David Baxendale Ltd and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 July 2013 |
| Neutral Citation | [2013] UKFTT 377 (TC) |
| Date | 04 July 2013 |
| Court | First Tier Tribunal (Tax Chamber) |
[2013] UKFTT 377 (TC)
Judge Roger Berner, Toby Simon.
Alun James and Michael Collins, instructed by Gabelle LLP, appeared for the Appellants
Brendan McGurk, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Procedure - striking out of proceedings - whether appellants' case had a reasonable prospect of succeeding - abuse of process - whether Court of Appeal decision in David Baxendale Ltd v R & C Commrs[2009] BVC 663 ("David Baxendale Ltd") was per incuriam or otherwise inconsistent with EU law - powers of tribunal to ignore otherwise binding decisions or make a reference to the European Court of Justice ("ECJ").
The First-tier Tribunal struck out the appellant's request to re-open a case where there has already been a decision of the Court of Appeal because there is no arguable case that the decision of the Court of Appeal in David Baxendale was per incuriam or otherwise inconsistent with EU law. The Tribunal is therefore bound by the Court of Appeal's decision and there is no basis under EU law why that decision should be ignored. There is also no arguable basis on which the First-tier Tribunal should make a reference to the CJEU. In addition, an appeal by David Baxendale Limited would have been an abuse of process, such that the Tribunal would have no jurisdiction in relation to those proceedings."
The taxpayers ("the company" and "Ms M", respectively) sold weight loss programme which consisted of supplying food packs and counselling to their customers. The then VAT and Duties Tribunal (in [2009] BVC 2086) held that those two elements constituted separate supplies, in respect of which the consideration paid by the customer should be apportioned. The supplies of the food packs were zero-rated, whilst the counselling services were standard-rated. That decision was reversed in the High Court ([2009] BVC 115), where Morgan J held that there was a single standard-rated supply of services.
In David Baxendale Ltd, the Court of Appeal upheld the High Court's decision. The Court of Appeal held that the ability for the counselling and the food packs to be separated from each other and supplied by different persons did not have the consequence that those elements could not be regarded as a single supply.
The taxpayers sought to make a new appeal to the Tribunal. They contended that both HMRC and the Court of Appeal in David Baxendale Ltd misunderstood the ECJ's decision in Tellmer, which resulted in overpayment of VAT. The decision of the Court of Appeal was per incuriam in the light of Tellmer. The Court of Appeal held that the tenants in Tellmer had a choice whether to receive cleaning from the landlord or from a third party, whereas, in David Baxendale Ltd, the customers had no choice to receive counselling or food packs from a third party. In Field Fisher Waterhouse, the established authority in respect of single supply was confined to the question of whether the supply consisted of a principal supply in relation to which the other supplies were ancillary. Relying on BGZ, the taxpayers argued that a mere complementary or re-enforcing connection between a supply of food and services that complemented it could not establish a single supply.
HMRC contended that the taxpayers' appeals amounted to an abuse of process as they sought to litigate the same matter a second time. Following the judgment in David Baxendale Ltd, application was made, both to the Court of Appeal and to the Supreme Court, for permission to appeal to the Supreme Court. Those applications were not produced to the Tribunal. However, the taxpayers either did or did not contend in those applications that the Court of Appeal had been in error in so far as it causatively misinterpreted the Tellmer decision.
The Tribunal held that in David Baxendale Ltd, Patten LJ's analysis of Tellmer was not fact-specific. In referring to the absence of "any necessary contractual link", Patten LJ was not making any reference to the facts of the taxpayer's own case in Tellmer. What he was saying was that according to Tellmer, in the absence of any necessary contractual link between letting and cleaning services in general terms, those services could not be regarded as economically indivisible. Tellmer was not laying down any broad principle that the ability to obtain supplies separately would mean that they could not be economically indivisible. As Patten LJ described, that depended on an analysis of the particular supplies in question. Tellmer was an example of the ECJ itself applying well-established principles. It was not a case that had established or introduced any further principle. On that basis, there was no manifested slip or error in the Court of Appeal's judgment in David Baxendale Ltd; hence, it was not per incuriam. That judgment was binding on the Tribunal.
