Colaingrove Ltd (Appellant Appellant) v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Lindblom,Lord Justice Henderson |
| Judgment Date | 04 May 2017 |
| Neutral Citation | [2017] EWCA Civ 332 |
| Docket Number | Case No: A3/2016/0213 |
| Date | 04 May 2017 |
| Court | Court of Appeal (Civil Division) |
[2017] EWCA Civ 332
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Hildyard
Royal Courts of Justice,
Strand, London, WC2A 2LL
Lady Justice Arden
Lord Justice Lindblom
and
Lord Justice Henderson
Case No: A3/2016/0213
Roderick Cordara QC (instructed by PricewaterhouseCoopers LLP) for the Appellant
Jeremy Hyam QC (instructed by HMRC's Solicitor's Office) for the Respondents
Hearing dates: 7 February 2017
Approved Judgment
The issue on this appeal is whether the reduced rate for VAT on supplies of fuel applies where the supply of fuel would otherwise be treated for VAT purposes as part of a larger supply of other goods or services, and VATable at the rate applicable to those goods or services. It is common ground that this is the sole issue and that it falls to be determined as a matter of the interpretation of the relevant domestic legislation, namely Group 1 in Schedule 7A to the Value Added Tax Act 1994 (" VATA"). The relevant legislation is set out in the Appendix to this judgment. Schedule 8 deals with zero rating for VAT purposes.
The appellant owns a holiday park with static caravans. It had a contract with the Sun newspaper to provide caravan holidays to Sun readers (" Sun holidaymakers"). It was a term of the holiday let that the customer would pay a sum for accommodation in the caravan and using its facilities, including electricity for lighting and cooking and so on. The electricity was a minor part of the charge for the supply of the accommodation in the caravan, which carried VAT at the normal rate. Under the general principles of VAT law, laid down in C-349/96 Card Protection Plan ("CPP") [1999] 2 AC 600, the supply of electricity was, subject to any special provision, treated as part of a single, composite supply ("a composite supply") of accommodation taxable at the rate for that supply.
There is a reduced charge for the supply of domestic fuel or power in VATA ("the fuel charge"): see section 29A, which incorporates Group 1 of Schedule 7A ("Group 1"). A feature of the fuel charge is that it is defined by reference to the use of fuel, which must be domestic use.
However, the respondents ("HMRC") determined that the fuel charge did not apply as the electricity was supplied as part of the holiday let.
The appellant appealed from the determination of HMRC to the First-tier Tribunal ("FTT"), who disagreed with HMRC's determination and allowed the appeal. The FTT held, because of the further decision of the European Court of Justice (now the Court of Justice for the European Union or "CJEU") in C-94/09 EC v France ("the French Undertakers case"), that CPP did not apply. Supplies could be taxed at separate rates where it was clear that Parliament intended this result, as it had done in Schedule 7A.
In the French Undertakers case, France had applied a reduced rate of VAT, which under EU legislation member states could apply to funeral services generally, only to that element of the service performed when the funeral undertakers transported the body. The CJEU accepted that, where permitted by EU legislation, member states could apply a reduced VAT rate on an individual item of a single supply, subject to the principle of fiscal neutralitiy.
It is common ground that EU legislation permits member states to elect to tax the supply of fuel at a reduced rate. (There is some disagreement between the parties as to precisely which option to derogate applies, but that point does not matter in this case). The UK took advantage of this option by enacting the fuel charge.
The FTT went on to hold that the individual element of a single composite supply of electricity had to be a "concrete and specific" aspect of the larger supply. The FTT found that that requirement was satisfied in this case. It held:
Put shortly, these provisions seem to us to indicate that, quite apart from the expectations of a typical consumer of the supply as to what he/she was enjoying by receiving the supply, Parliament has provided for other criteria to apply in determining the nature of a supply of domestic fuel and power which is chargeable at the reduced rate. We agree with Mr Cordara that these provisions indicate Parliament's intention that a supply of fuel or power may qualify to be taxed at the reduced rate by reference not only to the nature of what is supplied (the 'characteristics of the goods or services themselves' – see: section 29A(4) VATA) but also by reference to the beneficial social purpose to be achieved by the supply – for example, the supply of gas or electricity in whatever quantity for use in self-catering holiday accommodation or a caravan (see: Note 6, Group 1, Schedule 7A, VATA).
