Sea Containers Ltd v Commissioners of Customs and Excise

The issue was whether in providing catering on its day excursions and charters within the UK the appellant was making a single composite zero-rated supply of transport or whether it was making mixed supplies of transport and catering which were taxable at different rates.

The appellant was the representative member of the VAT group of which Venice Simplon-Orient-Express Ltd ("VSOE"), the operator of the British Pullman trains, was a member. VSOE operated British Pullman in the UK and Orient Express in Continental Europe. It provided additional transport services to the public, including day excursions in the UK and travel and travel packages to Venice via Paris. It also provided train charters to travel companies and to businesses for corporate entertainment. The day excursion consisted of individuals who boarded the train at London Victoria and travelled to Folkestone. There, passengers continuing on to the Continent disembarked. Excursion passengers, who had the option of temporarily disembarking at Folkestone, made the return trip to London. A three-course lunch with champagne and wine was served to all passengers on the journey to Folkestone and afternoon tea was served during the return journey to London. The day excursion lasted approximately four hours and the inclusive price was £145. The train charters were made to tour operators who put together their own packages and were normally charged the advertised price of a day excursion less a 20 per cent discount. The charter price was inclusive of food and drink. On average, the cost to VSOE of providing food and drink on an inclusive charter was 16.9 per cent of the total cost of providing the charter. Some charters were for journeys which took place over a route which was not one of the recognised VSOE train paths, in which case the charter price quoted was a fixed price for operating the train and a separate food and drink charge, dependant on the number of passengers travelling and the menu chosen. The appellant's brochure for the excursions laid emphasis on comfort and elegance with excellent cuisine, fine wines and attentive service, all being suitable for a special occasion. The appellant had accounted for tax separately on food and drinks supplied on day excursions and charters and it made claims for the repayment of VAT by way of voluntary disclosures going back to 1986. On 30 and 31 December 1997, Customs ruled that the tax reclaimed was in respect of standard-rated catering and had been correctly accounted for. However, they accepted that in respect of passengers travelling in the UK to and from the Continent there had not been separate supplies of food and beverages and they repaid the tax referable to those supplies.

The appellant contended that the supplies in issue were single zero-rated supplies of transport, from which the food and drinks consumed had no separate identity from the train journey. An indication of this was that the cost of catering was approximately 16.9 per cent of the total cost of an excursion. It argued that if catering constituted a separate service the two services were nevertheless so closely linked as to constitute a single supply. This was so even when prices were quoted separately for transport and for catering. The separate treatment accorded to supplies made to passengers travelling to and from the Continent on the same train illustrated the illogicality of Customs' position and amounted to unlawful discrimination contrary to the European Convention on Human Rights.

The commissioners contended that VSOE was making separate supplies which should be taxed at the proper rate attributable to the nature of the supply. The catering was a significant element of the package and part of the reason why a customer or a tour operator booked the British Pullman. It was physically and economically dissociable from transport and an entirely different activity. Catering was not a necessity during a journey lasting for somewhat less than four hours. Where the splitting of the price was genuine, as in the instant case, it was not permissible to join the separate services together as one supply. There was nothing unusual or lacking in logic in the different types of travellers receiving different tax treatment according to the nature of the supply.

Held, dismissing the company's appeal:

1. Looking at all the circumstances, including those in which an inclusive price was charged, VSOE was making two supplies, those of transport and catering. Neither dominated the other and both were truly complementary.

2. In the context of the relevant importance of each supply, it should be pointed out that the costings given by the appellant were misleading, in that the total costs included a number of what might properly be called common elements: commission, on-board staff, on-board materials, reception, general management, depreciation, marketing, sales and reservations which together made up some 53-55 per cent. Another way of looking at the position was the fact that the cost of the haulage was about 13 per cent, with around another 14 per cent going on depot and routine servicing, maintenance and engineering management.

3. The comparison made by the appellant between a British Pullman passenger and an Orient Express passenger was quite false. There were real and substantial distinctions between the two which entitled the commissioners to base their decision to treat them differently.

4. The tribunal's conclusion that VSOE was supplying its customers with two distinct principal services was not altered byCard Protection Plan Ltd v C & E Commrs VAT(Case C-349/96) [1999] BVC 155, which had been delivered following the hearing of the appeal, but before the decision was issued.