Rosgill Group Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 23 April 1997 |
| Date | 23 April 1997 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Sir Richard Scott V-C, Hobhouse and Morritt L JJ.
Andrew Park QC and Hugh McKay (instructed by Shakespeares, Birmingham) for Rosgill.
Stephen Richards (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgment
Argos Distributors Ltd v C & E Commrs VAT(Case C-288/94) [1997] BVC 64
C & E Commrs v Pippa-Dee Parties Ltd VAT(1981) 1 BVC 422
Elida Gibbs Ltd v C & E Commrs VAT(Case C-317/94) [1997] BVC 80
Empire Stores Ltd v C & E Commrs VAT(Case 33/93) [1994] ECR I-2329; [1994] BVC 253
Naturally Yours Cosmetics Ltd v C & E Commrs VAT(Case 230/87) [1988] ECR 6365; (1988) 3 BVC 428
Staatssecretaris van Financiën v Co-öperatieve Aardappelenbewaarplaats GA (Case 154/80) [1981] ECR 445
Value added tax - Taxable amount - Value of supply - Party plan sales - Hostesses entitled to cash commission or goods at reduced prices - Whether goods at reduced prices were supplies only for money or for money and services consisting providing the party - Whether to be treated as sales at full price or discounted price - Value Added Tax Act 1983, s. 10(3) (Value Added Tax Act 1994 section 19 subsec-or-para (3)Value Added Tax Act 1994, s.19(3)); Directive 77/388, the sixth VAT directive,eu-directive 77/388 article 4(2) article 11(A)(1)art. 4(2) and 11(A)(1)(a).
This was an appeal directly to the Court of Appeal by the taxpayer ("Rosgill"), pursuant to the Finance Act 1985, s. 26 and to leave granted by Bingham MR. The appeal was against the decision of the VAT and duties tribunal that the effect of the Value Added Tax Act 1983, s. 10(3) was that consideration for goods purchased at a reduced price by a hostess giving a party at which the taxpayer's goods were sold was the full retail price.
Rosgill operated a "party plan" system. An organiser would persuade a hostess to give a party at which goods from Rosgill's catalogue would be for sale. The hostess would become entitled at her choice to a cash commission or to purchase goods at a price less than the catalogue price depending on the value of items sold at the party. The more goods were sold, the larger the commission or the greater the price reduction.
A sample party was considered by the VAT tribunal and the court. Two garments were sold for a total of £66.98. The hostess was entitled either to a cash commission of £2.89 or to a reduction of £7.23 off the catalogue price of goods. She chose the price reduction alternative, purchasing a blouse, the catalogue price of which was £27.99 so the price she paid was £20.76 (£27.99 less £7.23). The blouse cost Rosgill £8 to produce and Rosgill had or could obtain sufficient stocks of the blouses for £8 to meet all orders for them from customers. Therefore, Rosgill did not deprive itself of a sale to some other member of the public at the full price.
Rosgill contended that VAT should be calculated by reference to the reduced price actually paid or alternatively by reference to the sum of the reduced price and the amount of the cash commission for which the hostess could have elected.
If the consideration given for the blouse was wholly in money, VAT would be calculated by reference simply to the £20.76 actually paid to Rosgill. But if the consideration consisted of the £20.76 and holding the party, s. 10(3), which applied where consideration did not consist wholly of money, would come into play.
The first question for decision, therefore, was whether the consideration given for the blouse was simply the £20.76 or whether the consideration included the holding of the party. If the latter, the second question arose as to how that element of the consideration should be valued.
Rosgill contended first that the only consideration given for the blouse was £20.76. While it was true that the hostess had allowed her house to be used for the party, there was no sufficient "direct link" between her doing so and the supply to her of the blouse to justify treating the holding of the party as part of the consideration for the supply of the blouse. While she could not have bought the blouse for £20.76 unless she had held the party at her house, nevertheless, her ability to purchase the blouse for only £20.76 was dependent on the volume of purchases made at the party by others.
If holding the party were to be regarded as part of the consideration, Rosgill contended first that the value of the non-cash consideration for the blouse was nil. Rosgill's sale of the blouse to the hostess was at a price considerably in excess of cost, and Rosgill did not forego a sale at £27.99. Alternatively, the value of the party to Rosgill should be taken to be the amount of the cash commission which Rosgill were prepared to pay the hostess, namely, £2.89. The value that Rosgill had itself attributed to the additional consideration was likely to be a reliable subjective indication of the "amount in money … equivalent to the consideration" within s. 10(3) of the 1983 Act.
