British Telecommunications Plc v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | LORD SLYNN OF HADLEY,LORD NICHOLLS OF BIRKENHEAD,LORD HOPE OF CRAIGHEAD,LORD CLYDE,LORD HUTTON |
| Judgment Date | 01 July 1999 |
| Judgment citation (vLex) | [1999] UKHL J0701-1 |
| Date | 01 July 1999 |
| Court | House of Lords |
[1999] UKHL J0701-1
HOUSE OF LORDS
Lord Slynn of Hadley
Lord Nicholls of Birkenhead
Lord Hope of Craighead
Lord Clyde
Lord Hutton
My Lords,
British Telecommunications Plc. ("B.T.") buys a large number of motor cars annually from different manufacturers. The cars are delivered by transport companies on behalf of the manufacturer to B.T.'s premises or at its direction. There is thus no intermediate wholesale or retail dealer. B.T. pays input value added tax to the manufacturer on the cost of transport and delivery; it seeks to set this off against its liability for output tax. Whether it is entitled to do so, and the commissioners contend that it is not, depends on whether the supply of the car and the provision of the transport are separate supplies for VAT purposes, or whether there is one supply of a delivered car. In the former case, B.T. can deduct the input tax paid on transport costs; in the latter, it cannot. The value added tax tribunal by decision released on 10 April 1996 and the Court of Appeal [1998] S.T.C. 544 in its judgment of 18 March 1998 for different reasons found that B.T. could deduct the input tax; Dyson J. [1997] S.T.C. 475 on 5 February 1997 held that it could not.
By article 2 of the Sixth VAT Directive (Council Directive of 17 May 1977 388/EEC/77):
"The supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such" is subject to Value Added Tax.
By article 5: "'Supply of goods' shall mean the transfer of the right to dispose of tangible property as owner" and "'supply of services' shall mean any transaction which does not constitute a supply of goods" (article 6). The place of supply of goods is deemed to be, in the case of goods dispatched or transported, the place where the goods are at the time when dispatch or transfer to the person to whom they are supplied begins (article 8); the place "where transport services are supplied shall be the place where transport takes place, having regard to the distances covered" (article 9(2)(b)).
Title VIII is headed "Taxable Amount" and by article 11:
"A. Within the territory of the country 1. The taxable amount shall be: (a)in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies; … 2. The taxable amount shall include: (a)… (b)Incidental expenses such as commission, packing, transport and insurance costs charged by the supplier to the purchaser or customer. Expenses covered by a separate agreement may be considered to be incidental expenses by the Member States."
In respect of imported goods, paragraph B3 (as amended) provided:
"The taxable amount shall include, insofar as they are not already included: … (b)incidental expenses, such as commission, packing, transport and insurance costs, incurred up to the first place of destination within the territory of the importing Member State."
Although the commissioners' decision rejecting B.T.'s claim and therefore the transactions to which it relates, occurred before the VAT Act 1994 came into force, it is convenient to refer to that Act, a consolidating Act (as the VAT tribunal did), rather than to the Act of 1983, since there are no material differences.
By section 19(2) of the Act of 1994:
"If the supply is for a consideration in money its value shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration."
and by section 21(2)(b):
'For the purposes of this Act the value of any goods imported from a place outside the member states shall be taken to include the following so far as they are not already included in that value in accordance with the rules mentioned in Subsection (1) above, that is to say:…
all costs by way of commission, packing, transport and insurance up to the port or place of importation.'
The Value Added Tax (Input Tax) Order 1992 (S.I. No. 3222 of 1992) made pursuant to section 14(10) of the Act of 1983 (section 25 of the Act of 1994) (which empowers the Treasury to provide for the exclusion from any credit in respect of input tax of any specified supplies) provides that:
"7–(1)Subject to paragraph (2) below tax charged on: (a)the supply to a taxable person; (b)… (c)… of a motor car shall be excluded from any credit under section 14 of the Act."
