Commissioners of Customs and Excise v Pippa-Dee Parties Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 08 June 1981 |
| Date | 08 June 1981 |
| Court | Queen's Bench Division |
Queen's Bench Division.
Mr. S. Aitcheson (for Mr. S. Brown) instructed by Mr. G.F. Gloak, Solicitor for Customs and Excise) appeared as Counsel on behalf of the appellants.
Mr. P.G. Whiteman Q.C. and Mr. T.R. Mowschenson (instructed by Messrs. Hancock and Willis, Agents for Messrs. Wragge and Co., Birmingham) appeared as Counsel on behalf of the respondents.
Before: Ralph Gibson J.
Value added tax - Consideration not wholly in money - Taxpayer selling clothes through party plan system - Hostesses of parties entitled to cash commission and to use such cash commission to obtain clothes at a discount - Whether clothes supplied at a discount supplied for a consideration in money alone - Whether open market value proper measure of value of supply - section 10 subsec-or-para (3)Finance Act 1972, sec. 10(3) (now section 10 subsec-or-para (3)VATA 1983, sec. 10(3)).
This was an appeal by the Crown against the decision of the Manchester Value Added Tax Tribunal allowing an appeal by Pippa-Dee Parties Ltd. ("the taxpayer company") against an assessment to value added tax on the supply of a garment at a discount to a hostess, providing services to the taxpayer company in its selling operation, made on the basis that the open market value of the garment represented the correct value of the supply.
The taxpayer company specialised in selling women's and children's clothing through a party plan scheme. "Hostesses" held parties in their own homes at which clothing was displayed and orders taken. The hostesses were entitled to a cash commission according to the value of orders received and, at their option, could use the cash commission to purchase clothing at a discount price. The amount of discount allowed in relation to cash commission was set out in tables and if the value of clothing purchased exceeded the discount entitlement the excess was charged at full retail price. The Customs decided that a garment purchased by a hostess at a discount using the cash commission she had earned was chargeable to tax on the open market value and not on the amount of the cash discount. The taxpayer appealed contending that in exercising her option the hostess entered into a second contract with the taxpayer company separate and distinct from the contract which she had for holding parties, and that the sole consideration for the second contract was the cash commission earned by her so that the assessment should be based on the actual amount of money paid by the hostess under the section 10 subsec-or-para (2)Finance Act 1972,sec. 10(2). The Tribunal upheld the taxpayer company's contention and allowed the appeal. The Crown appealed.
Held, allowing the Crown's appeal:
"Consideration" for the supply of goods within the meaning of the section 10Finance Act 1972, sec. 10 must be something capable of being described as consideration within the ordinary rules of English law. On the facts of the case the consideration for the supply of the garment was the contract under which the hostess held the party and obtained the rights to cash commission or discount against the retail price of the garment according to her choice. The consideration given by the hostess for the supply to her of the garment by the taxpayer company was not in law the amount of the cash commission only. If the service of providing the party had not been provided, the garment could not have been sold for that sum. It followed that the supply of the garment was not a consideration consisting wholly of money and therefore fell to be determined under the section 10 subsec-or-para (3)Finance Act 1972, sec. 10(3) at the open market value.
Ralph Gibson J.: This an appeal by the Customs and Excise Commissioners against a decision of a VAT Tribunal given in Manchester on 8 August 1979. The decision of the Tribunal allowed the appeal of Pippa-Dee Parties Ltd., the respondent company, against the decision of the Commissioners.
The dispute is over the value, for VAT purposes, of the supply of garments by the company to certain people who provide services to the company in their selling operations.
The appeal lies, of course, on law only under section 13sec. 13 of the Tribunals and Inquiries Act 1971 and O.55 of the Rules of the Supreme Court.
Those selling operations of the company are described in the decision of the Tribunal, in these words:
The business of the Appellant [the Company] is the sale of women's and children's clothing and is conducted on the "party plan" system: this system is operated by the Appellant's self employed representatives on an area basis, who are termed "organisers". The organisers obtain the services of "hostesses", who are willing to make available the facilities of their homes, invite guests from among their friends and acquaintances and give parties at which the organiser may display to the guests samples of the Appellant's merchandise which the guests may then order through the hostess. A hostess who holds a party for the Appellant receives a cash commission based on the value of the orders placed by the guests at her party. A hostess entitled to a cash commission may then exercise an option to use the cash commission to which she is so entitled to purchase at a substantial discount garments produced by the Appellant: such option is explained in a brochure issued by the Appellant entitled "Pippa-Dee Party Time" in which the relevant passage reads:
"HOSTESS COMMISSION AND SPECIAL HOSTESS DISCOUNT SCHEME: In appreciation for being one of our special hostesses, we are pleased to offer you a cash commission on the value of orders placed by the guests at your party. Furthermore, as a token of our gratitude you may then, if you wish, use all or part of your cash payment to purchase goods under our special HOSTESS DISCOUNT SCHEME which allows you to buy our garments at greatly reduced prices. The value of the goods you may buy is related to your cash payment. The "Hostess Commission Table" I have shown you sets this out, with Column A showing the amount of your cash payment and Column B showing the retail value of goods which may be bought under the scheme (equivalent to 121/2% of guests' order values exclusive of value added tax). The value of goods in excess of your discount entitlement will be charged at retail prices."
The hostess commission table shows the following figures, of which we take as an example a party at which the value of orders placed by the guests amounts to £100: in such a case the cash commission to which the hostess is entitled is shown in Column A as being £4.57 which may, at the option of the hostess, be compounded for goods of the retail value of £11.67 shown in Column B.
The Tribunal considered the questions raised by the appeal by reference to the hypothetical example which they stated: namely, a party producing orders to the value of £100, in which case the cash commission would be £4.57 and the discount scheme retail value £11.67.
The decision of the Commissioners which was under appeal related to a particular transaction in which the company supplied to a...
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