British Railways Board v Coustoms and Excise Commissioners
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE BROWNE,SIR JOHN PENNYCUICK |
| Judgment Date | 01 April 1977 |
| Judgment citation (vLex) | [1977] EWCA Civ J0401-3 |
| Date | 01 April 1977 |
| Court | Court of Appeal (Civil Division) |
[1977] EWCA Civ J0401-3
In The Supreme Court of Judicature
Court of Appeal
(Civil Division)
(On appeal from an Order of The Divisional Court Queen's Bench Division)
The Master of the Rolls (Lord Denning)
Lord Justice Browne and
Sir John Pennycuick
In the Matter of the Finance Act 1972
and
In the Matter of an Appeal against a Decision of the Value Added Tax Tribunal sitting at London made under Section 40 of the abovementioned Act on a Question as to the Value Added Tax chargeable on a certain Supply of Services made by British Railways Board:
Mr. B. PINSON, Q.C. and Mr. J. GARDINER (instructed by Mr. D.H. Regnier) appeared on behalf of the Appellants.
Mr. H. WOOLF (instructed by The Solicitor, H.M. Customs and Excise) appeared on behalf of the Respondents.
(in his absence, Judgment read by Lord Justice Browne):
Value Added Tax is a new thing. It was introduced in England so as to bring us into accord with the taxing system in the Common Market. It was imposed by the Finance Act, 1972, which contains all the principles relating to it. It is imposed, not only on goods, hut also on services. Everything which is not a supply of goods is a supply of services: see section 5 (8). It is charged as a percentage (25 per cent. or 10 per cent. or 8 per cent.) of the price or charge and is added to it; and the trader is accountable to the Revenue for it. The statute provides, however, for some goods and services to be "zero-rated", that is, to be charged nothing: see section 12; and for others to be "exempt" from the charge altogether: see section 13.
We are here concerned with a claim that a particular supply of services should be zero-rated. It arises out of the special arrangement for student travel. In 1973 the British Railways Board found that many students were travelling by coach rather than by rail: because the coaches were cheaper - indeed almost half the fares on the railway. In order to meet this competition the Railways Board in 1974 promoted a scheme by which a student should pay £1.50 down and in return get a right to travel half-fare for the next six months. The question is whether V.A.T. is chargeable on the £1.50, or not.
The statutory provisions are as follows:
Section 9 (1): "….tax shall be charged at the rate of ten per cent.; and shall be charged - (a) on the supply of goods or services, by reference to the value of the supply…."
Section 12 (1): "Where a taxable person supplies goods orservices and the supply is zero-rated, then…. no tax shall he charged on the supply…."
Section 12 (2): "A supply of goods or services is zero-rated…. if the goods or services are of a description for the time being specified in Schedule 4 to this Act or the supply is of a description for the time being so specified".
Schedule 4. "Zero-rating". "Group 10 - Transport". "Item No. 4. Transport of Passengers. (a) in any vehicle, ship or aircraft designed or adapted to carry not less than twelve passengers…."
The particular facts are these. Miss Patricia Mary Owen had her home in Bridgwater, Somerset; hut she was a third-year student at a College in London University. She went to the office of a student organisation in Euston Road, and asked for a student travel-ticket. She was changed £1.65, including V.A.T. Of this sum £1.00 plus 10p V.A.T. was paid to the British Railways Board and 50p plus 5p V.A.T. was retained by the student organisation as commission. Miss Owen was issued with a student identity card. It specified the conditions. The first one said: "….upon presentation of a valid Student Identity Card together with a properly completed request form at station ticket office, single/return tickets are issued to the student named on the card at a special reduced price, which will normally be half the second-class ordinary adult price appropriate to the required journey".
The Revenue admit that no V.A.T. is payable on the half-fares which Miss Owen pays for her rail tickets when she travels. These half-fares are zero-rated because they are for the "transport of passengers" by the Railways Board. They claim that V.A.T. is payable on the £1.50 which she pays for her student identity card.
