Leightons Ltd; Eye-Tech Opticians
| Jurisdiction | UK Non-devolved |
| Judgment Date | 19 December 2001 |
| Date | 19 December 2001 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
Appleby Bowers v C & E Commrs VAT[2001] BVC 341
British Airways plc v C & E Commrs VAT(1990) 5 BVC 97
Card Protection Plan Ltd v C & E Commrs VAT(Case C-349/96) [1999] BVC 155
C & E Commrs v British Telecommunications plcVAT[1999] BVC 306
C & E Commrs v Leightons Ltd; C & E Commrs v Eye-Tech Opticians (No. 1) VAT[1995] BVC 192
C & E Commrs v Madgett (t/a Howden Court Hotel) VAT(Joined Cases C-308/96 and C-94/97) [1998] BVC 458
C & E Commrs v Plantiflor Ltd VAT[2000] BVC 103
C & E Commrs v Scott VAT(1977) 1 BVC 139
Co-operative Wholesale Society Ltd v C & E CommrsVATVAT[2000] BVC 13; [2000] BVC 348
EC Commission v United Kingdom VAT(Case 353/85) (1988) 3 BVC 265
Marleasing SA v La Commercial Internacional de Alimentación SA (Case C-106/89) [1990] ECR 1-4135
Muys' en De Winter's Bouw- en Aannemingsbedrijf BV v Staatssecretaris van Financiën (Case C-281/91) [1993] ECR I-5405
Sea Containers Ltd v C & E Commrs VAT[2000] BVC 60
Stichting Uitvoering Financiële Acties (SUFA) v Staatssecretaris van Financiën VAT(Case 348/87) [1991] BVC 102; [1989] ECR 1737
Supply - Whether supply of spectacles and contact lenses is a single, standard-rated supply of goods or separate supplies of goods and exempt dispensing services - Directive 77/388, the sixth VAT directive, art. 13(A)(1)(c); Value Added Tax Act 1994, Sch. 9, Grp. 7, item 1(b).
The issue was whether the sale of corrective spectacles or contact lenses constituted separate supplies of dispensing services, which were exempt from VAT, and of goods, which were standard-rated. The commissioners had informed the appellants that they considered the supply to be one of goods liable at the standard rate. In reaching this view, the commissioners relied on Card Protection Plan Ltd v C & E Commrs (Case C-349/96) [1999] BVC 155.
The legal background to the appeal was that, originally, all supplies of corrective spectacles and contact lenses by dispensing opticians were exempt from VAT. This included both dispensing services and, in connection with such services, the supply of goods. However, in 1988 the European Court of Justice held in EC Commission v UK (Case 353/85) (1988) 3 BVC 265 that the exemption provided byeu-directive 77/388 article 13 subsec-or-para Aart. 13(A)(1)(c) of Directive 77/388, the sixth VAT directive, covered only the provision of medical care. Accordingly, the law was amended by the Finance Act 1988 to exclude from exemption the supply of goods including frames and lenses dispensed by opticians. Following this change in the law, some opticians treated supplies of spectacles as separate supplies of exempt dispensing services and standard-rated goods. In September 1992, the commissioners decided that supplies of corrective spectacles should be wholly standard-rated.
In 1993 and 1994, the present appellants' appeals were heard by the tribunal and it was decided that when spectacles were sold there were two supplies: exempt dispensing services and standard-rated goods. These decisions were upheld by the High Court. Agreement was reached between the commissioners and the three professional bodies representing opticians that where a single price was charged to a patient for spectacles, that price would be apportioned and VAT would be accounted for only on the frames, lenses and other incidental goods, but not on the dispensing element of the charge. This arrangement continued until the judgments of the European Court of Justice and the House of Lords in Card Protection Plan, following which the commissioners informed opticians that VAT would, once again, be applicable to the whole charge for spectacles and contact lenses with effect from 1 June 2001.
The appellants' first argument was that although exemptions from VAT had to be strictly construed, the wording of the legislation should not be subject to artificial limitations. In addition, in construing domestic law, effect must be given to the scheme and purpose of the sixth directive generally. The appellants accepted the principles established in Card Protection Plan, but argued that they had to be applied to the specific statutory framework governing dispensing opticians. The appellants cited EC Commission v UK, a judgment about the scope of the exemption. The principle established in that case, that a supply which was a minor part of another supply was included in that other supply, was consistently applied in Card Protection Plan. The appellants also relied on the High Court judgment in C & E Commrs v Leightons Ltd [1995] BVC 192,in which the need to give effect to the intention of Parliament was confirmed.