The result was that the appellant was only liable to VAT on the supply of electricity at the lower rate.
The FTT considered that that conclusion preserved the principle of fiscal neutrality and avoided the distortion of competition.
HMRC appealed to the Upper Tribunal ("UT").
Before its appeal was heard, the UT (Vos J) decided in Wm Morrison Supermarkets plc v Revenue and Customs Commissioners [2013] STC 2176 that the French Undertakers case was not relevant because VATA imposes no specific restriction on the application of the reduced rate for domestic fuels. Wm Morrison concerns the supply of a barbeque with charcoal. Charcoal carries VAT at a reduced rate. Vos J held that the French Undertakers case can only apply where the domestic legislation makes specific provision for the reduced rate to apply to a concrete and specific situation.
Following that decision, HMRC's appeal to the UT was limited to the single issue that the fuel charge on its true interpretation does not authorise the reduced rate where the supply forms part of a single composite supply (UT Judgment, paragraph 38).
In its judgment dated 10 March 2015, the UT (Hildyard J) disagreed with the FTT and by its order reversed that of the FTT. In terms of general approach, the UT applied the decision in AN Checker Heating & Service Engineers v HMRC [2013] UKFTT 506 (" Checker"). In that case, HHJ Paines QC decided that it had to be clearly shown that Parliament intended a reduced rate for energy-saving materials to apply to a composite supply of those and other materials ([28]–[43]). The UT held that Section 29A of VATA did not clearly use the word "supply" in its sense of a single, composite supply as found by applying the principles of the jurisprudence of the CJEU, and that therefore there was no mandate for the reduced rate of VAT to be charged on an element of a composite supply. The key paragraphs in the UT's judgment are the following:
88 Despite the lucidity of Mr Cordara's arguments, and their initial appeal in general terms, I have eventually concluded that (as identified in AN Checker) the stumbling block is the combined effect of the CPP line and the provision (both in the former section 2(1A) and the current section 29A of the VAT Act) that a reduced rate of VAT may only be charged on a "supply that is of a description for the time being specified in Schedule 7A".
89 As to the CPP line, I have been persuaded by Vos J's exegesis of the cases in WM Morrison that neither the French Undertakers case nor the other CJEU cases he addressed ( French Republic, Talacre, Zweckverband and Purple Parking) 'trump' or oust the CPP analysis. I agree that the two lines of cases concern different questions: the CPP line being concerned with "defining the nature of transactions for VAT purposes" consistently with the general principle of a uniform rate and the requirement of fiscal neutrality, the French Undertakers line being concerned whether and within what confines Member States can "identify specific aspects of what would otherwise be a single supply and treat them as falling inside or outside an exemption or reduced rate". I must therefore construe the provisions of the VAT Act consistently with the CPP line.
90 As to section 29A of the VAT Act, notwithstanding the attraction of Mr Cordara's submission that 'supply' has no special or autonomous meaning, and that the emphasis in item 5 of Schedule 7A on the domestic use of the electricity as being the qualifying characteristic attracting a reduced rate, it is still necessary to determine whether an element of what the CPP line requires to be treated as a single complex supply is itself a 'supply' within the meaning of the section.
91 I have been persuaded by the analysis in AN Checker that there is at least doubt that this was Parliament's intention, that the doubt is increased by the fact that Parliament should be taken as being aware of the distinction by then drawn in the cases between a supply and its component or ancillary elements, and that the benefit of such doubt as there may be must fall in favour of a strict interpretation.
92 Applying together the logic of the CPP line and the actual wording of section 29A of the VAT Act, the 'supply' (being, in line with the CPP case, the single complex supply of serviced accommodation) is not a supply specified in Schedule 7A, even though a supply of electricity to such accommodation is.
The appellant appeals to this Court.
Appellant's submissions
The appellant's case is essentially that EU law permits a member state to apply a reduced rate to an individual element of a composite supply, that this is also permitted by Group 1 on its true interpretation, and that this interpretation is consistent with fiscal neutrality and fulfils the intention of Parliament in enacting the fuel charge.
EU law
Mr Roderick Cordara QC, for the appellant, submits that EU case law is clear that a member state can...
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