Rosgill Group Ltd v Commissioners of Customs and Excise
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 January 1996 |
| Date | 01 January 1996 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
(Note: this appears to be a duplication of No. 13,265)
VAT Tribunal
The following cases were referred to in the decision:
Becker v Finanzamt Münster-Innenstadt (Case 8/81) [1982] ECR 53
Boots Co plc v C & E Commrs VAT(Case 126/88) (1990) 5 BVC 21
British Railways Board v C & E Commrs VAT (1977) 1 BVC 116
C & E Commrs v Diners Club Ltd; C & E Commrs v Cardholder Services Ltd VAT (1989) 4 BVC 74
C & E Commrs v Pippa-Dee Parties Ltd VAT (1981) 1 BVC 422
Empire Stores Ltd v C & E Commrs VAT(Case C-33/93) [1994] BVC 253
Naturally Yours Cosmetics Ltd v C & E Commrs (Case 230/87)VAT(1988) 3 BVC 428
Staatssecretaris van Financiën v Co-öperatieve Aardappelenbewaarplaats GA (Case 154/80) [1981] ECR 445
United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd WLR[1968] 1 WLR 74
Consideration - Party plan sales - Hostesses of parties entitled to cash commission or goods at reduced prices - Whether the goods supplied at reduced prices were supplies for consideration in money alone - Whether sales to be treated as taking place at full or discounted price - Meaning of "discount" - Directive 77/388, the sixth VAT directive, eu-directive 77/388 article 11art. 11 and Value Added Tax Act 1983, s. 10(3) (Value Added Tax Act 1994 section 19Value Added Tax Act 1994, s. 19).
The issue was whether VAT was chargeable on the full retail price or the reduced price on garments sold to party hostesses.
The appellants sold ladies' and children's clothing and some other goods by a "party-plan" method. Its sales force had a pyramid structure of mainly self-employed people, the lowest tier of which were the "organisers" whose task was to sell the appellant's products at parties held for that purpose in the homes of hostesses. The hostess was expected to make her home available for a party, to invite the guests and to collect from them the cost of goods ordered. The sum collected was handed to the organiser and the goods delivered to the guests via the hostess. In return the hostess became entitled to receive either a discount on the price of goods which she could herself choose from the appellant's range of products or, if she preferred, a cash payment. The cash payment was invariably considerably smaller than the discount against the price of the goods.
The appellant contended that the amount of the consideration subject to tax on purchases by hostesses could be no more than the amount the appellant actually received. The holding of the party could not be considered to form any part of the consideration for the subsequent supply and by holding the party the hostess had merely acquired a right to purchase clothing at a discounted price. Alternatively the value of the consideration for VAT purposes was to be taken as an aggregate of the sum actually paid by the hostess and the amount of the cash payments to which she would have been entitled had she chosen to take cash payments instead of a discount on the purchase of clothes.
The appellant also contended that the decision in C & E Commrs v Pippa-Dee Parties Ltd VAT(1981) 1 BVC 422 could no longer be regarded as sound since cases decided more recently in the European Court, in which the essential facts had been similar, had reached a different conclusion.
The commissioners agreed that the reasoning in Pippa-Dee Parties could not now be supported but contended that the conclusion in that case was nevertheless correct and remained correct. The subsequent case law and statutory amendment on which the appellant relied did not alter the substantive law as it should be applied to the facts of the instant case. The taxable amount was simply the retail price of the clothing purchased since this equated with the value to the appellant of the holding of the party and the sum of money actually paid for the clothing.
Held, dismissing the appeal:
1. The arrangement between the appellant and the hostesses comprised one contract and not two. This was not, however, the decisive factor.
2. Whether it was one contract or two the value of the service rendered by the hostesses to the appellant could not be left out of account in determining the consideration for the supply of the clothing.
3. The value of the service was the difference between the price which would normally have been charged for the clothing supplied and the sum of money actually paid.
