Commissioners of Customs and Excise v Wellington Private Hospital Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 24 January 1997 |
| Date | 24 January 1997 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Kennedy, Millett and Hutchison LJJ.
David Milne QC and Rupert Baldry (instructed by Dibb Lupton Broomhead) for Wellington Hospital and St Martins Hospital.
Roderick Cordara QC and Perdita Cargill-Thompson (instructed by the Legal Department, BUPA).
Kenneth Parker QC (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgments:
British Airways plc v C & E Commrs VAT(1990) 5 BVC 97
Bophuthatswana National Commercial Corp Ltd v C & E CommrsVAT[1993] BVC 194
EC Commission v United Kingdom VAT(Case 353/85) [1988] ECR 817; (1988) 3 BVC 265
Rayner & Keeler Ltd VAT(1991) VATTR 532; [1991] BVC 1346
Webb v EMO Air Cargo (UK) Ltd WLR[1993] 1 WLR 49
Value added tax - Zero-rated and exempt supplies - Drugs and medicines - Private hospitals - Goods supplied in connection with provision of exempt health care and medical treatment - Drugs provided for patients by hospitals - Prostheses fitted by surgical intervention - Whether separate supply of goods or whether part of composite supply of medical or surgical treatment - Whether drugs were dispensed on the prescription of a medical practitioner - Value Added Tax Act 1983, s. 16(1), Sch. 5, Grp. 14, items 1, 2(a) and 7, Sch. 6, Grp. 7, items 1 and 4 (Value Added Tax Act 1994, s. 30(1), Sch. 8, Grp. 12, items 1, 2(a) and 7, Sch. 9, Grp. 7, items 1 and 4); sixth VAT directive (Directive 77/388) of 17 May 1977 (OJ 1977 L145/1), art. 13(A)(1)(b).
These were appeals by private hospitals against the judgment of Jowitt J ([1995] BVC 260) that drugs provided for in-patients in private hospitals and prostheses fitted by surgical intervention were exempt from VAT.
The three taxpayers all operated private hospitals. Each hospital provided patients with food and accommodation together with nursing services. It also provided operating theatres and ancillary services for the use of consultants, surgeons, anaesthetists and other professionals concerned who were not employed by the hospital but contracted directly with the patients in their care. All drugs, prostheses and other items used in the course of treatment were provided by the hospital and charged to the patient by the hospital.
Some BUPA patients took advantage of fixed price surgery, an inclusive price being charged for all the goods and services provided, including drugs. It was agreed that whether the patient was charged on a fixed price basis or otherwise made no difference to the application of VAT.
In each hospital drugs were kept in the hospital pharmacy as well as at various locations in the operating theatre and on the wards. All the drugs were monitored and under the control of a pharmacist. There were two ways in which drugs could be provided to a patient. The first, in the case of drugs used frequently, was from stock. The drug would appear on the patient's prescription sheet but there was no special dispensing in the name of the patient. The second way of providing drugs was when the pharmacist received a prescription from a consultant for a non-stock drug which he dispensed specifically in response to that prescription and in the name of the patient.
Operations involving the fitting of prostheses, such as artificial hip joints and pace-makers by surgical intervention were carried out in BUPA hospitals.
The issue common to all the appeals was whether drugs supplied to in-patients by private hospitals constituted a separate supply of goods to be zero-rated under the Value Added Tax Act 1983, Sch. 5, Grp. 14, item 1, rather than an integral part of a composite supply of hospital services, and if the answer to the first question was in the affirmative, whether drugs from stock were "dispensed on prescription".
In relation to the supply of prostheses, the question was whether the prostheses themselves and the services involved in fitting them were zero-rated by virtue of VATA 1983, Sch. 5, Grp. 14, items 2(a) and 7. The European Court of Justice had accepted that para. (b) of art. 13(A)(1), unlike para. (a), covered goods as well as services which were therefore exempt, but it was assumed that not all goods supplied in the course of or integral to hospital treatment were to be regarded as incidental to and indissociable from the supply of medical services so as to be subsumed within them.
