Sinclair Collis Ltd v Commissioners of Customs and Excise (Case C-275/01)
| Jurisdiction | UK Non-devolved |
| Judge | LORD SLYNN OF HADLEY,LORD NICHOLLS OF BIRKENHEAD,LORD STEYN,LORD MILLETT,LORD SCOTT OF FOSCOTE |
| Judgment Date | 07 June 2001 |
| Neutral Citation | [2001] UKHL 30 |
| Date | 07 June 2001 |
| Court | House of Lords |
[2001] UKHL 30
HOUSE OF LORDS
Lord Slynn of Hadley
Lord Nicholls of Birkenhead
Lord Steyn
Lord Millett
Lord Scott of Foscote
My Lords,
Sinclair Collis Ltd ("SC") is a member of the Imperial Tobacco Group and part of its business is to provide, operate and maintain vending machines for the sale of cigarettes in public houses, clubs and hotels, which for the sake of brevity I refer to compendiously as "clubs". SC enters into agreements with those who control such clubs (whom I refer to as "the owners") for the provision of such machines in return for payment to the latter of an agreed percentage of the gross profits of such machines. The agreement provides that the machines are to be "positioned" in such sites as the club owner shall nominate "as being the site most likely to generate the maximum sales" but the club owner shall not unreasonably refuse his consent to the selection of such sites as SC considers will be most likely to generate the maximum sales. The cigarettes in the machines and the cash in the machines are to remain the property of SC. The owners grant SC the exclusive right to provide and operate the machines and to have access to the machines which will remain SC's property. The club owner agrees to provide sufficient electricity and not to "allow or prevent any machine dispensing similar products to the products to be placed on or annexed to the premises." In addition the owners give SC the exclusive rights to supply cigars and other tobacco products to the owners of the club.
The licence is for a period of two years.
It seems that machines other than those which are designed to be wall-mounted, can be moved around but this does not often happen. SC retains exclusive control of access to the machines, keeps them stocked and removes the money for sharing as agreed.
The European Community Sixth Council Directive (77/388/EEC) provides that the supply of services effected for consideration within the territory of a country by a taxable person acting as such are subject to VAT. There is no contention in this case that what is done is not the supply of services or that there is no consideration for the supply of such services or that the club owners (whose supply is in question) are not taxable persons.
Article 13 of the Directive provides for exemptions from liability to VAT and in particular by Article 13(B)(b) provides that
"Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse;
(b) the leasing or letting of immovable property
[subject to certain exclusions]"
That Directive was implemented in the United Kingdom by section 31 of the Value Added Tax Act 1994 which provided that a supply of services is an exempt supply if it is of a description for the time being specified in Schedule 9 to the Act. Item 1 in Group 1 of Part II of that Schedule included:
"The grant of any interest in or right over land or of any licence to occupy land".
The superficially curious feature of the case, that it is the commissioners who say that the supply is exempt and that SC it seems on behalf of the club owners, say that it is taxable, is explained by the fact that if it is taxable, input tax can be set off, if it is exempt it cannot.
The balance of the arguments in the case is illustrated by the fact that initially the commissioners took the view that the relevant supplies were exempt from VAT since the agreements were for licences to occupy land. On 16 March 1995 after representations were made on behalf of SC the commissioners accepted that supplies were standard rated and not exempt. In September 1995 the commissioners reversed that decision and "on balance" returned to their view that the supplies were exempt and this was confirmed by letter of 3 January 1996, the decision now under review. Moreover the tribunal decided that there was no licence to occupy lands: Lightman J and the Court of Appeal held that there was.
The tribunal followed an earlier tribunal decision in Wolverhampton and Dudley Breweries plc v Customs and Excise Commissioners [1990] VATTR 131 where it was held that the "real subject" of an agreement to place amusement machines in public houses in return for payment was "the machine and not the use of or enjoyment of the land on which it stood". So here the present tribunal held that
"the substance and the reality of the agreement is that a machine will be installed and made available to customers in a position which, apart from the statutory requirements and [eg having the machine where it could be seen by the public house staff to prevent vandalism and use by children] does not matter much to either party. In my view the use or enjoyment of land as land is not a significant consideration, and for both parties the real subject of the agreement is the machine and not the use or enjoyment of the land on which it stands or the air space which it occupies for the time being".
