Commissioners of Customs and Excise v Littlewoods Organisation Plc
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE CHADWICK |
| Judgment Date | 26 October 2001 |
| Neutral Citation | [2001] EWCA Civ 1542 |
| Docket Number | Case No: A3/1999/1319, A3/2000/0144, |
| Court | Court of Appeal (Civil Division) |
| Date | 26 October 2001 |
[2001] EWCA Civ 1542
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
Lightman J
Arden J
Carnwath J
Laddie J
Royal Courts of Justice
Strand,
London,
WC2A 2LL
Lord Justice Aldous
Lord Justice Chadwick and
Lord Justice Sedley
Case No: A3/1999/1319, A3/2000/0144,
A3/2000/2463, A3/2000/2970
A3/2000/2463
A3/2000/2970
A3/1999/1319
A3/2000/0023
A3/2000/2463:
A3/2000/2970:
A3/2000/1319
A3/2000/0144
David Milne QC & Penny Hamilton (instructed by Landwells for the Littlewoods Organisation).
Nigel Pleming QC (instructed by Solicitors to the Comissioners for Customs & Excise).
Kevin Prosser QC (instructed by KLegal for Lex Services).
Rupert Anderson (instructed by Solicitors to the Commissioners for Customs and Excise)
Philippa Whipple (instructed by Solicitors to the Commissioners for Customs and Excise)
James Henderson (instructed by Roodyn Manski for Bugeja).
John Walters QC and Michael Thomas (instructed by Wallace and Partners for Kuwait Petroleum (GB) Ltd).
Philippa Whipple (instructed by Solicitors to the Commissioners for Customs and Excise).
This is the judgment of the Court.
Three of these four appeals raise related questions as to the determination, for the purposes of the charge to value added tax, of the monetary equivalent of the consideration in respect of a supply of goods, where the supply is for a consideration not consisting or not wholly consisting of money. The fourth appeal was thought to raise a similar question and was listed for hearing (and was heard) with the others.
The legislative provisions
Value Added Tax first became chargeable in the United Kingdom upon the coming into force of Part I of the Finance Act 1972; following, and in order to implement, the First and Second Directives of the Council of the European Economic Community, issued on 11 April 1967, relating to "the harmonisation of legislation of Member States concerning turnover taxes". Those directives were supplemented (and, in some respects, superseded) by the Sixth Directive of 17 May 1977. But, in order to understand the reasoning in the early decisions of the Court of Justice, it is necessary to have certain provisions of the Second Directive in mind.
Article 2(a) of the Second Directive provided that:
"The following shall be subject to the value added tax:
(a) The supply of goods and the provision of services throughout the territory of the country by a taxable person against payment; …"
Article 8 was in these terms (so far as material):
"The basis of assessment shall be:
(a)
in the case of a supply of goods and the provision of services, everything that makes up the consideration for the supply of the goods or the provision of the services including all expenses and taxes except the value added tax itself; …"
Annex A provided, at paragraph 13, that:
"The expression 'consideration' means everything received in return for the supply of goods or the provision of services, including incidental expenses (packing, transport, insurance, etc.) that is to say not only the cash amounts and charges but also, for example, the value of the goods received in exchange or, in the case of goods or services supplied by order of a public authority, the amount of the compensation received."
Article 2 of the Sixth Directive replaced article 2 of the Second Directive. It is in these terms (so far as material):
"The following shall be subject to value added tax:
1. the supply of goods and services effected for consideration within the territory by a taxable person acting as such; …"
In that context "supply of goods" means, or includes, the transfer of the right to dispose of tangible property as owner – see article 5(1). Tax is chargeable on the occurrence of a chargeable event – see article 10(1). For present purposes it is sufficient to note that a chargeable event occurs when the goods are delivered – see article 10(2). Article 11A defines the taxable amount in relation to supplies within the territory – that is to say, the amount on which value added tax is payable at the rate applicable to transactions of the relevant kind. The article is in these terms, so far as material:
"(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;
…
(c)
in respect of supplies referred to in Article 6(3), the open market value of the services supplied.
'Open market value' of services shall mean the amount which a customer at the marketing stage at which the supply takes place would have to pay a supplier at arm's length within the territory or the country at the time of the supply under the conditions of fair competition to obtain the services in question.
(2) The taxable amount shall include:
(a) taxes, duties, levies and charges, excluding the value added tax itself;
(b)
incidental expenses such as commission, packing, transport and insurance costs charged by the supplier to the purchaser or customer….
(3) The taxable amount shall not include:
(a) price reductions for early payment;
(b)
price d iscounts and rebates allowed to the customer and accounted for at the time of supply; …"
The provisions of the United Kingdom legislation are now found in the Value Added Tax 1994. They are plainly intended to give effect to the Sixth Directive; and are to be interpreted with that in mind. Section 1 of the 1994 Act is in these terms (so far as material):
"(1) Value added tax shall be charged, in accordance with the provisions of this Act -
(a) on the supply of goods or services in the United Kingdom (including anything treated as such supply),..
and references in this Act to VAT are references to value added tax.
(2) VAT on any supply of goods or services is a liability of the person making the supply and (subject to provisions about accounting and payment) becomes due at the time of supply."
Section 2(1) of the Act provides that VAT shall be charged at the rate of 17.5 per cent (or at such other rate as may be in force from time to time) on the supply of goods or services "by reference to the value of the supply as determined under this Act".
Section 4(1) of the 1994 Act provides that VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him. In that context, a taxable person is a person who is, or is required to be, registered under the Act – see section 3(1); and a taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply – see section 4(2) of the Act. Section 5 applies schedule 4 for the purposes of determining what is, or is to be treated as, as a supply of goods or a supply of services. It is sufficient to note that, subject to any provision made by that schedule and to Treasury orders made under section 5(3) to (6), "supply" includes all forms of supply, but not anything done otherwise than for a consideration.
Section 19 of the Value Added Tax Act 1994 provides for the determination of the value of a supply of goods or services. The section is in these terms:
"(1) For the purposes of this Act the value of any supply of goods or services shall, except as otherwise provided by or under this Act, be determined in accordance with this section and Schedule 6 and for those purposes subsections (2) to (4) below have effect subject to that Schedule.
(2) 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.
(3) If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration.
(4) 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.
(5) For the purposes of this Act the open market value of a supply of goods or services shall be taken to be the amount that would be taken as its value under subsection (2) above if the supply were for such consideration in money as would be payable by a person standing in no such relationship with any person as would affect that consideration."
Section 19(5) may be read in conjunction with schedule 6 of the Act, which contains provisions which enable the Commissioners of Customs and Excise to direct that the value of a supply shall be taken to be its open market value where the person making the supply and the person to whom it is made are connected. The importance of the provision, in the context of the present appeals, is that it recognises that "open market value" is the exception to the general rule. The general rule is that the value of the supply is specific to the particular transaction which gives rise to the charge to tax. The value of the supply effected by that transaction is equal to the monetary...
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