Held, dismissing the Rosgill's appeal:
1. Under eu-directive 77/388 article 11(A)(1)art. 11(A)(1)(a) of the sixth VAT directive the taxable amount was made up of "everything" obtained by the supplier from the purchaser. The hostess did not simply pay the £20.76. She also held the party at her house. In holding the party she was rendering a service of value to Rosgill so there was a "direct link" between the provision by the hostess of that service to Rosgill and the supply of the blouses. There was also a causative link since the purchase would not have happened if the service had not been provided. There was also a contractual link: the purchase of the blouse at the reduced price of £20.76 was in exercise of a contractual right acquired under the agreement to hold the party. The consideration given by the hostess for her blouse therefore consisted in part of money, the £20.76, and in part of her service to Rosgill in holding the party at her house: Empire Stores Ltd v C & E Commrs VAT[1994] BVC 253 followed.
2. For the purposes of s. 10(3) of the 1983 Act, the value of non-monetary consideration was its subjective value to Rosgill. There were two possible values, the cash (£2.89) or the price reduction (£7.23). But the value to Rosgill of the non-monetary consideration had to be assessed in the light of the events that actually happened. Accordingly, s. 10(3) required VAT to be calculated on the sum of £20.76 plus £7.23, equivalent to the catalogue price.
3. No reference would be made to the Court of Justice of the European Communities. The principles of law to be applied were sufficiently settled by previous decisions of the court to enable judgment to be given. Such difficulties as there were derived from the application of settled principles to the particular facts. It was for the national court to resolve those difficulties.
Scott V-C: This is a test case in which Rosgill Group Ltd ("Rosgill") and Customs hope to obtain an authoritative ruling on a point of law regarding VAT. Customs made a ruling in a sample case in order that Rosgill might appeal against the ruling. In a decision dated 24 April 1995 [Rosgill Group Ltd VAT(MAN/94/273) No. 13,265; [1996] BVC 2265] the Manchester VAT and duties tribunal dismissed Rosgill's appeal. Pursuant to s. 26 of the Finance Act 1985 and to leave granted on 13 February 1996 by Sir Thomas Bingham MR, Rosgill's appeal against the tribunal's decision has been made direct to this court.
The issue in the case arises out of Rosgill's use of a "party-plan" system in order to sell ladies and children's clothing. The system involves organisers, hostesses and customers. An organiser identifies a hostess, usually a housewife, and persuades the hostess to give a party in her home for her friends at which Rosgill's goods will be on offer for sale. The hostess is responsible for inviting the guests and for supplying them with whatever refreshments she, the hostess, thinks appropriate. The organiser attends the party and is responsible for persuading those present to purchase Rosgill's goods. The hostess, provided sales are made at the party, becomes entitled at her choice either to a cash commission from Rosgill or to purchase goods from Rosgill at a price less than the catalogue price. The amount of the commission and the amount of the reduction are dependent on the volume of sales made at the party. The greater the volume of sales, the larger will be the commission and the greater the price reduction.
Rosgill is accountable to Customs for VAT on the goods sold at these parties. In the event that a hostess elects to purchase goods at the reduced price, Rosgill must account for VAT on those goods. Rosgill contends that VAT should be calculated by reference to the reduced price actually paid by the hostess. Customs contend that VAT should be calculated by reference to the catalogue price. An alternative is that VAT should be calculated by reference to the sum of the reduced price actually paid and the amount of the cash commission for which the hostess could have elected.
The facts that have given rise to the issue in this test case are very simple.
The hostess was Mrs J Leaver. She gave a party at her home on 10 April 1993. The party was, from a sales point of view, not much of a success. Only two garments were sold. Their total price was £66.98. The sales entitled Mrs Leaver either to a cash commission of £2.89 or to a reduction of £7.23 off the catalogue price of goods she wished to purchase. These figures derive from tables published by Rosgill for the purpose of its party-plan sales. Mrs Leaver chose the price reduction alternative. She purchased a blouse, the catalogue price of which was £27.99. So the price she paid was £20.76, i.e. £27.99 less £7.23. In one of Rosgill's internal accounting documents recording the transaction the £7.23 is referred to as "Hostess Commission"...
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