British Airways Plc v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 28 March 1996 |
| Date | 28 March 1996 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Mr. Andrew Park Q.C. and Mr. David Milne Q.C. (instructed by the solicitor for British Airways plc) for British Airways plc.
Mr. John Laws (instructed by the Solicitor of Inland Revenue) for the Crown.
Before: Otton J.
The following cases were referred to in the judgment:
Associated Provincial Picture Houses Ltd. v. Wednesbury CorporationELR[1948] 1 K.B. 223
British Railways Board v. C. & E. Commrs. VAT(1977) 1 BVC 116
C. & E. Commrs. v. The Automobile Association VAT(1974) 1 BVC 8
C. & E. Commrs. v. Scott VAT(1977) 1 BVC 139
Mander Laundries VAT(1973) 1 BVC 1008
Value added tax - Composite supply - Tickets sold for domestic flights within UK included provision of catering without additional charge - Whether catering supplied for consideration - Whether composite or multiple supply - Whether catering an integral part of supply of air transport.
This was an appeal by British Airways from the decision of a VAT Tribunal VAT((1987) 3 BVC 592) that, in providing refreshments on domestic flights within the UK, two separate supplies were made: one of transport, zero-rated by the Value Added Tax Act 1983, Value Added Tax Act 1983 schedule 5 group 10Sch. 5, Grp. 10, and one of catering, subject to VAT at the standard rate by virtue of the exception in Value Added Tax Act 1983 schedule 5 group 1Grp. 1 (food).
On most domestic flights British Airways provided refreshments at no extra charge as indicated in their timetables and advertising material. The policy of providing refreshments was adopted for commercial reasons to compete with other airlines and because the passengers expected it.
The chairman of the Tribunal asked himself: what in substance and reality did a passenger pay for; did he pay for a supply of transport of which the in-flight catering was an integral part for VAT purposes or for two separate supplies, one of transport and one of catering?
The Tribunal concluded that there were two separate supplies, part of the price of a ticket being consideration for refreshments which were not to be regarded as provided free of charge.
British Airways contended that the catering was a supply otherwise than for a consideration and was thus not within the charge to VAT by virtue of Value Added Tax Act 1983 section 3 subsec-or-para (2)sec. 3(2)(a) of the 1983 Act. However, even if catering was supplied for a consideration as part of the price of a ticket, it was, as a matter of law, incidental to and an integral part of the supply of transportation. In considering that question the Tribunal had posed the wrong question, asking what the passenger paid for rather than what was supplied.
The Crown contended that the question whether there was one composite supply or two separate supplies was a question of fact only reviewable if the Tribunal's conclusion was shown to be unreasonable, and British Airways had failed to show unreasonableness. If the question was one of law, the Tribunal had approached it correctly. At best, British Airways had shown that the catering facilities were incidental to the main supply of transport which was not sufficient to treat the transport and catering as one supply. British Airways had to show that the supply of catering was "necessary" or "integral" to the provision of transport.
Held, allowing the taxpayer's appeal:
1. The question was one of law, not dependent on what the passengers thought they were paying for, but on the legal effect of the transaction. (Dicta of Lord Denning M.R. and Browne L.J. in British Railways Board v. C. & E. Commrs. VAT(1977) 1 BVC 116at pp. 119, 121, followed.)
2. It was not essential to show that catering was a "necessary" ingredient for it to be regarded as integral to the supply of transport. However, it was not enough to show that it was merely "incidental".
3. Part of the price of a ticket was consideration for refreshments but, since the catering was in substance and reality an integral part or component of the supply of transportation, only one supply was made.
British Airways plc appealed against the decision of a London VAT Tribunal given on 29 June 1987. The grounds of appeal were as follows:
(2) The Tribunal erred in law in holding that British Airways made two separate "supplies" within the meaning of the Value Added Tax Act 1983 to each of its passengers on domestic flights, rather than a single "supply" of transportation.
(3) The Tribunal's conclusion that "in substance and reality" British Airways' passengers, in paying for their tickets, were paying for both a "supply" of transportation and a "supply" of in-flight catering was a conclusion to which no reasonable Tribunal could, on the facts set out in the said decision, have come.
