Tesco Plc v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | Lord Justice Jonathan Parker,Lord Justice Latham,Lord Justice Schiemann |
| Judgment Date | 14 October 2003 |
| Neutral Citation | [2003] EWCA Civ 1367 |
| Docket Number | Case No: C3 2002 2424 CHANF |
| Court | Court of Appeal (Civil Division) |
| Date | 14 October 2003 |
[2003] EWCA Civ 1367
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT
CHANCERY DIVISION (Mr Justice Ferris)
Lord Justice Schiemann
Lord Justice Latham and
Lord Justice Jonathan Parker
Case No: C3 2002 2424 CHANF
Mr Roderick Cordara QC and Mr Paul Key (instructed by Dario Garcia) for the Appellant
Mr Christopher Vajda QC and Mr Tim Ward (instructed by the Solicitor for the Commissioners of Customs and Excise) for the Respondents
CONTENTS
INTRODUCTION paras 1 –10
THE UNDERLYING FACTS 11 – 27
THE LEGISLATIVE BACKGROUND
AND SOME RELEVANT AUTHORITIES28 – 94
THE ISSUE95 – 96
THE TRIBUNAL'S DECISION 97 – 103
THE JUDGE'S JUDGMENT 104 – 113
THE BATTLE LINES ON THIS APPEAL 114 – 117
THE ARGUMENTS 118 – 150
CONCLUSIONS151 – 179
RESULT180 —182
Lord Justice Jonathan ParkerPART 1. INTRODUCTION
At issue on this appeal is the correct treatment for value added tax ("VAT") purposes of vouchers issued by a supplier pursuant to a scheme entitling a customer who is a member of the scheme to purchase the supplier's goods on preferential terms. The particular scheme in question in the instant case is the 'Clubcard' scheme operated by Tesco plc ("Tesco"). However, the instant case is in the nature of a test case, since its outcome may have an impact on the VAT treatment of other similar schemes.
The appeal is a statutory appeal under section 83 of the Value Added Tax Act 1994 ("the 1994 Act"). It is brought by Tesco against an order made by Ferris J on 21 October 200By his order, Ferris J dismissed Tesco's appeal against part of a Decision of the Value Added Tax and Duties Tribunal (London) (chairman: Mr Malcolm Palmer) ("the Tribunal") released on 24 August 2001, and allowed a cross-appeal by the Commissioners of Customs & Excise ("the Commissioners") against the remainder of the Tribunal's Decision.
Permission for a second appeal was granted by Arden LJ on the papers on 15 February 200On 15 May 2003 Master Venne granted the Commissioners permission to file a Respondents' Notice out of time. The Respondents' Notice invites the Court of Appeal to uphold the judge's order on different or additional grounds.
The proceedings concern not only what I may call the 'basic' Clubcard scheme, involving only Tesco and its customers, but also certain specified variants of the basic scheme involving third parties. I will refer to these variants collectively as 'third party schemes'.
The details of the basic Clubcard scheme are set out in Part 2 of this judgment (The Underlying Facts). For the present, the following short description of the Clubcard scheme will suffice. A customer of Tesco who joins the scheme acquires 'points' on purchases of goods ('premium goods') from Tesco. Periodically, Tesco issues vouchers by reference to the number of points accumulated by the customer during the period in question. The vouchers have a face value expressed in units of 50p, and will be accepted by Tesco ('redeemed') at face value on later purchases of goods ('redemption goods') by the customer. This appeal focuses on the VAT treatment of the vouchers, and in particular on whether they were issued by Tesco for consideration. It is common ground that 'consideration' in this context means consideration according to Community law.
Tesco contends that the vouchers were issued for consideration (in the Community law sense). On that footing, it contends firstly that by virtue of paragraph 5 of Schedule 6 to the 1994 Act the face value of the vouchers, as and when they are issued, falls to be deducted by Tesco from the shelf-price of the premium goods when accounting for VAT on the supply of the premium goods. Secondly, it contends that, as and when vouchers are redeemed, the face value of such vouchers is to be treated for VAT purposes as consideration for the supply of the redemption goods, so that for VAT purposes the total consideration obtained by Tesco for the redemption goods consists of the face value of the vouchers accepted by Tesco in respect of those goods, plus any cash payment made by the customer on the purchase of those goods.