The second argument of the appellants was that if the principles established in Card Protection Plan were applied to the present appeal, they would show that there were separate supplies. When the essential features of the appellants' supplies were analysed it became clear that both the dispensing and the goods were an integral part of the transaction and that, if one of these elements were removed, one would not be left with the same product; the purchaser required both elements. In the appellants' view, neither the supply of goods nor that of services was ancillary to the other and the dispensing could not, as the commissioners contended, be ancillary to the supply of goods. The fact that a single price was charged to patients did not determine the position and apportionment of the two elements could be effected by a simple calculation. The appellants submitted that authorities subsequent to Card Protection Plan supported the need to have regard to the commercial reality of the transaction, which in this case was that dispensing was a valuable service not subsumed into the supply of the optical appliance. Finally, the appellants submitted that the principles established in Card Protection Plan had not displaced the need to give effect to the specific legislation at issue and the previous judgments of the European Court of Justice and the High Court.
The commissioners submitted that the overriding authority in deciding this appeal should be Card Protection Plan, which indicated that a two-stage analysis was required: to ascertain the essential features of the transaction and to identify if any of the supplies were ancillary to any others. Applying the first stage to the appellants' transactions, the commissioners took the view that what the customer purchased was an optical appliance, which had two elements: dispensing services and goods. Both elements were inter-dependent and any attempt to split them would be artificial. The commissioners submitted that in applying the second stage, it could only be concluded that the dispensing services were not an aim in themselves, but a service enabling the patient to better enjoy the optical appliance. Further, the dispensing was not a free-standing supply that could be enjoyed on its own; it must, therefore, be regarded as ancillary to the goods and the liability to VAT must follow that of the goods.
Held, allowing the taxpayers' appeal:
1. In order to establish the principles to be followed, the tribunal should look to Card Protection Plan. However, although these principles should be regarded as paramount, the need to give effect to the legislation and to earlier judgments dealing specifically with optical appliances, and which were consistent with the principles in Card Protection Plan, should not be disregarded.
2. eu-directive 77/388 article 13 subsec-or-para AArticle 13(A)(1)(c) of the sixth directive provides that member states shall exempt the provision of medical care in the exercise of the paramedical professions and, as dispensing opticians fall within that description, the clear intention of the legislation was that the supply of services by a dispensing optician should be exempt.
3. The patient wants and pays for two supplies. He could purchase an optical appliance alone, such as ready-made reading spectacles, or he could purchase dispensing services alone, as is the case with safety spectacles. However, the purchaser of dispensed spectacles wants the services of a dispensing optician to ensure that the optical appliance is entirely suitable for his needs. The fact that each supply is capable of being regarded as distinct and independent is consistent with the conclusion that two separate supplies exist.
4. A further principle enunciated in Card Protection Plan was that a single economic supply should not be artificially split. It was relevant that invoices issued by the appellants showed separately the charges for dispensing and for goods. The treatment of corrective spectacles as a single, standard-rated supply would distort the VAT system as it would give no effect to the exemption, which is mandatory in the sixth directive.
5. It was held in Card Protection Plan that a single supply exists where there is one principal and one ancillary element. In the present case, the price charged for dispensing services was more than half of the total charge. For that reason alone, the dispensing services should not be treated as ancillary to the supply of the goods. However, regardless of the price, the dispensing element could not be considered ancillary to the goods as it was an aim in itself. There were two equivalent supplies.
6. The fact that a single price was charged was not decisive. The patient intends to purchase two supplies, dispensing services and goods, and methods for apportionment of the price are well established.
7. The supply of dispensing services, which are exempt, and the supply of corrective spectacles or contact lenses, which are standard-rated, constituted separate supplies.
1. Leightons Ltd (Leightons) and Eye-Tech Opticians (Eye-Tech) (together called the appellants), appeal against two decisions of Customs and Excise. The decision sent to Leightons was...
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