture retailer, its customer and a finance house. The retailer invoiced the customer for £N; the finance house, on the customer’s behalf and in full satisfaction of the invoice paid £N less a commission to the retailer and the customer borrowed £N from the finance house and repaid it over a period free of interest.
The Court concluded – paragraph 44, page 820 – that so far as concerned the only transaction with which it was concerned, that between the retailer and the customer, that, even if it was possible to distinguish between a supply of services, namely credit, and a supply of goods, the credit would necessarily be regarded as ancillary to the principal transaction, a sale of goods. The Court continued, at paragraph 45, as follows:-
Indeed, it follows from the Court’s case law that, where a transaction consists of several elements, there is a single supply, particularly where one element is to be regarded as constituting the principal service, whilst another is to be regarded as an ancillary service sharing the tax treatment of the principal service; and a service is to be regarded as ancillary to the principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied (see, in this sense, Card Protection Plan Ltd –v- Customs & Excise Commissioners (Case C349/96) [1999] STC 270 at 293, [1999] ECR I-973 at 1013, paragraph 30)."
The ambiguity or possible ambiguity detected in CPP supra remains; does the passage "whilst another is to be regarded as …. sharing the same tax treatment" express merely an inescapable consequence of there being a single supply or can there be a second question, one which possibly could be argued in the negative in some circumstances, namely, notwithstanding there being a single supply, should the tax treatment of the principal be necessarily inflicted on the ancillary? The ratio in Primback does not concern a derogation applicable only to one member State nor was there, in that case, any relevant exception in conflict with an exemption.
In Telewest Communications plc and Anor –v- Commissioners of Customs & Excise Sir Francis Ferris, 19th December 2003, Ch/2003/APP/0197, Sir Francis dealt with a case involving a supply of television services by cable by a set of regional companies and a supply of television listing magazines by way of an agency agreement between those regional companies and a related company, "Publications". The overwhelming majority of the magazines were distributed by or for the regional companies to their subscribers without any separate charge being made over and above the monthly subscription for the TV services. Sir Francis held that for contractual and VAT purposes there was but a single supply, one made by the regional companies, and that was no less so because the regional companies had employed Publications as the means of supplying the magazines as part of it. But, at paragraph 88 and thereafter, he dealt, obiter, with what the case would have been had there been, for VAT purposes, a supply of the magazines by Publications ancillary to the supply of television services by the regional companies. He held, after relying upon passages in Wellington Private Hospital supra and also Nell Gwynne House Maintenance Fund Trustees –v- CCE [1999] STC 79, that where supplies are made by a different supplier they cannot be fused together to make a single supply. Even leaving aside that Sir Francis’ observations were obiter, I do not see them assisting on the issue before me as to whether a finding of a single transaction inescapably brands the ancillary element with the tax treatment appropriate to the dominant or principal. Nor am I in that respect assisted by Kimberly-Clark Ltd –v- Commrs. of Customs & Excise per Lloyd J. 27th June 2003 Ch/2002/APP/963 (nappies in a plastic toy-box) which, while concerned with a single supply, was not concerned with the possibility of any express exception such that the VAT-rating could differ as between the constituent parts of the single supply.
Whilst I was taken to many other authorities decided before CPP in the ECJ, that decision did mark a significant clarification and I have thought it best to seek to find the present state of the law (on a subject as to which, as Mr Cordara explained, the law has wavered and changed over the years) from cases decided after CPP. However, there remains one ECJ authority decided before CPP on which Mr Cordara heavily relies. That is Skatteministeriet –v- Henriksen [1990] STC 768 ECJ. The Court was there concerned with Article 13B of the Sixth Directive which required member States to exempt from VAT the leasing of immovable property but excluded from that exemption the letting of premises and sites for parking vehicles. The domestic Danish law, after including the exemption from VAT, added "However, tax shall be payable on …. the letting of sites for ….. parking …….". Mr Henriksen was owner or lessee of a block of individual closed garages which had been erected in conjunction with a building development of houses. Some of the garages he let to occupiers of the houses but others to other persons in the neighbourhood. He did not own any of the houses. Did his lettings of the garages fall within the general exemption as to lettings of immovable property or within the exception from the exemption as to sites for parking? The ECJ held that if a letting of a garage or parking site was "closely linked" to, so that it was one single economic transaction with, the letting of immovable property used for another purpose such as a residential house, where the letting of the residence was exempt, then the letting of the garage or site was also to be exempt and did not fall within the exception to the exemption.
