National Water Council v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 28 July 1978 |
| Date | 28 July 1978 |
| Court | Queen's Bench Division |
Queen's Bench Division.
Mr. P. Whitemen Q.C. (instructed by Messrs. Frere Cholmeley & Co.) for the Council.
Mr. H. Woolf (instructed by the Solicitor for the Customs & Excise) for the Crown.
Before: Neill J.
Value added tax - Supply in the course of business - Water Council supplying statutory services - Whether such services supplied "in the course of a business carried on" by Council - Whether apportionment of deduction of input tax permissible in cases where taxable person carries on both business and non-business activities - section 2 section 3Finance Act 1972, sec. 2 and 3 (now section 2 section 14sec. 2 and 14).
This was an appeal by the National Water Council ("the taxpayer") from a decision of the London Value Added Tax Tribunal which dismissed its appeal against a decision of the Commissioners that all of its supplies were not made in the course of a business carried on by it.
The National Water Council and ten regional water authorities were set up under the provisions of the Water Act 1973. Under that Act the National Water Council was required to perform certain administrative and other services for Ministers, Regional Water Authorities and other similar bodies and outside organisations. The Council claimed that all the services supplied by it were supplied "in the course of a business" which it carried on and so it was entitled to charge output tax on such supplies and deduct input tax charged to it in full. The Commissioners accepted that some of the activities of the Council were business ones but decided that when it was executing its statutory obligations no business supplies were made. A VAT Tribunal upheld the decision of the Commissioners that the Council was not carrying on business when it performed its statutory functions and further that since there was no provision in VAT legislation authorising an apportionment of input tax on the supply or goods or services to a taxable person who was engaged in both business and non-business activities no part of the input tax payable by the Council was deductible. The Council appealed.
Held, allowing the taxpayer's appeal in part:
1. The word "business" in the Finance Act 1972 was not restricted to activities which were carried on commercially or with the object of making a profit. Where services were supplied in the performance of a statutory duty that fact alone did not prevent them from being supplied "in the course of a business". In deciding whether supplies of particular services under the Water Act 1973 were made in the course of a business it was necessary to consider to whom the supplies were made, the contracts or arrangements under which the supplies were made and whether the supplies were made regularly and on a wide scale. Once a business activity had been established in relation to any particular service all supplies of that service must be treated as being made in the course of that business unless there was a clear distinction between the circumstances in which the supply was made to the water authorities and similar bodies and the circumstances in which the supply was made to outside organisations. The advisory and administrative functions performed by the Council exclusively for Ministers or public bodies were to be excepted from its business activities where such functions were performed in accordance with the statutory obligations of the Council.
2. On a proper construction of Finance Act 1972, section 3 subsec-or-para (1)sec. 3(1) input tax could be apportioned in cases where goods or services were supplied partly for business and partly for non-business purposes. Accordingly the appeal would be allowed in part and the case remitted for further consideration by the Tribunal.
Neill J.: This is an appeal by the National Water Council against a decision of a VAT Tribunal sitting in London on 29 and 30 November 1976. The decision is dated 23 December 1976. The appeal came before the Tribunal by way of an appeal by the National Water Council against a decision of the Commissioners contained in two letters dated 2 December 1975 and 31 December 1975. The decision as stated in the letter of 2 December 1975, was to the effect that the performance by the Council of their principal statutory functions as laid down in the Water Act 1973, did not constitute a supply of services supplied in the course of a business carried on by the Council.
The main question raised in this appeal can therefore be formulated as follows. To what extent are the services supplied by the National Water Council services supplied in the course of a business carried on by the Council?
The importance of the case to the National Water Council (whom I shall call "the Council") is this. A trading company (or other body) which supplies goods or services in the course of a business carried on by the company is required, subject to the provisions of the Finance Act 1972, to charge VAT on the value of that supply, and to account for that tax to the Customs and Excise. Against the tax for which the company has to account, however, can be set the tax element of the cost of any goods or services supplied to the company for the purpose of its business. The tax charged by the company is called "output tax"; the tax charged to the company is called "input tax". So, to put the matter simply, when the company comes to account for tax to the Customs it deducts the input tax it has paid from the output tax it has received and pays the balance to the Customs. A person who is not carrying on a business, however, has to pay tax on the goods or services supplied to him but he does not charge output tax and therefore cannot pass the tax on. The provisions dealing with output tax and input tax are section 2 subsec-or-para (2) section 23 subsec-or-para (1)sec. 2(2) and 3(1) of the Finance Act 1972. section 2 subsec-or-para (2)Section 2(2) of the Finance Act1972, is in these terms:
Tax on the supply of goods or services shall be charged only where-
(a) the supply is a taxable supply; and
(b) the goods or services are supplied by a taxable person in the course of a business carried on by him;
and shall be payable by the person supplying the goods or services.
section 3 subsec-or-para (1)Section 3(1) provides (and I omit the parts of the sub-section dealing with the importation of goods):
The following tax (in this Part of this Act referred to as "input tax"), that is to say-
(a) tax on the supply to a taxable person of any goods or services for the purpose of a business carried on or to be carried on by him; …
may, at the end of any prescribed accounting period, be deducted by him, so far as not previously deducted and to the extent and subject to the exceptions provided for by or under this section, from the tax chargeable on supplies by him (in this section referred to as "output tax").
