Kuwait Petroleum (GB) Ltd v Commissioners of Customs and Excise ; Case C-48/97
| Jurisdiction | England & Wales |
| Judgment Date | 20 December 2000 |
| Date | 20 December 2000 |
| Court | Chancery Division |
Chancery Division.
Laddie J.
John Walters QC (instructed by Wallace & Partners) for Kuwait Petroleum (GB) Ltd.
Philippa Whipple (instructed by the Solicitor for Customs and Excise) for the commissioners.
The following cases were referred to in the judgment:
De Jong v Staatssecretaris van Financiën VAT(Case C-20/91) [1995] BVC 347; [1992] ECR I-2847
Elida Gibbs Ltd v C & E Commrs VATELR(Case C-317/94) [1997] BVC 80; [1997] QB 499; [1996] ECR I-5339
Goldsmiths (Jewellers) Ltd v C & E Commrs VAT(Case C-330/95) [1997] BVC 494; [1997] ECR I-3801
Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats GA (Case 154/80) [1981] ECR 445
Value added tax - Sales promotion scheme - Vouchers given for no extra charge with fuel at pump - Goods supplied on redemption of vouchers - Whether "rebates" or "discounts" applied to redemption goods - Whether goods supplied for consideration - Whether exchange of goods for vouchers constituted reduction of price for fuel - Council Directive 77/388, art. 5(6), 11(C)(1).
This was an appeal by the taxpayer company from a decision of a tribunal (No. 16,582; [2000] BVC 2300) that, as a matter of English law, the redemption of vouchers under a sales promotion scheme was a unilateral act separate from the purchase of fuel so that the vouchers were taxable.
The taxpayer company sold fuel to the public through its own service stations and through independent retailers. Between 1991 and 1996 the taxpayer operated a sales promotion scheme in both its own and independent service stations under which the public were offered a "Q8" voucher, for which no charge was made, with every 12 litres of fuel purchased. The vouchers could be redeemed for goods chosen from a gift catalogue. The independent retailers taking part undertook to pay a small additional amount per litre for the fuel which they purchased. By a letter of 16 June 1995 Customs ruled that the taxpayer, which had deducted input tax on goods purchased for exchange with Q8 vouchers, was liable to account for output tax on items supplied to customers for no consideration. Where the cost of the item exceeded £10, supplies for no consideration were treated as taxable supplies by virtue of the Value Added Tax Act 1994, Value Added Tax Act 1994 schedule 4 subsec-or-para 5Sch. 4, para. 5(1).
The taxpayer appealed to a tribunal on the ground that the redemption goods were supplied for consideration represented by an indeterminate part of the VAT-inclusive price of the fuel, which covered the supply both of the fuel and the goods on subsequent redemption of vouchers. Therefore the taxpayer had already paid the VAT on the transaction. The tribunal held that, as a matter of English law, redemption of the Q8 vouchers was a unilateral act separate from the purchase of fuel and concluded that the vouchers were taxable. However, on the basis that consideration for the purposes of English contract law was different from consideration for a taxable supply in VAT law, the tribunal referred certain questions to the European Court of Justice.
The ECJ (Kuwait Petroleum (GB) Ltd v C & E Commrs (Case C-48/97) [1999] BVC 250; [1999] ECR I-2323) held that the terms "rebates" and "discounts" indicated a partial price reduction and did not apply to reductions covering the whole cost of supplying the redemption goods. Under eu-directive 77/388 article 5 subsec-or-para 6art. 5(6) a taxable person's disposal of goods free of charge where input tax had been deducted, whether or not the disposal was for business purposes, was treated as a supply for consideration, and therefore was subject to VAT. It was for the national court to inquire whether there was any agreement that part of the price of the fuel was attributable to Q8 vouchers and there was nothing to suggest that there was any such agreement. The sale of fuel and the exchange of goods for vouchers were two separate transactions.
The ECJ referred back to the tribunal the question of whether the redemption goods had been paid for by the customers. The tribunal found as a fact that the customers gave no separate consideration for the redemption goods but the taxpayer appealed arguing that the tribunal had erred in law; that the supply of goods should be treated as a reduction on the price of the fuel; and that under eu-directive 77/388 article 11 subsec-or-para Cart. 11(C)(1) of the sixth directive, the value of the redemption goods should be excluded from the calculation of the output tax due on the fuel to preserve the basic principle of neutrality of VAT.