In Henriksen the letting of the houses could only have been by way of a different dealing to the lettings of the garages as Mr Henriksen was not in a position to be a lessor of any of the houses. The ECJ was saying that if the two dealings, albeit by different suppliers, were closely linked they could, for the particular purposes of that exemption, be treated as one. The ECJ was faced with a provision such that a transaction could, in point of language, be within the exemption, as a letting of immovable property and within the exception to the exemption, as the letting of premises for parking. Did distinctions have to be drawn between, for example, flats let with closed garages as part of the one letting and flats let with only a parking space or with a space or garage acquired at the same time as the flat but by way of a separate letting? The ECJ was able to escape from difficulties of construction by saying that as different member States had expressed the subject in different ways the Court’s recourse was, instead, not to be to construction but to the broad purposes of the Sixth Directive – see paragraph 11 page 774. It is difficult to see the case as laying down some significant principle intended to be of wide application outside the very particular subject with which it was dealing, namely residential property, garages and parking spaces. I cannot think, for example, that there is any Community-wide principle that supplies by separate suppliers, if only they are "closely linked", are necessarily one single supply for tax purposes. Mr Cordara said that the case illustrates that transactions which, were they to be separately regarded, would be, as to part, a standard rate supply and, as to another part, an exempt or zero-rated supply, are not, if properly to be regarded as a single supply, to be split into their component parts and that they are thus, as to both parts, to attract one unified tax treatment rather than more than one. I would see it only as a case that illustrates that such a result can be arrived at where the ECJ sees, on the particular facts, a particular reason for so deciding when regard is paid to the broad purposes of the Sixth Directive. It was, as I read it, crucial to the case that it was dealing with a conflict in which, in point of construction, there were going to be wide and substantial anomalies as to what was within the exemption and what within the exception to the exemption. That is not the case before me. Whilst there may be difficulties in drawing a line at some points between a United Kingdom caravan and its removable contents, it is not possible to inflate them into social or economic Community-wide problems which the broad purpose of the Sixth directive has to be called upon to solve in the way that such was needed for garages and parking spaces in Henriksen.
Drawing these authorities together, I would be prepared to assume that where a transaction includes a principal, dominant or core element and one or more ancillary ones which, separately regarded, would have attracted a tax rate different to that of the principal, it will, as a general rule, ordinarily be a consequence of their treatment as if within a single transaction, where that is appropriate, to ascribe to the ancillaries the tax rating of the principal. However, I do not see the authorities as requiring that general rule (to use an expression used in other litigation) to be "the ace of trumps", a winning hand in all cases quite irrespective of whatever is put up against it. No authority (and the assumed general rule is at most only Judge-made) requires that it is of such high value that it is necessarily determinative even where there is a convincing reason to disapply it. There may, in other words, be circumstances, in my judgment, in which, even within a single transaction, different tax treatments may be applicable. After all, it is accepted that within a single transaction an apportionment of consideration may be required and, as I have noted, CPP’s reference to an "artificial" split would seem to leave open the door to a "natural" one. But, of greater force towards regarding the assumed general rule as not of inevitable application, is Mr Anderson’s argument as to Schedule 8 Group 9 coming into our domestic legislation as a derogation.
The argument is as follows. Article 12 (3) of the Sixth Directive specifies the standard rate of VAT and makes provision in some cases for reduced rates. Article 28 (2A) provides, so far as relevant:-
"Notwithstanding Article 12 (3), the following provisions shall apply during the transitional period referred to in Article 28 l.
Exemptions with refund of the tax paid at the preceeding stage and reduced rates and lower than the minimum laid down in Article 12 (3) in respect of the reduced rates, which were in force on the 1st January 1991 and which are in accordance with community law, and satisfy the conditions stated in the last indent of Article 17 of the Second Council Directive of the 11th April 1967, may be maintained."
The last indent of Article 17 provided, so far as relevant:-
"With a view to the transition from the present systems of turnover taxes to the common system of Value Added Tax, member States may:-
………..
……….
– provide for reduced rates or even exemptions with refund if appropriate of the tax paid at the preceding stage when the total incidence of such measures does not exceed that of the relief supplied under the present system. Such measures may only be taken for clearly defined social reasons and for the benefit of the final consumer, and may not remain in force after the abolition of the imposition of tax on importation and the remission of tax on exportation in trade between member States."
It is accepted in the Community that, in economic terms, exemption and the United Kingdom’s form of zero-rating will commonly have an equivalent fiscal result – see e.g. EC Commission –v- United Kingdom [1988] STC 456 ECJ per the Judge Rapporteur at page 458 c-e. Prior to that case and as far back as 1981 the Commission had raised with the United Kingdom Government the propriety of zero-rates in certain cases. Discussion with the Commission followed and the Commission withdrew its objections to zero-rating of some of the categories that had been in issue but adhered to its observations in respect of some others. The ECJ was required to rule on the categories left in dispute. There is nothing to suggest that the zero-rating of static caravans, which goes back to 1972, was challenged by the Commission and I agree with Mr Anderson that it is reasonable to assume that zero-ratings in place before 1988 but not then challenged were seen by the Commission to be inoffensive and acceptable in Community terms. The unchallenged ones, including as to static caravans, can be taken, so to speak, to have survived the Community test. Amongst the zero-ratings challenged were those headed "Construction of buildings etc." which included an exemption of builders’ materials similar, though not identical, to that to be found in the current domestic legislation. The ECJ held that within the zero-rating headed "Construction of buildings" the provisions relating to residential buildings were acceptable. At its paragraph 36 at page 474 the ECJ said:-
"With regard to buildings intended for housing, the Commission’s arguments cannot be upheld. The measures adopted by the United Kingdom in order to implement its social policy in housing matters, that is to say facilitating home ownership for the whole population, fall within the purview of "social reasons" for the purposes of the last indent of Article 17 of the Second Directive.