It will be seen that in both these sub-sections the word "business" is used - in section 2 subsec-or-para (1)sec. 2(1)it is used in the phrase "in the course of a business"; in section 3 subsec-or-para (1)sec. 3(1) it is used in the phrase "for the purpose of a business".
There is no comprehensive definition of the word "business" in the Act, but section 45 subsec-or-para (1)sec. 45(1) is in the following terms:
-
(1) In this part of this Act "business" includes any trade, profession or vocation; and-
(a) the provision by the Independent Broadcasting Authority of broadcasting services; and
(b) the provision by a club or by an association to which this paragraph applies of the facilities available to its members; and
(c) the provision by an organisation to which this paragraph applies of the advantages of membership; and
(d) the admission, for a consideration, of persons to any premises;
shall be deemed to be the carrying on of a business.
I should note in passing that new section 2 section 3 section 45sec. 2, 3 and 45 have been substituted for the original sections with effect from 1 January 1978, by the Finance Act1977.
In the eyes of the Commissioners of Customs and Excise the Council is a hybrid body. The Commissioners accept that in carrying out some of its activities the Council is carrying on a business, but they maintain that insofar as the Council is performing obligations imposed on it by theWater Act 1973, it is carrying out a statutory duty and is not carrying on a business. Accordingly, the Commissioners contend that no output tax should be charged by the Council when it performs these statutory functions and no input tax can be deducted in respect of goods or services supplied to the Council for the purpose of performing these functions. It is contended on behalf of the Council, on the other hand, that the Council is carrying on a business in relation to all its activities and that the Council is entitled to recover input tax on all goods and services supplied to it. I must turn, therefore, to say something about the constitution and functions of the Council.
The Water Act 1973, established a new system for the administration of a number of matters relating to water, including water supply, water conservation, sewerage and sewage disposal, land drainage and recreation. The Act provided for the establishment of new bodies known as Water Authorities to replace the existing River Authorities and certain other bodies listed in section 33sec. 33 of the Act. It also established two further organisations - The National Water Council, the body with which I am concerned in this appeal, and The Water Space Amenity Commission. The Water Authorities were set up pursuant to section 2sec. 2 of the Act and were ten in number; that is, nine Regional Water Authorities plus an Authority for Wales called the Welsh National Water Development Authority.
The Council was established by an Order made pursuant to section 4sec. 4 of the Water Act 1973. The Governing body of the Council consists of 21 members; a part-time...
To continue reading
Request your trial
-
Glasgow City Council
...and South-West Hampshire Area Health Authority (Teaching) (Case 152/84) [1986] ECR 723 National Water Council v C & E Commrs VAT(1978) 1 BVC 199 "Eurocontrol") (Case C-364/92) [1994] ECR I-43 Ufficio Distrettuale delle Imposte Dirette di Fiorenzuola d'Arda v Comune di Carpaneto Piercentino ......
-
Institute of Chartered Accountants in England and Wales v Commissioners of Customs and Excise
...[1987] ECR 1471 Foster v British Gas plc (Case C-188/89) [1990] ECR I-3313; [1990] 2 CEC 598 National Water Council v C & E Commrs VAT(1978) 1 BVC 199 Polysar Investments Netherlands BV v Inspecteur der Invoerrechten en Accijnzen, Arnhem TAX(Case C-60/90) [1993] BTC 5088 "Eurocontrol") (Cas......
-
Colchester Institute Corporation
...funded by the EFA, the SFA, or pay course fees. [145] CIC referred us to the decision of Neil J in National Water Council v C & E Commrs (1978) 1 BVC 199 where he said: I consider that once a business activity has been established in relation to a particular service, all supplies of that se......
-
Commissioners of Customs and Excise v Lord Fisher
...certain VAT appeals byNeill J, namely, Royal Exchange Theatre Trust case,cited above; the National Water Council v. C. & E. Commrs.,VAT(1978) 1 BVC 199; and Church of Scientology of California v. C. & E. Commrs, VAT(1979) 1 BVC 238; and to earlier decisions in different contexts which, he s......