Held, Held, dismissing the taxpayer's appeal:
1. The tribunal's determination of whether, at the time of purchasing the fuel, the customers and the company had agreed, directly or indirectly, that part of the price paid for the fuel, whether identifiable or not, would constitute the value given in return for the redemption goods, depended on the inferences to be drawn from all the circumstances surrounding the transactions at the petrol stations. The tribunal had not erred in its conclusion that the redemption goods had been disposed of free of charge.
2. The provisions of eu-directive 77/388 article 11art. 11 had to be read together and consistently.eu-directive 77/388 article 11 subsec-or-para AArticle 11(A)(1)(b) provided that the taxable amount should be increased by the amount deemed to be the value of goods disposed of free of charge under eu-directive 77/388 article 5 subsec-or-para 6art. 5(6). It was therefore impossible to view those same goods as being disposed of to achieve a price reduction under eu-directive 77/388 article 11 subsec-or-para Cart. 11(C)(1).
3. Since the ECJ had held, in effect, thateu-directive 77/388 article 5 subsec-or-para 6art. 5(6) was an exception to the basic principle of neutrality, it was not legitimate to use that principle to justify expanding the meaning ofeu-directive 77/388 article 11 subsec-or-para Cart. 11(C)(1) to override eu-directive 77/388 article 5 subsec-or-para 6art. 5(6).
Laddie J:
1. This is an appeal from a decision of the VAT tribunal released on 24 March 2000 No. 16,582; [2000] BVC 2300. The appellant is Kuwait Petroleum (GB) Ltd ("Kuwait Petroleum"). It is represented by Mr John Walters QC. The respondents are the Commissioners of Customs and Excise who are represented by Miss Philippa Whipple. The dispute concerns the treatment for value added tax (VAT) purposes of a customer loyalty programme operated by Kuwait Petroleum in the first half of the 1990s.
2. Although further details may need to be referred to later in this judgment, it is sufficient here to set out the basic structure of Kuwait Petroleum's loyalty programme. The following description is taken, in large part, from previous decisions of the tribunal. I do not believe it to be contentious. The loyalty programme took the form of a sales promotion scheme in which a driver purchasing petrol or diesel at service stations owned by Kuwait Petroleum, or some of its dealers, received stamps (redemption vouchers) and a collector card. If the driver collected a sufficient number of such redemption vouchers and fulfilled various other conditions of the scheme, he could later exchange them for goods (redemption goods), details of which were published in a catalogue, or a limited range of services. Not every one of Kuwait Petroleum's dealers participated in the scheme, although many did. The standard procedure at every participating service station was that each customer for fuel was offered, without having to ask, the appropriate number of redemption vouchers. Not all customers took the redemption vouchers. Once a sufficient number of redemption vouchers had been collected, the customer could fill out an order form on the back of a collector card. That order form required the customer to give certain information which could be used both to combat fraud and to provide marketing information to Kuwait Petroleum. Needless to say, not all redemption vouchers were redeemed. According to an earlier decision of the tribunal released on 13 January 1997, No. 14,668, para. 18[1997] BVC 4054, the February 1995 performance report gave redemption rates for that month and the life of the promotion to date. The number of redemption vouchers redeemed in the month as a percentage of the number of vouchers issued in the month was 27 per cent on Kuwait Petroleum managed sites, 36 per cent on dealer sites and 32 per cent overall. The lifetime rates were 33, 35 and 34 per cent respectively. Kuwait Petroleum did not have the necessary expertise to operate the redemption goods part of the scheme and this was undertaken by other companies, latterly Argos. During the operation of the scheme, Kuwait Petroleum positioned its fuel at the premium end of the price range compared with competitors. The cost of running the scheme, including the cost of issuing redemption vouchers and the cost of the redemption goods was born by Kuwait Petroleum. At least at an early stage, it made an allowance of 0.44p per litre of fuel to meet the cost of the scheme on each of its own sites. Price competition from other service stations, particularly those operated by supermarkets, persuaded Kuwait Petroleum to end the scheme in 1996. To enable it to meet the then market environment, Kuwait Petroleum's fuel prices were then reduced by about 4p per litre. Kuwait Petroleum's, and its participating dealers', customers were told that the redemption goods were gifts as a reward for their loyalty. For example, the second edition of the Kuwait Petroleum catalogue includes a welcome message on behalf of the company in the following terms: "Please remember, the more often you visit a participating Q8 Service Station for your petrol or diesel the sooner you will receive your free gifts."
3. The commissioners took the view that the redemption...
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