From Tesco's point of view, the commercial significance of these contentions, if they are right, is twofold. In the first place, if Tesco is right it is accountable for the VAT element of the face value of redeemed vouchers on the supply of the redemption goods, rather than on the (earlier) supply of the premium goods. Hence there will be a cash flow benefit for Tesco, particularly if the popularity of the Clubcard scheme continues to grow. In this respect, the issue is (as the Commissioners described it in their Statement of Case to the Tribunal) "a tax point issue". Secondly, Tesco's VAT liability if its contentions are right will be less by an amount equal to the VAT element of the face value of vouchers which were not redeemed. On Tesco's unchallenged evidence, some 7 per cent of all vouchers issued are never redeemed.
The Commissioners, on the other hand, contend that Clubcard vouchers are not issued for 'consideration', in the Community law sense. In support of this contention they submit (pursuant to their Respondents' notice) that if (which they deny) any consideration is provided to Tesco under the Clubcard scheme, such consideration is attributable not to vouchers issued under the scheme but to the 'points' earned or awarded on purchases of premium goods. It follows, the Commissioners contend, that the vouchers do not fall within paragraph 5 of Schedule 6 to the 1994 Act.
Before the Tribunal was an appeal by Tesco against a decision of the Commissioners contained in letters from Mrs Gill Milliam of H.M. Customs & Excise to Mrs Sylvia Smith, Tesco's Group VAT Manager, dated 25 February 1998 and 15 April 1998. By those letters, the Commissioners rejected Tesco's contentions (as summarised above) on the ground that vouchers issued under the Clubcard scheme were not issued for consideration and accordingly do not fall within paragraph 5.
On Tesco's appeal, the Tribunal held in favour of Tesco in relation to the basic scheme and certain of the third party schemes, but in favour of the Commissioners in relation to the remaining third party schemes. Tesco appealed; the Commissioners cross-appealed. Dismissing Tesco's appeal and allowing the Commissioners' cross-appeal, the judge upheld the Commissioners' contention that vouchers issued under the basic scheme or under any of the third party schemes are not issued for consideration, and that accordingly paragraph 5 does not apply. The judge's judgment is reported at [2002] STC 1332.
PART 2. THE UNDERLYING FACTS
The underlying facts are not in dispute. I take them primarily from Mrs Smith's witness statement, the contents of which were not challenged before the Tribunal.
The basic Clubcard scheme
The Clubcard scheme is a business promotion scheme devised by Tesco with a view to developing and increasing customer loyalty. As at April 2001 there were some 9.5M members of the scheme (more than 80 per cent of Tesco customers).
A customer who wishes to become a member of the scheme fills up an enrolment form (enrolment forms are available in all Tesco stores), and 'posts' it in a box provided within the store. There is no fee for joining the scheme. The sample enrolment form exhibited to Mrs Smith's witness statement includes the following:
"Start saving today!
Simply complete this enrolment form and post it in one of the special in-store boxes. Then sign your Tesco Clubcard – it will now give you points when you shop. These turn into pounds and help save you money. Tesco Clubcard is free – it's our way of saying thank-you for shopping at Tesco. Here's how it works:
Check in at the checkout
Whenever you shop at Tesco have your Tesco Clubcard at the ready. The checkout assistant will swipe your card before your first purchase has been recorded. The points you earn will be shown on the till display and on your receipt. Your previous total will also be shown as long as you are shopping in the store where your card was issued.
Turn your points into pounds
Every quarter we will send you your statement. You'll see your points total and, providing you have collected 50 points or more [since increased to 150 points], we'll also send you Tesco Clubcard vouchers which you can spend in store. Simply present them at the checkout to claim your discount. They should be shown along with your card for security purposes."
Then, under the heading "Immediate free enrolment" there are spaces for the applicant to insert his name, his address, his sex, the number and age-groups of members of his household (including himself), and his signature. The form contains a statement by the applicant that he agrees to be bound by the terms and conditions listed on the back of the form. Those terms and conditions provide (so far as may be relevant):
"1. The Tesco Clubcard is issued by and remains the property of Tesco Stores Ltd, who reserve the right to decline issue [sic] or withdraw the card at any time, or to terminate the Clubcard scheme without notice.
2. All participants in the Tesco Clubcard scheme must be resident in the UK and aged 18 years or over.
….
4. To earn points for a transaction, your Tesco Clubcard must be presented at the checkout before your purchases are made …. The card is not transferable, and can only be used by the person whose signature is on the card.
….
6. You must spend at least £10 in a single transaction for that transaction to qualify for points. Then one...
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