The V.A.T. Tribunal held that V.A.T. was payable on the £1.50. They regarded it as a question of fact which they formulated in thisway: "For what, in substance and as a question of fact, did Patricia Mary Owen pay her £1.50 plus 15p tax? Was it for the right to travel by rail? or was it for the right to obtain tickets to travel by rail at the reduced prices?….. There can only be one answer…. It was not for the supply of the service of transport in a train, but for the right to obtain supplies of such a service at reduced prices. That does not fall within Item 4 of Group 10".
The Divisional Court upheld that decision, saying: "This is a matter of fact for which the Tribunal below is the final authority".
I do not myself think that it is a matter of fact for the Tribunal We are told that some Tribunals hold that V.A.T. is payable on these sums of £1.50 paid by students: and that other Tribunals hold that it is not payable. That will never do. Either V.A.T. is payable on all these sums of £1.50, or on none of them. It cannot depend on the state of mind of any individual student by asking him or her: What did you pay the £1.50 for? It must depend on the legal effect of the transaction considered in relation to the words of the statute. And that is a question of law.
The error can, I think, be traced back to the first cases to come before the Divisional Court about V.A.T. The decisions themselves are perfectly good, but the observations have given rise to difficulties. They are the A.A. case and the Alpine Club case, reported in (1974) 1 Weekly Law Reports at pages 11447 and 1456. In each case an association had many members. Each member paid a subscription each year. Let us say £5. In return he became entitled to several publications free of charge, such as, the handbook of the associatior and the quarterly bulletin. He also got other benefits, such as the right to use the club premises and to attend meetings arranged by the association. Now the literature was zero-rated. It came under Schedule 4, Group 3, headed "Books, etc." But the otherbenefits were not zero-rated. They were liable to V.A.T. The Revenue argued that the whole of the £5 subscription was liable to V.A.T. It was paid for membership of the association - as a separate right in itself - and not for the literature. The Divisional Court rejected that contention. They held that the £5 was paid for the supply of the composite services - the literature which was zero-rated - and other benefits which were liable to V.A.T. And that there should be an apportionment of the £5 so as to ascertain how much of the subscription was to be zero-rated and how much was liable to V.A.T. For instance, £4 might be zero-rated as being paid for the literature and £1 would be liable to V.A.T., being paid for the other benefits.
I see no reason to doubt the correctness of those two decisions: but the difficulty arises from the way it was put. The Tribunal had posed this question: What does a member get for his subscription? The Lord Chief Justice said (at page 1458/E): "That is a perfectly proper approach, and clearly gives rise to a question of fact. There is no law in that at all". Now I quite agree that when it comes to apportioning the £5 - between the payment for literature and the payment for other benefits - that apportionment is a question of fact. But the earlier question: "What does a member get for his subscription?", is not a question of fact. It is a question of law. It does not depend on the personal situation of any particular member. One member of the A.A. may get a lot out of the other benefits and little out of the literature: or vice versa. The proper question is: What is the consideration for the payment of the subscription? The answer in the case of these associations is: It is the supply of the literature and the other benefits. In so far as literature is supplied, it is zero-rated. In so far as other benefits are supplied, they are liable to pay V.A.T. Apportionment is necessary to decide how much to each.
Other cases were cited to us, but I find them of little help.
I come back to the real question in this case: What did the Railways Beard supply in consideration of the £1.50 they received? Did they supply transport by rail? or only an option to buy tickets? To my mind they supplied transport by rail: and the £1.50 was part-payment for it. It is not correct to separate the £1.50 as if it was a separate payment for some separate service - separate from the travel by rail. The £1.50 is really part and parcel of the payment which the student makes for travelling on the railway. Just as a season ticket is payment in full in advance for travelling on the railway (whether the passenger uses it or not), so also this £1.50 is part-payment in advance. It is similar to the two-part tariffs which are so common nowadays for electricity, telephones, and so forth. There is a down-payment in advance, followed by subsequent payments in respect of the actual amount used. Sometimes the down-payment is a large proportion. At other times it is a small proportion. But, whichever it is, it is a part-payment in advance for the electricity or telephone, or as the case may be.
There is, of course, no apportionment available or possible. The £1.50 is either paid in consideration of transport by rail, or it is not. Seeing that the £1.50 is part-payment in advance for "transport of passengers", it falls to be zero-rated.
I would allow the appeal, accordingly.
I agree that this appeal should be allowed.
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