Field Fisher Waterhouse was not a decision that created any new principle. It was particularly telling that despite the Tribunal's question being deliberately phrased in terms of Tellmer, the ECJ did not refer to Tellmer in its judgment. Rather, it proceeded to analyse the question before it by reference to the established authority. The clear message from Field Fisher Waterhouse was the same as could be derived from David Baxendale Ltd, namely, that the established authorities should be applied to each case according to its own facts. Referring to Card Protection Plan Ltd v C & E CommrsECAS (Case C-349/96) [1999] BVC 155, the Court in Field Fisher Waterhouse said that there was no absolute rule for determining the extent of a supply for VAT purposes. All the circumstances should be taken into consideration. Equally, the existence of a possibility that a third party could supply, in principle, certain services was not in itself decisive. Such a possibility was inherent in the concept of a single composite transaction. Thus, Field Fisher Waterhouse was supportive of the Court of Appeal's judgment in David Baxendale Ltd.
As to BGZ, the ECJ was merely making the point that the cases did not point to any particular decisive principles; every case was essentially fact-dependent. A necessary or inherent link between a supply of insurance and the item insured did not render that supply as one with the supply of the item. In David Baxendale Ltd, the conclusion was that the single package of food packs and support services was not economically divisible. The mere fact that the supply of food packs was connected to the supply of the counselling services was not a decisive factor. The economic reality was that the customer wished to use both the food packs and counselling in combination with each other. The typical consumer regarded the two as complementing each other and valued them both. The product was promoted on the basis that the customer would be supported by the counselling services, which were an essential aid in reinforcing the diet. It was the circumstances as a whole that persuaded the court to conclude that it would be artificial to split up what anyone wishing to use the programme would regard as a single economic supply. Thus, nothing in BGZ threw any doubt upon the Court of Appeal's decision in David Baxendale Ltd.
In respect of the abuse of process, the Tribunal held that the company was the sole appellant in David Baxendale Ltd. The principles of res judicata or issue estoppel could not apply to Ms M, even if she had been one of the taxpayers whose affairs were effectively regarded as determined by the earlier case. Ms M would have been unable to have any involvement in the application for permission to appeal David Baxendale Ltd to the Supreme Court. Thus, it would be unjust to prevent her on the ground of abuse of process from appealing a decision of HMRC to the Tribunal.
This decision discusses the procedural issue of whether the substantive determination of the Court of Appeal was binding to an appeal involving the same parties and same issue on VAT liability. For a more substantive discussion on whether the supply of food packs and counselling to customers constituted a single standard-rated supply of weight loss programme, see the Court of Appeal decision in David Baxendale Ltd. For commentary on single or multiple supplies, see CCH VAT Reporter at 14-800.
[1]On 31 July 2009 the Court of Appeal delivered its judgment in David Baxendale Ltd v R & C CommrsVAT[2009] BVC 663. That appeal concerned the VAT treatment to be applied to the sale to members of the public of the LighterLife weight loss programme. That programme, which was designed to achieve rapid weight loss for those who are seriously overweight, had two elements: a physical aspect which replaced normal food with LighterLife food packs, and counselling and advice in weekly group sessions.
[2]In the VAT and Duties Tribunal it had been held that these two elements constituted separate supplies, in respect of which the consideration paid by the customer should be apportioned, so that part was zero-rated, as referable to supplies of the food packs, and part was standard-rated, as referable to the counselling services. That decision was reversed in the High Court, where Morgan J held that there was a single standard-rated supply of services. The Court of Appeal dismissed the appellant's appeal.
[3]The Appellants in these appeals, David Baxendale Limited and Ms Susan Murray, for themselves and other LighterLife counsellors, now seek to make a new appeal to this Tribunal. Their principal ground, as set out in the notices of appeal, is that VAT has been overpaid as a direct result of a fundamental misunderstanding of the ECJ decision in RLRE Tellmer Property sro v Financní reditelství v Ústí nad LabemECAS (Case C-572/07) [2010] BVC 802 by both HMRC and the Court of Appeal in David Baxendale; in particular that the decision of the Court of Appeal was per incuriam in the light of Tellm...
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