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TMI Blog1999 (7) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... ot Talbot Motor Co. Ltd., Ford Motor Co. Ltd. and Land Rover Ltd. The facts are stated in the opinions of their Lordships. Michael Kent Q. C. and Nicholas Randall for the commissioners. David Milne Q.C., Rupert Baldry and Elizabeth Wilson for the taxpayer. Their Lordships took time for consideration. 1 July. Lord Slynn of Hadley. My Lords, British Telecommunications Plc. ( B.T. ) buys a large number of motor cars annually from different manufacturers. The cars are delivered by transport companies on behalf of the manufacturer to B.T.'s premises or at its direction. There is thus no intermediate wholesale or retail dealer. B.T. pays input value added tax to the manufacturer on the cost of transport and delivery; it seeks to set this off against its liability for output tax. Whether it is entitled to do so, and the commissioners contend that it is not, depends on whether the supply of the car and the provision of the transport are separate supplies for VAT purposes, or whether there is one supply of a delivered car. In the former case, B.T. can deduct the input tax paid on transport costs; in the latter, it cannot. The value added tax tribunal by decision rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force it is convenient to refer to that Act, a consolidating Act (as the VAT tribunal did), rather than to the Value Added Tax Act 1983, since there are no material differences. By section 19(2) of the Act of 1994: If the supply is for a consideration in money its value shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration. And by section 21(2)(b): For the purposes of this Act the value of any goods imported from a place outside the member States shall be taken to include the following so far as they are not already included in that value in accordance with the rules mentioned in subsection (1) above, that is to say . . . (b) all costs by way of commission, packing, transport and insurance up to the port or place of importation. The Value Added Tax (Input Tax) Order 1992 (S.I. 1992 No. 3222) made pursuant to section 14(10) of the Act of 1983 (section 25 of the Act of 1994) (which empowers the Treasury to provide for the exclusion from any credit in respect of input tax of any specified supplies) provides: 7(1) Subject to paragraph (2) below tax charged on (a) the supply to a taxable person . . . . . (c) . . . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld Q.C. in Plantifor Ltd. v. Customs and Excise Commissioners 1997 VAT Tribunal Decision 14848 at p. 16, para 4.1 that: Prima facie, therefore, article 11A has nothing to do with the identification of a supply, but operates, when the supply has been identified, [under the earlier titles of the Sixth Directive] to quantify the taxable amount in respect of the supply . . . The question thus remains, as under the Order of 1992, as to whether there was here simply the supply . . . of a motor car. The tribunal and Dyson J. set out the main provisions of the six contracts for the supply of motor cars from the six manufacturers to B.T. which had been taken as samples. I refer to those decisions without repeating all the details of the contracts. There are differences between the terms contained in the contracts made by Rover, Vauxhall, Citro n, Ford, Land Rover and Peugeot, but there are some common threads. Thus B.T. has the ability to order the number of cars it requires and they are to be delivered to B.T. In the case of all but Ford and Peugeot the delivery charge, or a group of charges including the delivery charge, are separately stated in the contract, though there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a physically and economically distinct supply which could be provided for quite easily by the purchasers themselves. The amount of the consideration for the delivery of the vehicles is not, as we have said, a matter which we have any basis for challenging. Where that consideration is separately and exclusively stated, no apportionment is required: where it is not so stated, an apportionment will be required to quantify the delivery charge (and, where relevant, a charge for the first service) which will then be deductible. Dyson J. agreed with that conclusion. He attached importance to the fact that the delivery service was an optional extra which increased the amount charged. He said that the service of delivery is both physically and economically dissociated from the supply of a car and that, had he not found for the Commissioners on the basis of article 11A(2)(b), he would have dismissed the appeal. Nourse L.J., with whom the other members of the Court of Appeal agreed, adopted Dyson J.'s reasoning and conclusion and said [1998] S.T.C. 544, 547: However, the test for non-deductibility is expressed, whether in terms of the supply of the service of delivery being & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the service of providing medical care. The European Court said, at pp. 839-840: On the other hand, indent (c) provides that the member states are to exempt from value added tax 'the provision of medical care in the exercise of the medical and paramedical professions.' It is clear from the position of that indent, directly following the indent concerning hospital care, and from its context, that the services involved are provided outside hospitals and similar establishments and within the framework of a confidential relationship between the patient and the person providing the care, a relationship which is normally established in the consulting room of that person. In those circumstances, apart from minor provisions of goods which are strictly necessary at the time when the care is provided, the supply of medicines and other goods, such as corrective spectacles prescribed by a doctor or by other authorised persons, is physically and economically dissociable from the provision of the service. In Customs and Excise Commissioners v. Wellington Private Hospital Ltd. [1997] S.T.C. 445 the question arose as to whether the supply of drugs was part of a composite supply of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here