College of Estate Management v Revenue and Customs Commissioners

JurisdictionUK Non-devolved
JudgeLORD RODGER OF EARLSFERRY,LORD HUTTON,LORD STEYN,LORD WALKER OF GESTINGTHORPE,LORD CARSWELL
Judgment Date20 October 2005
Neutral Citation[2005] UKHL 62
CourtHouse of Lords
Date20 October 2005
College of Estate Management
(Respondents)
and
Her Majesty's Commissioners of Customs and Excise
(Appellants)

[2005] UKHL 62

Appellate Committee

Lord Steyn

Lord Hutton

Lord Rodger of Earlsferry

Lord Walker of Gestingthorpe

Lord Carswell

HOUSE OF LORDS

Appellants:

Rupert Anderson QC

Ms Nicola Shaw

(Instructed by David Hogg, Solicitor, HM Revenue and Customs)

Respondents:

Michael Sherry

Ms Louise Rippon

(Instructed by Thomas Eggar)

LORD STEYN

My Lords,

1

I have read the opinion of my noble and learned friend Lord Walker of Gestingthorpe. I agree with his analysis of the case. I would also allow the appeal.

LORD HUTTON

My Lords,

2

I have had the advantage of reading in draft the opinion of my noble and learned friend Lord Walker of Gestingthorpe. I agree with it and for the reasons which he gives I would also allow the appeal.

LORD RODGER OF EARLSFERRY

My Lords,

3

I have had the advantage of considering in draft the speech which my noble and learned friend, Lord Walker of Gestingthorpe, is to deliver. I agree with it but add some short observations of my own since the House is to allow the appeal while rejecting one of the main planks in the Commissioners' argument in support of it.

4

Article 13A(1)(i) of Council Directive 77/388/EEC ("the Sixth Directive") requires member states to exempt from value added tax inter alia young people's education and vocational training, including the supply of services and of goods closely related thereto, if provided by certain bodies. The United Kingdom has complied with this obligation by enacting section 31(1) of, and Group 6 in schedule 9 to, the Value Added Tax Act 1994 ("the Act") which make the provision by an eligible body of education an exempt supply (item no 1(a)). Also exempt (item no 4) is the supply by the eligible body of any goods or services, other than examination services, which are closely related to the provision of education, provided that the goods or services are for the direct use of the student receiving the principal supply. If, therefore, the only issue in a given case were whether the supply by an eligible body of printed course materials to its students was an exempt supply, a satisfactory answer might well be found simply by applying these provisions without analysing the situation more deeply. The issue in the present case is somewhat more complex, however.

5

Article 17 of the Second VAT Directive (67/228/EEC) and article 28 of the Sixth Directive permit member states to provide for exemptions, with refund of the tax paid at the preceding stage, for clearly defined social reasons and for the benefit of the final consumer. The United Kingdom has taken advantage of this permission by enacting section 30(1) and (2) of the Act, which introduce the concept of zero-rated supplies into our domestic law. Section 30(1) provides that 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 that section, no VAT is to be charged on the supply but it is to be treated in all other respects as a taxable supply, and the rate at which VAT is treated as charged on the supply is to be nil. In effect, therefore, if a taxable person makes a supply which is exempt but also zero-rated, the supply is to be treated as a taxable supply. The result is that the taxable person is entitled to deduct input tax which is attributable to that supply, whereas he would not be entitled to do so if the supply were merely an exempt supply. By virtue of section 30(2) and schedule 8, Group 3, a supply of books (item no 1) is zero-rated.

