1999 (7) TMI 659 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the supply of motor cars and the provision of transport and delivery services are separate supplies for VAT purposes.
2. Whether Article 11A(2)(b) of the Sixth VAT Directive had been incorporated into national law and its effect.
3. Whether the VAT on transport and delivery services can be deducted as input tax by the taxpayer.

Summary:

Issue 1: Separate Supplies for VAT Purposes
British Telecommunications Plc. (B.T.) buys motor cars from various manufacturers, with delivery arranged by the manufacturers. The key question is whether the supply of cars and the transport services are separate supplies for VAT purposes. The VAT tribunal and the Court of Appeal found that B.T. could deduct the input tax on transport costs, while Dyson J. held it could not. The tribunal concluded that the delivery services were distinct from the supply of cars, stating, "the supplies of transport in the form of delivery services were different and distinct from the supplies of the cars." However, the House of Lords disagreed, emphasizing the commercial reality that B.T. wanted a "delivered car," making the delivery incidental or ancillary to the supply of the car.

Issue 2: Incorporation and Effect of Article 11A(2)(b)
The tribunal questioned whether Article 11A(2)(b) of the Sixth Directive, which includes incidental expenses like transport in the taxable amount, was incorporated into national law. Dyson J. and the House of Lords found that "consideration" in section 19 of the Value Added Tax Act 1994 includes all incidental expenses, aligning with the Directive. The House of Lords stated, "Consideration includes all the incidental expenses incurred and paid for in return for the supply."

Issue 3: Deduction of VAT on Transport and Delivery Services
The House of Lords determined that the supply of transport and delivery services was ancillary to the supply of motor cars, making the VAT on these services non-deductible. They noted that treating the delivery as a separate supply would give B.T. an unfair tax advantage over other traders. The judgment highlighted, "The essential features of a transaction may show that one supply is ancillary to another and that it is the latter that for VAT purposes is to be treated as the supply."

Conclusion:
The appeal was allowed, restoring Dyson J.'s order. The House of Lords concluded that the delivery services were ancillary to the supply of cars, making the VAT on these services non-deductible as input tax. The judgment emphasized the importance of considering the commercial reality and the overall transaction rather than artificially splitting it into separate supplies.