Commissioners of Customs and Excise v Diners Club Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE WOOLF,LORD JUSTICE RALPH GIBSON,LORD JUSTICE DILLON |
| Judgment Date | 03 March 1989 |
| Judgment citation (vLex) | [1989] EWCA Civ J0303-2 |
| Docket Number | 89/0244 |
| Court | Court of Appeal (Civil Division) |
| Date | 03 March 1989 |
[1989] EWCA Civ J0303-2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL. CIVIL DIVISION
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MR JUSTICE KENNEDY
Royal Courts of Justice
Lord Justice Dillon
Lord Justice Ralph Gibson
Lord Justice Woolf
89/0244
CO/457/87
and
MR G.R. BRETTEN Q.C., and MISS F. STOCKTON (instructed by Messrs Allen and Overy) appeared on behalf of the appellants (respondents).
MR J. MUMMERY (instructed by the Solicitor for the Customs and Excise) appeared on behalf of the respondent (appellant).
This is an appeal by Diners Club Ltd. ("Diners") and Cardholder Services Ltd. ("CSL"). CSL is an associated company of Diners and, as is well-known, both companies operate charge and credit card businesses.
The Issue
The issue on this appeal is whether the appellants in conducting their respective businesses make exempt supplies for the purposes of Value Added Tax ("VAT") when they make a payment to retailers of the amount of the charges, less a discount, incurred by holders of their cards when using those cards to acquire goods or services from retailers.
The Commissioners of Customs and Excise contend that they do make exempt supplies. The appellants contend they do not. The VAT Tribunal, in a decision given by its Chairman, Lord Grantchester CBE QC ([1987] V.A.T.T.R. 10), decided (accepting the argument of the appellants) that they do not do so, but the opposite view was taken by Kennedy J. in his judgment of 12th February 1988 which is now under appeal.
The issue is of considerable practical importance to the appellants and other credit card companies as is indicated by the amount involved in the three specimen assessments which are the subject of this appeal. Each of those assessments is dated June 1986. The first and second concern Diners and are respectively in the sums of £20,763.58 for the period 1st April 1985 to 30th June 1985 and £196,370.20 for the period 1st July 1985 to 31st March 1986. The third assessment relates to CSL and is in the sum of £8,824.57 in respect of the period 1st April 1985 to 30th June 1985.
The 1st April 1985 is the date on which the Value Added Tax Act 1983 was amended to refer specifically in a note to credit card, charge card or similar payment card operations.
The explanation for the Commissioners adopting what at first sight appears to be a surprising role of seeking to establish that the supplies are exempt is explained by the fact that if the supplies are exempt this reduces the proportion of the input tax which the appellants are entitled to recover on taxable supplies made to them (see s. 14 and s. 15 of the 1983 Act and the VAT (General) Regulations S.I. 1985/886).
When considering the relevant statutory provisions, it is helpful to have in mind, in general terms, the arguments of the appellants and the Commissioners of Customs and Excise. The appellants argue that the payments they make to the retailers are for the purchase by them of the debts incurred by their card holders ("members") when they use cards to pay for goods or services. The appellants do not pay the full amount of those charges but the charges less a discount, which is in accord with what happens under a factoring agreement where a factor acquires the debts of a retail company with a view to recovering those debts from a customer. On this argument the supply is not made by the appellants but by the retailers who sell the debts.
The position is explained clearly in a short passage from the decision of Lord Grantchester, at p. 23, in which he gives his reasons for rejecting an argument of the Commissioners:
"In my view the arrangements between Diners and CSL and their respective Authorised Retailers are basically factoring arrangements. Diners and CSL buy the rights of the Authorised Retailers to receive cash payments for goods and services supplied. A sale of a debt for a payment in cash is prima facie, for tax purposes, in my opinion, a supply by the vendor and not by the purchaser. There appears to me to be nothing in the arrangements before me to indicate that such approach should not be adopted in this case".