6

In the present case it is agreed that the College are an eligible body for the purposes of Group 6 in schedule 9 and that they provide education. It is also not in dispute that, as a matter of fact, the College send their students printed materials which they are expected to study. The College contend, accordingly, that they supply education in terms of section 31(1) and schedule 9, but that they also supply the students with books (comprising the printed materials), in terms of section 30(2) and schedule 8. By virtue of section 30(1), the supply of the printed materials should therefore be treated as a taxable supply and the College should be entitled to deduct the input tax attributable to that supply. The Commissioners do not dispute that the printed materials could constitute "books" for the purposes of schedule 8. They contend, however, that the College make only a single supply, viz a supply of education. That supply is exempt. Since there is accordingly no taxable supply, there is no basis for the College to recover input tax. The core issue in the appeal is, therefore, whether the College make a single (exempt) supply of education or whether they also make a distinct zero-rated supply of books to their students.

7

Broadly similar questions have come before the courts on many occasions and have generated a considerable number of reported decisions. Recently, however, in Beynon & Partners v Commissioners of Customs & Excise [2005] 1 WLR 86, 90-91, para 19, Lord Hoffmann drew attention to the restatement of principle by the Court of Justice in Card Protection Plan Ltd v Customs and Excise Commissioners ( Case C-349/96) [1999] 2 AC 601 and suggested that, in future, it would not be necessary to go back any further. He went on to cite paras 27-29 of the judgment of the Court of Justice and to quote para 30. Precisely because of the importance of the Court's statement of principle, the terms of those paragraphs require careful scrutiny.

8

In the English translation, [1999] 2 AC 601, 627, paras 29 and 30 read:

"29. In this respect, taking into account, first, that it follows from article 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, secondly, 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.

30. 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: Customs and Excise Commissioners v Madgett and Baldwin (trading as Howden Court Hotel) (Joined Cases C-308/96 and 94/97) [1998] STC 1189, 1206, para 24."

The last part of para 29 is a little surprising because it suddenly talks about the taxable person supplying several distinct "services" or a single "service", when up until then the question has been whether there has been more than one supply or just a single supply. Then, at the beginning of para 30, the court goes on to give, as one particular situation in which there is a single "supply", the case where one or more elements are to be regarded as constituting the principal "service", while one or more elements are to be regarded as ancillary "services" which share the tax treatment of the principal "service". Again, consistency, and the very nature of the legal problem, would suggest that, strictly speaking, the question is what constitutes a single "supply".

9

These slight anomalies in the analysis and language are not to be found in the French text, Recueil, p I-1013, points 29 et 30, which is, of course, the text drafted by the Court:

"29. A cet égard, compte tenu de la double circonstance que, d'une part, il découle de l'article 2, paragraphe 1, de la sixième directive que chaque prestation de service doit normalement être considérée comme distincte et indépendante et que, d'autre part, la prestation constituée d'un seul service au plan économique ne doit pas être artificiellement décomposée pour ne pas altérer la fonctionnalité du système de la TVA, il importe de rechercher les éléments caractéristiques de l'opération en cause pour déterminer si l'assujetti livre au consommateur, envisagé comme un consommateur moyen, plusieurs prestations principales distinctes ou une prestation unique.

30. Il convient de souligner qu'il s'agit d'une prestation unique notamment dans l'occurrence où un ou plusieurs éléments doivent être considérés comme constituant la prestation principale alors que, à l'inverse, un ou des éléments doivent être regardés comme une ou des prestations accessoires partageant le sort fiscal de la prestation principale. Une prestation doit être considérée comme accessoire à une prestation principale lorsqu'elle ne constitue pas pour la clientèle une fin en soi, mais le moyen de bénéficier dans les meilleures conditions du service principal du prestataire (arrêt du 22 octobre 1998, Madgett et Baldwin, C-308/96 et C-94/97, Rec, p I-6229, point 24)."

Here the usage is consistent and, at all stages, the question is identified as being whether the taxable person is making several distinct principal "supplies" (prestations) or a single "supply" (prestation). At the beginning of para 30 the Court says that it is useful to emphasise that there is a single supply (prestation) where one or more elements are to be regarded as constituting the principal "supply" (prestation) while one or more (other) elements are to be regarded as an ancillary supply or as ancillary "supplies" (prestations) which share the tax treatment of the principal service.

10

Many, perhaps...

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