It is thus clear that if what happens here is simply the supply to B.T. as a taxable person of a motor car, there can be no deduction of input tax paid on any part of the supply.
In relation to article 11 A(2)(b) of the Sixth Directive, two questions were much discussed before the tribunal and on the two subsequent appeals. The first was whether this article had been incorporated into national law; the second, if it had, what was its effect?
The tribunal considered that no reliance could be placed on this article, since it had not been incorporated into the VAT Act, which merely spoke in section 19 of the value of a supply for consideration in money as being "equal to the consideration" plus the VAT chargeable. This was to be contrasted with section 21(2)(b) dealing with importations which, ignoring the point up to which the costs were relevant, repeated the words of article 11 B(3)(b): "commission, packing, transport and insurance."
Parliament, it is argued, had thus not provided for transport costs to be included in the taxable amount in respect of transactions other than importations and it was not justified to read general references to "consideration" as including transport costs as they were specifically mentioned in section 21.
I agree with Dyson J. that this was an incorrect reading of section 19. "Consideration" includes all the incidental expenses incurred and paid for in return for the supply, just as it includes all taxes and duties which are not mentioned in section 19 either, though they are mentioned in section 21(2)(a) of the Act of 1994. There is no justification for interpreting the legislation as if Parliament intended to comply with its obligations under the Directive in respect of imports, but not in respect of internal supplies.
It does not, however, follow that if this is so the commissioners are necessarily right in the result. The heading of Table VIII in which article 11 appears is "Taxable Amount" and paragraph A(2) begins "The taxable amount shall include …" It does not provide that transport is or is deemed to be part of any particular supply of goods or services any more than it provides that packaging and commission are part of such supplies. Like Nourse L.J., I fully agree with the statement of Mr. P.M. Horsfield, Q.C. in Plantifor Ltd. v. Customs and Excise Commissioners (1997) VAT Decision 14848 at p. 16, para 4.1 that:
"Prima facie, therefore, Article 11 A has nothing to do with the identification of a supply, but operates, when the supply has been identified, [under the earlier titles of the Sixth Directive] to quantify the taxable amount in respect of the supply …"
The question thus remains, as under the Order of 1992, as to whether there was here simply "the supply … of a motor car."
The tribunal and Dyson J. set out the main provisions of the six contracts for the supply of motor cars from the six manufacturers to B.T. which had been taken as samples. I refer to those decisions without repeating all the details of the contracts. There are differences between the terms contained in the contracts made by Rover, Vauxhall, Citroën, Ford, Land Rover and Peugeot, but there are some common threads. Thus B.T. has the ability to order the number of cars it requires and they are to be delivered to B.T. In the case of all but Ford and Peugeot the delivery charge, or a group of charges including the delivery charge, are separately stated in the contract, though there is considerable divergence between the amounts charged. No separate delivery charge is specified in the agreements with Ford and Peugeot, though the invoices produced show a separate delivery charge by each of them. In the case of Ford, the contract price is said to include the cost of delivery, but the invoice specifies a charge for delivery. There are other internal inconsistencies–the delivery charge on the invoice is not always that specified in the contract and in the case of Vauxhall, the making of a delivery charge pursuant to a provision in the appendix to the contract appears to be inconsistent with the provision of clause 5.2, that "the prices payable by B.T. shall be inclusive of all non-returnable packing, delivery and all other charges associated with the goods." So with Citroën, one clause provided for a composite charge, including delivery, and another clause provided that the price payable shall be inclusive of delivery and other charges. In the case of Rover, although the contract provided for a specific delivery charge, the invoice showed only a total price and no specific charge for delivery. All of the contracts except that of Land Rover had what is called an entire agreement clause providing for variations only in writing.
On the basis that the question to be asked was: "What was the consideration for the payment he received? Was it a supply of goods, to which the supply of the services was ancillary [or incidental], or was it a supply of services, to which the supply of goods was ancillary [or incidental]? Or did he make two supplies?" ( Customs and Excise Commissioners v. Leightons Ltd. [1995] S.T.C. 458 at p. 462), the...
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