The judge had held that if the supply of drugs and other articles by a hospital in the course of medical care fell within the exemptions provided by art. 13(A)(1)(b) of the sixth VAT directive they would be regarded as part of a single supply of exempt hospital services and had been so characterised by the Court of Justice in EC Commission v United Kingdom.
It was common ground that the supplies in issue were exempt from VAT, but, by virtue of s. 16(1) of the 1983 Act, that did not exclude the possibility that they were also zero-rated.
Held, allowing the hospitals' appeals by a majority (Kennedy LJ dissenting) and refusing to refer a question to the European Court of Justice:
1. The supply of drugs and other items by a hospital in the course of treating a patient had not been conclusively characterised as part of a single composite supply of medical services rather than separate supplies. The Court of Justice accepted that art. 13(A)(b) covered goods as well as services but that not all such supplies of goods were incidental to and indissociable from the supply of medical services. So, if the goods were separate, even if exempt, supplies, then they were capable of falling within the UK zero-rating provisions. The issue did not raise any question of Community law. The only question was whether, on the true construction of the relevant domestic legislation, which implemented art. 13(A)(1)(b) of the sixth VAT directive, drugs and prostheses were zero-rated. EC Commission v United KingdomVAT(Case 353/85) (1988) 3 BVC 265 explained and distinguished.
2. It was only if the assumption was made that "hospital treatment" was a single supply that the supply of drugs or prostheses could be regarded as an integral part of that supply. The reality was that care and treatment in hospital involved multiple supplies by different suppliers. In most cases, the actual drugs administered to the patient were charged to him and paid for in accordance with a price list, so that the total bill depended on the type and quantity of the drugs supplied. The drugs in question were physically and economically dissociable from the other items charged for. Accordingly, the supply of drugs and prostheses to hospital in-patients constituted a separate supply of goods for the purposes of VAT: British Airways plc v C & E Commrs VAT(1990) 5 BVC 97 distinguished andBophuthatswana National Commercial Corp Ltd v C & E CommrsVAT[1993] BVC 194 followed.
3. If the supplies in question formed part of "the provision of care or medical or surgical treatment" within the Value Added Tax Act 1983, Sch. 6, Grp.7, item 4, then the additional words "and, in connection with it, the supply of any goods" would then be empty of content. Parliament must be taken to have recognised that drugs and other items supplied to hospital in-patients in the course of treatment constituted a separate supply not already covered by the provision of treatment. Once drugs and other items supplied to hospital in-patients in the course of treatment were characterised as separate supplies, there was no reason for excluding them from the words "the supply of goods" in Sch. 5, Grp. 14, item 1.
4. In order to qualify for zero-rating under Sch. 5, Grp. 14, item 1, the drugs had to be "dispensed on the prescription" by a registered pharmacist on the prescription of a registered medical practitioner. "On the prescription" merely meant "in accordance with a prescription". In the ordinary way that meant "in accordance with an already existing prescription", but Parliament could not have intended to make the precise sequence of events determinative of the fiscal consequences. It would have needed much clearer language to achieve so capricious a result. But that point need not be decided, because even in the case of stock drugs, (and except in cases of emergency) the prescription did precede the dispensing. The pharmacist did not "give out" stock drugs when distributing them to the stations. They remained his responsibility, and they were still in his possession and under his control. The drugs were not therefore "dispensed" within the meaning of the Act until they were removed from the pharmacist's control by the nurse in accordance with a consultant's prescription.
5. In order to qualify for zero-rating under VATA 1983, Sch. 5, Grp. 14, item 2(a) a prosthesis had to be supplied to "a handicapped person for domestic or his personal use" and had to be a "medical or surgical appliance designed solely for the relief of a severe abnormality or severe injury". The patients to whom prostheses were supplied were handicapped persons, i.e. persons who were chronically sick or disabled and such items as artificial hip joints and pace-makers were "medical or surgical appliances". They were also "designed solely for the relief of a severe abnormality or severe injury". Even if Parliament did not have surgically fitted prostheses in mind when it enacted these provisions, the language was not sufficiently clear to create a genus to which the items in dispute did not belon g. Nor were prostheses excluded by the word "domestic". There was no reason to expect any fiscal significance to attach to the physical location of the appliance within or attached to the patient's body rather than outside it but in his home.
6. The supply of...
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