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(4) The Tribunal erred in law in failing to give any or sufficient weight to the following facts set out in the said decision:
(a) the prices of the tickets to each destination were the same whatever the in-flight catering provided;
(b) each passenger paid the full amount required for his ticket whether or not he wanted or took advantage of the in-flight catering;
(c) if, for any reason, the in-flight catering was not provided on any flight, the amounts paid or payable for the tickets were not reduced, British Airways' evidence being that it was not under any contractual obligation to provide in-flight catering of any particular quality or at all.
(5) The Tribunal erred in law in holding that because catering is not a necessary ingredient of all supplies of transport, this gives weight to the argument that in-flight catering constituted a separate "supply".
Otton J.: This is an appeal by British Airways plc, the taxpayer, from the decision of a VAT Tribunal which dismissed an appeal by the taxpayer against the decision of the Commissioners of Customs and Excise dated 29 June 1987. In essence, the Tribunal held that British Airways had made two taxable supplies under the Value Added Tax Act 1983; firstly, a supply of transport, which is zero-rated; and, secondly, a supply of in-flight food and drink or catering facilities chargeable at the standard rate. The Tribunal rejected the British Airways contention that there was only one composite supply; namely, transport, and thus no VAT was chargeable at all. The facts out of which the assessment arose can be briefly stated.
British Airways carries on the business of transporting passengers and freight by air and is registered as a taxable person withinValue Added Tax Act 1983 section 1sec. 1 of the 1983 Act. The airline offers over 1000 flights a week within the UK. They include:
(2) Super Shuttle flights from and to Heathrow or Edinburgh, Glasgow, Manchester and Belfast;
(3) Main Line flights between London and Aberdeen and London and Newcastle;
(4) regional flights linking cities in England and Scotland and Northern Ireland;
(5) flights serving other Scottish destinations.
The type of ticket varies from the Super Shuttle, which is the cheapest where there is no designated flight, to the most expensive where the traveller can arrive up to ten minutes before departure time and a seat will be provided. The various types of ticket are set out fully in the Tribunal's decision. Nothing turns on this evidence, and I need not refer to it in detail. On practically all its domestic flights, the airline endeavours to provide in-flight catering for passengers. On odd occasions due to breakdown of administration arrangements or adverse weather conditions, the facility cannot be provided. Nothing turns on that.
It is recorded in the decision that on domestic flights there is provided a bar service and a beverage and biscuit service except that, on flights leaving before 9.30 a.m., it provides a breakfast service. On flights between London and Aberdeen, it provides meals at other times as well. In its timetables and other advertising matter British Airways indicates the in-flight catering to be provided during the flight. This is done by a series of conventional symbols.
Passengers on British Airways flights pay the amounts determined for travelling to their destinations according to the types of tickets which they obtain, but pay nothing additional for or in respect of the in-flight catering provided to them during the flights. No part of the moneys paid or payable by the passengers is expressly attributed to the in-flight catering which they will or may receive. Indeed, Art. 13 of the general conditions of carriage of the airline states:
Paragraph 1, Meals, etc. in aircraft.
Meals served in the aircraft will be free of charge…
Those matters are not in dispute.
I turn briefly to consider the relevant statutory provisions. I do not need to cover them all but merely to highlight one or two of them. Under sec. 3(2):
Subject to any provision made by [Schedule 2 to this Act] and to Treasury orders under subsections (3) to (6) below -
(a) "supply" in this Act includes all forms of supply, but not anything done otherwise than for a consideration…
Section 10(4) provides:
Where a supply of any goods or services is not the only matter to which a consideration in money relates the supply shall be deemed to be for such part of the consideration as is properly attributable to it.
Section 16(2) provides:
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 5 to this Act or the supply is of a description for the time being so specified.
Turning to Value Added Tax Act 1983 schedule 6 group 1Sch. 5, Grp. 1, under "Food", one finds:
The supply of anything comprised in the general items set out below except-
(a) a supply in the course of catering…
Under Value Added Tax Act 1983 schedule 5 group 10Sch. 5, Grp. 10:
4. Transport of passengers-
(a) in any vehicle, ship or aircraft designed or adapted to carry not less than twelve...
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