4. The sale to the hostesses was not a sale at a discount.
5. The taxable value of the consideration for the supply of the clothing was the usual retail price.
Per Curiam: Where a decision of the High Court proceeded upon the footing that English law was correct it was open to the tribunal to depart from the judge's findings but only to the extent that considerations of European law, and later legislative amendments, required it to do so. It should not discard those of the judge's findings which remained sound.
[The tribunal set out the facts summarised above and continued as follows.]
It is appropriate to mention here two points of evidence which Mr Gibbon [for the commissioners] was to emphasise during the course of argument. He drew my attention to a section of Mr Williams' [the appellant's managing director] statement which reads:
In the majority of instances hostesses are selected by three methods.
By far the most frequent is a party. Organisers are always attempting to book further parties and at a party she has an audience of up to 15 guests, who will be aware of the discounts that are available. In helping guests make their garment selection, an organiser will make the guest aware of the advantages of hosting a party and it is normal for at least one future hostess to be booked at each party held.
The second method is via "cold canvassing". This usually involves the organiser either knocking on doors or approaching people in the street, shopping centres, anywhere where women gather. Again the organiser will explain the advantages of holding a party.
The third way occurs when a new organiser is recruited. When she joins, she attempts to book between six and eight parties, which obviously require a similar number of hostesses. They are usually drawn from the new organiser's relatives and friends.
I considered also a copy of the appellant's brochure, included in the small bundle of documents produced at the hearing. The principal purpose of the brochure is to promote the appellant's merchandise, but on one of its pages, setting out a variety of general information, appear (in capitals and standing out from other parts of the text) the words "discounts available for being a hostess".
eu-directive 77/388 article 2(1)Article 2(1) of Directive 77/388, the sixth VAT directive, dated 17 May 1977) imposes VAT on "the supply of goods or services effected for consideration … by a taxable person …" That provision is reflected in UK law by s. 2(1) of theValue Added Tax Act 1983 (now Value Added Tax Act 1994 section 4 subsec-or-para (1)s. 4(1) of the Value Added Tax Act 1994). As Mrs Leaver [a hostess of a party] was not a taxable person, the supply by her of the service of holding a party was not a taxable transaction, but there is nothing in the legislation to prevent its forming part of the consideration for the supply of the blouse by the appellant to her, which it was accepted constitutes a taxable transaction. The issue for my determination is the value properly to be attributed to the consideration (the "taxable amount") for that transaction.
Mr Whiteman's argument for the appellant, briefly put, was that the amount of the consideration subject to tax could be no more than the amount the appellant actually received from Mrs Leaver for the blouse, that is £20.76. Although the legislation did not prevent it, the holding of the party could not be considered to form any part of the consideration for the subsequent supply of the blouse; on the contrary, the holding of the party was no more than the condition which gave rise to Mrs Leaver's right to enter into a separate contract to purchase the blouse at a discounted price. By holding the party she had acquired a right, which she could have exercised in one of two ways, and indeed may never have exercised at all. That she chose to exercise it, and to do so by taking the discount rather than the cash payment, diminished rather than augmented the consideration received by the appellant; instead of receiving the usual retail price of the blouse it obtained only the discounted price of £20.76, which must be regarded as the taxable amount of the consideration.
As an alternative, though I think I can say without great enthusiasm, Mr Whiteman suggested that the value of the consideration for the purposes of taxation might be taken to be the aggregate of the sum actually paid by Mrs Leaver, of £20.76, and the amount of the cash payment to which she was entitled had she chosen to take it - in the event, £2.89 - making a total of £23.65.
The commissioners' letter suggests that their case is that the taxable amount is simply the retail price of the blouse but as the hearing proceeded it became clear that, although their conclusion was that the taxable amount was represented by the retail price, the letter does not do justice to their argument. That argument, as Mr Gibbon explained it, was that the arrangement between Mrs Leaver and the appellant had to be considered as a whole, and could not be artificially divided into two separate contracts in the manner suggested by Mr Whiteman. If it was regarded as a single transaction, it became obvious that the consideration the appellant received in return for the blouse was the totality of what it obtained - in the instant case, the value to the appellant of the holding of the party and the sum of money actually paid. The only appropriate measure of the value of the holding of the party was the discount which was given...
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