Pilgrims Languages Courses Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 23 July 1999 |
| Date | 23 July 1999 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Butler-Sloss, Schiemann and Mantell LJJ.
Kevin Prosser QC (instructed by Walker Martineau) for Pilgrims.
Melanie Hall (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgment:
Becker v Finanzamt Münster-Innenstadt (Case 8/81) [1982] ECR 53
British Airways plc v C & E Commrs VAT(1990) 5 BVC 97
C & E Commrs v British Telecommunications plcVAT[1999] BVC 306
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 Wellington Private Hospital LtdVAT[1997] BVC 251
Card Protection Plan Ltd v C & E Commrs VAT(Case 349/96) [1999] BVC 155
EC Commission v Spain (Case C-124/96) 7 May 1998 (not yet reported)
Stichting Uitvoering Financiële Acties (SUFA) v Staatssecretaris van Financiën VAT(Case 348/87) [1991] BVC 102; [1989] ECR 1737
Value added tax - Exemption - Teaching English as foreign language - Residential courses - Whether accommodation, catering and other non-teaching elements were exempt -Value Added Tax Act 1994 schedule 9 group 6Value Added Tax Act 1994, Sch. 9, Grp. 6, items 2 and 4 and Notes (1)(f) and (2);Sixth Council directive (Directive 77/388) of 17 May 1977 (OJ 1977 L145/1), eu-directive 77/388 article 13(A)(2)art. 13(A)(2)(b).
This was an appeal by the taxpayer ("Pilgrims") against the judgment of Richards J ([1998] BVC 285) that non-teaching supplies, such as catering and accommodation, provided by a language school teaching English as a foreign language were not exempt supplies.
The taxpayer specialised in teaching English as a foreign language ("TEFL"). It ran courses for children and young adults and also for older people, including courses for teachers. English had to be spoken at all times from the students' arrival at the airport until their departure. For many courses a single fee covered tuition, meals and accommodation, transport to and from the airport, activities, entertainment, a course photograph and a certificate at the end. The philosophy was that the students would make better progress if they learnt not only in the classroom but by using the language while engaged in other enjoyable and stimulating activities.
The judge held that the non-teaching elements in the supplies made by Pilgrims were excluded from the exemption by Note (2) to item 4 and byeu-directive 77/388 article 13(A)(2)art. 13(A)(2)(b)of the sixth Council directive. The supplies were therefore taxable supplies, separate from the TEFL supplies which were specifically exempted by Note (1)(f) to Value Added Tax Act 1994 schedule 9 group 6Grp. 6 of Sch. 9 to the Value Added Tax Act 1994.
Pilgrims argued that it was an eligible body providing education, making relevant supplies integral to the provision of education within item 1 of Grp. 6. Alternatively, the relevant supplies were closely related to the supplies of education within item 4.
Customs accepted that Pilgrims was an eligible body making relevant supplies, but that the making of those supplies was not an integral part of the provision of education within item 1. As to item 4, they accepted that the relevant supplies were closely related to the supply of education, but contended that on a proper construction of Note (2) to item 4, the relevant supplies could not be described as the teaching of English as a foreign language and therefore item 4 was prevented from applying.
Customs also contended that the relevant supplies were excluded from the exemption by eu-directive 77/388 article 13(A)(2)art. 13(A)(2)(b) of the sixth directive which provided that the exemption should not apply if the supply was not essential to the transaction exempted, or its basic purpose was to obtain additional income for the organisation by carrying out transactions in direct competition with commercial enterprises.
Held, allowing Pilgrims' appeal:
1. There was a single supply where one or more elements were to be regarded as ancillary to the principal supply. The provision of meals in all fully residential courses and the provision of accommodation in the children's and young adults' courses fell within the proposition that a supply had to be regarded as ancillary to a principal supply if it did not constitute for customers an aim in itself, but a means of better enjoying the principal service. The supplies in this case were ancillary to the teaching of English: Card Protection Plan Ltd v C & E Commrs VAT(Case C-349/96) [1999] BVC 155 at para. 30 and C & E Commrs v Madgett (t/a Howden Court Hotel)VAT(Joined Cases C-308/96 and C-94/97) [1998] BVC 458 followed.
