Commissioners of Customs and Excise v Ping (Europe) Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Robert Walker,Lady Justice Arden,Lord Justice Thorpe |
| Judgment Date | 31 July 2002 |
| Neutral Citation | [2002] EWCA Civ 1115 |
| Docket Number | Case No: A3/2001/1539 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 July 2002 |
[2002] EWCA Civ 1115
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (HART J)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Thorpe
Lord Justice Robert Walker and
Lady Justice Arden
Case No: A3/2001/1539
Mr Kenneth Parker QC and Mr Alun James (instructed by Solicitor for Customs & Excise) for the appellants
Mr David Milne QC and Mr Richard Barlow (instructed by Burton & Dyson) for the respondent
Introduction
This is a second appeal in a VAT case raising once again the vexed question of non-monetary consideration. The taxpayer is a company called Ping (Europe) Ltd ("Ping") which is an assembler and wholesale supplier of golf clubs with premises at Gainsborough, Lincolnshire. It has been registered for VAT purposes since 1992. The heads for the clubs which Ping assembles are provided by an associated American company, Karsten Manufacturing Inc ("Karsten"). Other components come from other sources.
The point at issue is a sequel to a dispute between Karsten and the Royal and Ancient Golf Club ("the R&A") as to whether a club head manufactured by Karsten, the Ping Eye 2 iron, infringed the rules of the R&A, with the consequence that it could not be used in competitions held under R&A rules. A fairly detailed account of the dispute is given in the written decision of the VAT and Duties Tribunal. At one stage it involved proceedings commenced by Karsten in Arizona against the R&A and others, claiming damages of $300m. But for present purposes the most important outcome of the dispute was that Karsten agreed to stop manufacturing and selling non-conforming clubs; the R&A declared a limited moratorium, ending in 1996, and apparently applying worldwide except for the USA and Mexico, which permitted continued use of non-conforming clubs in amateur competitions; and steps were proposed by Karsten and Ping, and agreed to by the R&A, to meet what the R&A's press release, quoted by the Tribunal, referred to as
"concern for golfers who incurred the substantial costs of purchasing clubs which are non-conforming and for whom the purchase of new clubs may be a financial hardship."
Ping offered each owner of non-conforming clubs (which the Tribunal and the judge referred to as 'old clubs') a choice, only one limb of which gives rise to a VAT question. That was that an owner of old clubs could surrender them and on payment of £22 (or £24 in the case of copperheaded clubs, but that variant can be ignored) for each club surrendered, obtain the supply of a new conforming club. That was the general shape of the offer; I shall have to come back to some of the details, and the Tribunal's findings of fact.
The VAT issue which has arisen concerns the monetary equivalent of the non-monetary element of the consideration in the transactions which took place (through retailers as agents) between Ping and those who accepted the offer and handed over old clubs. A new club cost Ping slightly less than £22. Its normal wholesale price was £49.99, and its recommended retail price was £72.
Before the Tribunal Ping contended, successfully, that the non-monetary consideration was nil, since the old clubs were worth nothing to Ping. The Tribunal regarded the facts as unique and unlikely to be repeated. The Commissioners of Customs & Excise appealed to the High Court, but on 27 June 2001 Hart J dismissed their appeal. In doing so he commented that although the transaction might, at one level of abstraction, have been unique, a manufacturer's recall of a defective product or component (such as a petrol pump in a car) was quite a familiar transaction.
The Commissioners have now appealed again with permission which I gave on paper. One factor influencing the grant of permission is that Hart J had been referred, among other authorities, to the decision of Carnwath J in Customs & Excise Commissioners v Bugeja [2000] STC 1, and since Hart J's decision Bugeja has been reversed by this court: see the four appeals, of which the first-named is Customs & Excise Commissioners v Littlewoods Organisation plc, reported at [2001] STC 1568. I shall refer to these as 'the Littlewoods appeals'.
The law
The relevant provisions of Community and United Kingdom legislation are set out in detail in paragraphs 2 to 7 of the judgment of the court, delivered by Chadwick LJ, in the Littlewoods appeals. For the present it is sufficient to refer, as Hart J did below, to parts of section 19 of the Value Added Tax Act 1994 ("the 1994 Act") and of Article 11A of the Sixth Directive (EC Council Directive 77/388 of 17 May 1977).
Section 19 of the 1994 Act provides as follows:
"(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.
…
(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 fall to 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."
Article 11A provides
"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 …(d) 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 to a supplier at arm's length within the territory of the country at the time of the supply under the conditions of fair competition to obtain the services in question.
…..
3. The taxable amount shall not include:
(a) price reductions by way of discount for early payment;
(b) price discounts and rebates allowed to the customer and accounted for at the time of the supply …"
In the judgment of this court in the Littlewoods appeals Chadwick LJ added this comment about 'open market value':
"Sections 19(5) may be read in conjunction with Sch 6 to the 1994 Act, which contains provisions which enable the Commissioners … 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 the transaction is equal to the monetary consideration actually paid for the supply, or, where the supply is for a consideration not consisting or not wholly consisting of money, the monetary equivalent of the consideration (see s 19(2) and (3) of the Act)."
Chadwick LJ then embarked (paragraphs 8 to 49) on a long and detailed exposition of the principles established by the Court of Justice in a series of important appeals, starting with Staatssecretaris van Financien v Cooperatieve Aardappelenbewaarplaats GA [1981] ECR 445. This was one of the first cases in which the Court of Justice articulated the principle that the consideration for a supply of goods or services is to be arrived at by a 'subjective' valuation, in the sense (as Chadwick LJ put it at paragraph 14) that
"The inquiry excludes any valuation which is independent of the actual transaction; that is to say, any valuation based on criteria which are not those adopted by the parties themselves."
Chadwick LJ then referred to the rather more recent decisions of the Court of Justice in Naturally Yours Cosmetics Ltd v Customs & Excise Commissioners [1988] STC 879 and Empire Stores Ltd v Customs & Excise Commissioners [1994] STC 623 and to the decisions of this court in Rosgill Group Ltd v Customs & Excise Commissioners [1997] STC 811 and Customs & Excise Commissioners v Westmorland [1998] STC 431. Those were all cases in which an individual who might be loosely described as an intermediary (the beauty consultant who got a hostess to hold a sales party in Naturally Yours, the party hostess herself in Rosgill, a mail order customer who introduced a friend in Empire Stores, and a coach driver who stopped with a full coach at a service station in Westmorland) obtained goods or services either without payment (the 'free gift' in Empire Stores or the free meal in Westmorland) or on special terms (£1.40 in Naturally Yours for a pot of skin cream with a normal wholesale value of £10.14, or £20.76 in Rosgill for a blouse which normally retailed at £27.99).
Those cases (and others concerned...
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