hotel owners provided a package which included transport to Devon from the north of England. The European Court accepted that where services habitually associated with travel were provided by third parties and took up a small proportion of the package price compared to the accommodation these were a means of better enjoying the principal service supplied by the trader. They were thus ancillary. Where, however, services went beyond those traditionally provided and cannot be carried out without a substantial effect on the package price charge . . . such services are not to be equated with purely ancillary services. The Card Protection Plan case [1999] 3 W.L.R. 203 was concerned with the supply of two services whereas in the present case B.T. was supplied goods (a car) and a service (delivery by a third party). The question is thus in my opinion whether the delivery is ancillary or incidental to the supply of the car or is it a distinct supply. It may be that the physically and economically dissociable test comes to the same thing but the ancillary test avoids the more difficult question as to whether something which is physically separate and economically separate (e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due within ten days after receipt of an invoice. Risk passes on delivery; property passes on the earlier of delivery, payment in whole or part or the issue of vehicle availability sheets so that it seems that in the present contract property will pass usually on delivery. In the Land Rover contract the contract is subject to the standard conditions of contract for the purchase of goods set out in B.T. plc Form MD 801 (edition 1986). These are not included in the papers before the House but they may well include conditions similar to those in clause 4 of the other contracts. In my view here if the transaction is looked at as a matter of commercial reality there was one contract for a delivered car: it is artificial to split the various parts of the transaction into different supplies for VAT purposes. What B.T. wanted was a delivered car; the delivery was incidental or ancillary to the supply of the car and it was only on or after delivery that property in the car passed. The fact that delivery could have been arranged differently under a separate contract between B.T. and the transporter or by B.T. collecting the car itself does not mean that when there is a contract for a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fall within the scope of the Blocking Order, as the tax was charged not on the supply of the motor cars but on a separate supply of transport and delivery services. In other words, the contractual arrangements between B.T. and the manufacturer gave rise to two supplies, not one. The answer to the question whether the courts below were right to sustain this argument must depend upon an analysis of the extent of the transaction for the supply to B.T. of the motor cars. Was the supply of the services of transportation and delivery merely incidental or ancillary to the supply of the motor cars? Or was it a distinct and independent supply which can properly be regarded as separate from the supply of the motor cars and thus outside the scope of the Blocking Order? It is necessary first to identify the test which must be applied as to whether a particular supply is incidental or ancillary to another supply or is distinct and separate from it. In Card Protection Plan Ltd. v. Commissioners of Customs and Excise (Case C-349/96) [1999] 3 W.L.R. 203 which was not available to the Court of Appeal when it issued its judgment in this case on 18 March 1998 the European Court of Justice said that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same concept as that which is contained in the words integral, incidental and ancillary. But the facts and the questions to be decided in those two cases were different from those in the present case. In Commission of the European Communities v. United Kingdom the problem related to the interpretation of the term medical care in the context of article 13A(1) of the Sixth Directive, and in particular as to whether the exemption covered goods such as corrective spectacles supplied to patients in connection with the provision by the doctor or other authorised person of medical care. As Millett L.J. recognised in the Wellington Private Hospital case, at p. 459C-E, the court was not laying down a general rule of classification for use in all cases where the question is raised as to whether a particular supply is or is not incidental or ancillary to another supply. It may be said that before the supply can be regarded as a separate and distinct supply it must, at least to some degree, be physically and economically dissociable from the other supply. But it would not be right to take this factor as the sole criterion as to whether the supply was separate and distinct from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each of the sample transactions is the purchase by B.T. from the manufacturer of a delivered motor car. Property and risk were to remain with the manufacturer until the point of delivery. B.T. could have gone to the factory to take delivery of the motor car, but it was more convenient to get the manufacturer to deliver the car to B.T. This seems to me to be a good example of the kind of case, in the context of a transaction which involves the supply of both goods and services, which the court had in mind when it referred in Card Protection Plan Ltd. v. Customs and Excise Commissioners (Case C349/96) [1999] 3 WLR 203, 227, para. 30 to a service which did not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied. In this case, because of the volume of their purchasing power, B.T. were able to deal directly with the manufacturer instead of, as others do who buy cars for their businesses, purchasing their cars through dealers in motor cars. The sole purpose of obtaining and paying for the transport and delivery services was to enable B.T. to complete the purchase transaction by taking physical delivery of the cars at a place of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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