By applying a zero-rate to the activities comprised in Group 8 with regard to housing constructed by Local Authorities and by the Private Sector, the United Kingdom has not, therefore, contravened the last indent of Article 17 of the Second Directive."
As for the reference to "clearly defined social reasons" in the last indent to Article 17, at its paragraphs 12-15 the ECJ at page 472 said:-
"The concept of ‘clearly defined social reasons’
With regard to the first condition, that is to say that exemption may be granted only for clearly defined social reasons, the parties are agreed that the determination of their own social policy is a matter for the discretion of the member States. They accept, however, that that discretion may be subject to supervision at the Community level.
In particular the United Kingdom accepts that the Commission may challenge a measure where the social reason cannot be said to be sufficiently ‘clearly defined’, where the social reason advanced cannot justify the measure or if the measure lacks proportionality. The Commission states that by ‘social reasons’ it understands measures which are introduced primarily for general social purposes and not principally for industrial, sectoral or fiscal reasons; it accepts, however, that it may not challenge measures taken in pursuance of a member State’s social policy unless it can be shown that the social policy is not sufficiently clearly defined or that the measures in question either are not justified by or are disproportionate to the social reasons advanced.
The identification of social reasons is in principle a matter of political choice for the member States and can be the subject-matter of supervision at the Community level only in so far as, by distorting that concept, it leads to measures which because of their effects and their objectives and their true objectives lie outside its scope.
The phrase ‘for the benefit of the final consumer’
The Commission regards as ‘final consumers’ those persons who stand at the final stage in the manufacturing and commercial chain and have no right to deduct VAT, that is to say non-taxable persons."
It follows from the zero-rating of caravans being taken to have survived the Community test in 1981-1988 that the Commission accepted or was not willing to challenge that such zero-rating was an implementation of a social policy supported by clearly defined social reasons. Exactly what the domestic legislature had in mind on the original enactment in 1972 is not anywhere stated but it is easy enough to suppose that it was a part of the broad social policy of facilitating home ownership for the whole population to which the ECJ referred. But why, then, did Parliament except from that zero-rating the removable contents of the caravans? There is no ground for supposing that the exclusion was for no purpose or with some unacceptable purpose in mind and, that being so, it can only have been that Parliament either saw no clearly defined social purpose to include the removable contents within the zero-rating or had discerned some social purpose such as required their exclusion. Parliament, acting within its discretion to determine and implement social policy, saw fit to zero-rate the caravans but either could not justify the zero-rating of their removable contents or saw specific social reasons to require their exclusion. Again, it is not difficult to find such a relevant social purpose; householders do not commonly in the United Kingdom find their hair-dryers, trouser-presses, percolators, kettles, towels and soap supplied, with their television, along with their zero-rated houses but pay VAT in respect of their supply and it could or would introduce both social and fiscal distortions if dwellers in static caravans were otherwise treated.
If the removable contents of a static caravan, by way of their being ancillary goods within the principal supply of the zero-rated caravan, were to be such that they had to receive the same tax treatment as that caravan, as Mr Cordara argues, then, argues Mr Anderson, the single supply notion would have created a zero-rating that not only is against the will of the domestic legislature (which specifically exempted the removable contents) but also would pro tanto have created a zero-rating which, although requiring for its legitimacy a clearly defined social reason so found at least by the domestic legislature, either had no such support for its existence or was such that the domestic legislature had in mind a social purpose such that required that it should not exist. If the single supply general rule which I have assumed has no possible exceptions then a trader, simply by including otherwise standard-rated goods within a principal zero-rated supply, can create zero-ratings which Parliament (left, by the derogation and within broad parameters, as the sole arbiter in such an area) could not create and which it had chosen not to. I cannot see either such an ad hoc creation of unsupported zero-ratings nor the fiscal result of yet more avoidance of the default position - tax at the standard rate – to be acceptable either to the Community or at domestic level. I thus answer the questions I posed in paragraph 8 above in the negative as to the compound question and, as to the rest, that if there is a general rule as there described, it admits of exceptions and the facts here fall within one.
The Learned Tribunal Chairman held that the Appellant manifestly made a single supply to each of its customers but then raised, properly in my view, the question of whether all the elements of a single supply must necessarily share the treatment of whichever of those elements can be identified as the dominant. He held that there is no such necessity. I agree; if there is a general rule it has to have exceptions if unacceptable consequences are to be avoided. Moreover, for the reasons I have given, I regard the clear terms of Note (a) to Group 9 to amount to an exception. The Learned Chairman held that the removable contents took their tax "colour" (there adopting the term used by Ward L.J. in Hartwell supra) not from the supply of the caravan but, as he put it, from the legislation, meaning from Note (a)). In my judgment the removable contents, as was also the Chairman’s view, should be standard-rated where that would have been the rate otherwise applicable to their supply.