The Commissioners, on the other hand, contend that the discount from the amount of the charges is the consideration for the appellants supplying the retailers with the benefits of their credit or charge card operations which include assuring the retailers that they will receive payment and in fact making the payment of the money due in respect of goods or services which retailers have supplied to members who have used their cards for acquiring goods or services.
The Relevant Statutory Provisions
Turning to the statutory provisions to which it is necessary to refer I commence with s. 1 of the 1983 Act which provides:
"A tax to be known as value added tax, shall be charged in accordance with the provisions of this Act on the supply of goods and services in the United Kingdom..…"
The scope of the tax is dealt with in s. 2. It is only necessary to refer to subsection (1), which provides:
"Tax 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".
As there is a dispute between the parties as to whether there is any relevant supply made by the appellants s. 3 is important since it describes what is meant by a "supply". It is only necessary to cite subsection (2):
"(2)….
(a) 'Supply' in this Act includes all forms of supply, but not anything done otherwise than for a consideration.
(b) Anything which is not a supply of goods but is done for a consideration (including, if so done, the granting, assignment or surrender of any right) is a supply"·
As Griffiths J. said in Customs and Excise Commissioners v. Oliver [1980] 1 All E.R. 354:
"There is no definition of 'supply' in the Act itself, but it is quite clear from the language of the Act that 'supply' is a word of the widest import".
The width of what is a supply for VAT purposes is made clear by s-s. 3(2)(b) insofar as it refers to "anything" "done for a consideration". However, I accept Mr. Bretten's submission that the word "supply" must still be read in the context of the other provisions of the Act and in particular s. 1, and that while it would be possible to regard any payment of money as being a supply, for the purpose of the tax the payment of money by itself as the consideration for the price of goods or services supplied to the payer does not normally constitute a supply by the payer. It follows that if the transactions between the appellants and their retailers are correctly categorised in the way the appellants contend, then the appellants do not make a supply for a consideration to their retailers when they pay them the sum due for charges incurred by their retailers. It is the retailers who make a supply to them by assigning the debts and the sums paid by the appellants are the consideration for those supplies.
So far as the time of supply is concerned, it is sufficient to refer to s. 4(3), which states:
"(3)…. a supply of services shall be treated as taking place at a time when services are performed".
It is s. 17 of the Act which deals with exempt supplies. It states that a supply will be exempt "if it is of a description for the time being specified in Schedule 6 to this Act".
Schedule 6 is divided into various groups and it is Group 5, which is headed "Finance", which is the group which is relevant Group 5 is divided into seven items but it is only necessary to refer to Item 1 and Item 5 and Note 4.
"Item No.
1. The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money.
…….
5. The making of arrangements for any transaction comprised in item 1,…..
Notes:
(4) This group includes any supply by a person carrying on a credit card, charge card or similar payment card operation made in connection with that operation to a person who accepts the card used in the operation when presented to him in payment for goods or services".
It was Note 4 which came into operation in 1985 · The part played by Notes in the Act is dealt with in s. 48, which provides that:
"Schedules…. 6 to this Act shall be interpreted in accordance with the notes contained in those Schedules;"
The terms of Note 4 make it clear that some payments by card companies to their retailers are intended to be treated as supplies which are exempt. However, the way the policy which is to be discerned from the Note has been implemented means that the Note only has effect when it can be properly said that there is something which is done for a consideration by a card company which, in accordance with s. 3(2), is to be regarded as a supply for VAT purposes.
Mr. Bretten in his clear, concise and helpful submissions argues that the agreements which the appellants made with their respective retailers and members make it clear that the appellants are not making such supplies. However, he recognises that if the appellants had chosen to conduct their operations in a different manner they could be regarded as making such supplies. It is therefore necessary to look with some care at the contractual arrangements which the appellants make with their retailers and members.
The Contractual Arrangements
In re Charge Card Services Ltd [1988] 3 W.L.R. 764 the Court of Appeal had to consider the consequences of a charge card operator going into liquidation. Sir Nicolas Browne-Wilkinson V-C., in a...
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