Lightman J stressed that the court's task was to interpret the language of the contract and that to look for the "substance and reality" of the agreement, a phrase used by Scarman LJ in British Airports Authority v Customs and Excise Commissioners [1977] STC 36, 41 could be unhelpful, since it suggested that it was possible to go behind the written contract even when that was not alleged to be a sham or where the agreement was said not to reflect the parties' true intention. Here, where it was accepted that there was only one supply rather than several dissociable elements, it was necessary to consider from the agreement what was the character of the main supply. Even though the grant of a restrictive covenant by which a club owner agrees not to grant a licence to any competitor, as in this case, it was clear that on the true construction of the agreement "it is a licence to keep a machine on the site, and it is in return for that licence that the respondent has agreed to pay over a share of the profit". The supply was accordingly an exempt supply as the commissioners contended.
The Court of Appeal in the judgment given by Ward LJ considered that the critical question was "what was the site holder supplying in consideration of taking a share in the profits of cigarette sales?" [1999] STC 701, 706 The answer was that two promises were made by the site holder (the club owner) - one to allow the machines to be provided, installed, operated and maintained at the premises and secondly to grant a restrictive covenant not to allow competition at the premises, thus ensuring exclusivity for SC's products. On the basis of authorities both of the European Court of Justice and of national courts the proper analysis, they concluded, was that there was here one main supply and that the elements of the transaction were indissociable. Properly construed the agreement provided for one relevant supply contained in the first promise of the club owners and that constituted a licence to occupy land so that the supply was exempt pursuant to section 31 of the 1994 Act and Schedule 9 of Part II Group 1.
It is to be noticed that the Court of Appeal considered whether there is here "any licence to occupy land". The appellants contend in this, that they, like the judge, went astray in that they did not consider whether any "letting of immovable property" had occurred. I do not consider that this vitiates the court's decision. It is clear that (a) the terms of the Directive are to be given a Community law meaning and (b) that domestic legislation must be construed as far as possible so as to give effect to a Community directive which it has sought to implement. Moreover exemptions to liability for tax must be interpreted strictly (see Lubbock Fine & Co v Customs and Excise Commissioners ( Case C-63/92) [1993] ECR I-6685).
It is thus plain that the words "licence to occupy land" in the Act cannot go wider than the words "letting of immovable property" in the Directive. In the Lubbock Fine case at p 6691, Advocate General Darmon added as a footnote:
"In my view a letting for the purposes of Community law includes a lease, a licence, 'un bail' or a 'convention d'occupation prêcaire'."
The European Court of Justice has given some indications, in particular factual situations, as to whether what was done there had the characteristics of a "letting".
Thus, in Staatssecretaris van Financien v Coffee Shop Siberie ( Case C-158/98 [1999] STC 742 where the question was whether renting out a space in a café for the sale of narcotic drugs fell within the Directive, though the issue under article 13 (B) (b) of the Sixth Directive did not arise for a decision, Advocat General Fennelly said, at p 753, para 36:
"Suffice it to say that I would not, prima facie, be inclined to regard the renting of a table in a coffee shop as amounting to the letting of immovable property for the purposes of construing an express VAT exemption that must, in any case, be narrowly interpreted".
In EC Commission v United Kingdom ( C-359/97) [2000] STC 777, a case involving tolls for the use of toll roads and bridges, Advocat General Elber said, at p 791, para 74:
"There is no definition of this term [ie the leasing of immovable property] under Community law in the relevant legislation. To clarify its meaning we must, therefore, look at the context in which it is used, taking account of the general structure of the Sixth Directive".
He continued in para 77:
"It is true that an identified area of space (the road travelled along)...
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