2. The ancillary supplies were also closely related to the supply of teaching of English as a foreign language. The supplies fell within Value Added Tax Act 1994 schedule 9 group 6Sch. 9, Grp. 6, item 4 of the 1994 Act and were not excluded by Note (2) oreu-directive 77/388 article 13(A)(2)art. 13(A)(2)(b)of the directive. The provision of food and accommodation did not constitute an aim in itself but achieved a means of better enjoying the principal service of teaching English. Therefore the composite supply fell within item 1 to which Note (2) had no application. So Pilgrims should succeed by either of the routes which it proposed. The excursions, transport to and from the airport, course photograph, certificate, etc. were also exempt.
Schiemann LJ: This is yet another in the line of cases concerning the question whether, for the purposes of VAT a package of services supplied at a single price constitutes:
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(2) a single (composite) supply which takes its fiscal character from the dominant supply in the package, or
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(3) separate (multiple) supplies of different elements each of which has its own separate fiscal character.
The Judicial Committee of the House of Lords, in Card Protection Plan Ltd v C & E Commrs ("the CPP case") decided on 15 October 1996 to make a reference to the European Court of Justice ("the ECJ") so that that court might clarify the law in this field. The judgment of the ECJ in Case 349/96 ([1999] BVC 155) was not handed down until 25 February 1999.
We are concerned with an appeal from a judgment of Richards J delivered in June 1998. He dismissed an appeal by Pilgrims Language Courses Ltd ("Pilgrims") from a decision of the VAT tribunal and allowed a cross-appeal by the commissioners. At the time when he delivered judgment he did not have the benefit of the ECJ's latest ruling. Nor of course did the tribunal. They each had cited to them a number of earlier judgments both of the ECJ and of the courts of this country. The contention of the commissioners is that the CPP judgment merely reaffirms the earlier law which they submit had been correctly applied by Richards J. The contention on behalf of Pilgrims is that Richards J erred in his application of the earlier law, in any event as interpreted and clarified in the CPP judgment.
The careful judgment of Richards J is reported in [1998] BVC 285. I gratefully adopt from it this description at p. 287 of the context in which this case comes before this court.
Pilgrims Language Courses Ltd ("Pilgrims") specialises in the teaching of English as a foreign language, an expression which is commonly and conveniently abbreviated to "TEFL". Pilgrims runs residential TEFL courses providing total immersion in the English language - in its own phrase, "breakfast to bed-time tuition". Courses consist of "accuracy activities", including classroom teaching, and a wide range of "fluency activities", including sporting and recreational activities. All students have to communicate in English from the moment of their arrival at the airport to the time of their departure at the end of the course. For many courses a single fee covers tuition, activities, meals and accommodation.
In broad terms, TEFL enjoys an exemption from VAT, though it will be necessary to consider the precise nature of that exemption in a moment. Customs ruled that only certain elements of Pilgrims' residential course were strictly TEFL and that the other elements were subject to VAT at the standard rate. The VAT and duties tribunal, in a decision released on 7 November 1996 ([1997] BVC 2116), to a large extent allowed Pilgrims' appeal from the commissioners' ruling. The tribunal held that many of the elements, including accommodation and catering in the courses for children and young adults, were integral to the principal, exempt supply and were therefore themselves exempt from VAT. The tribunal also held, however, that other elements, including e.g. sporting activities and excursions, were not integral to the principal supply and were therefore subject to VAT at the standard rate.
The tribunal's decision is now the subject of an appeal to this court by Customs and a cross appeal by Pilgrims. In each case there is a challenge to some but not all of the findings that were adverse to the party concerned. In the case of Customs' appeal the main contention is that the tribunal was wrong to hold that accommodation and catering in any of the courses benefited from the exemption from VAT. In the case of Pilgrims' cross appeal the main contention is that the tribunal should have gone that much further and held that the courses for children and young adults are composite supplies benefiting in their entirety from the exemption from VAT.
and at p. 289:
The philosophy behind Pilgrims' teaching methods is that students will make better progress if they learn not only in the classroom but also by means of using the language while engaged in activities which are enjoyable and stimulating: no matter what the students were doing throughout the day, they are at all times learning English. That philosophy accords with a body of expert opinion in the field of language teaching and in particular of TEFL. The objective must be to impart to students an...
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