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TMI Blog2005 (10) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... orpe. Rupert Anderson QC and Nicola Shaw for the commissioners. Michael Sherry and Louise Rippon for the taxpayer. Their Lordships took time for consideration. 20 October. Lord Steyn 1 My Lords, I have read the opinion of my noble and learned friend, Lord Walker of Gestingthorpe. I agree with his analysis of the case. I would also allow the appeal. LORD HUTTON 2 My Lords, I have had the advantage of reading in draft the opinion of my noble and learned friend, Lord Walker of Gestingthorpe. I agree with it and for the reasons which he gives I would also allow the appeal. LORD RODGER OF EARLSFERRY 3 My Lords, I have had the advantage of considering in draft the speech which my noble and learned friend, Lord Walker of Gestingthorpe, is to deliver. I agree with it but add some short observations of my own since the House is to allow the appeal while rejecting one of the main planks in the commissioners' argument in support of it. 4 Article 13A(1)(i) of Council Directive 77/388/EEC ( the Sixth Directive ) requires member states to exempt from value added tax inter alia young people's education and vocational training, including the supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fact, the college send their students printed materials which they are expected to study. The college contend, accordingly, that they supply education in terms of section 31(1) and Schedule 9, but that they also supply the students with books (comprising the printed materials), in terms of section 30(2) and Schedule 8. By virtue of section 30(1), the supply of the printed materials should therefore be treated as a taxable supply and the college should be entitled to deduct the input tax attributable to that supply. The commissioners do not dispute that the printed materials could constitute books for the purposes of Schedule 8. They contend, however, that the college make only a single supply, viz a supply of education. That supply is exempt. Since there is accordingly no taxable supply, there is no basis for the college to recover input tax. The core issue in the appeal is, therefore, whether the college make a single (exempt) supply of education or whether they also make a distinct zero-rated supply of books to their students. 7 Broadly similar questions have come before the courts on many occasions and have generated a considerable number of reported decisions. Recently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y services which share the tax treatment of the principal service . Again, consistency, and the very nature of the legal problem, would suggest that, strictly speaking, the question is what constitutes a single supply . 9 These slight anomalies in the analysis and language are not to be found in the French text, Recueil, [1999] ECR I-973, I-1013, points 29 et 30, which is, of course, the text drafted by the court: 29. A cet gard, compte tenu de la double circonstance que, d'une part, il d coule de l'article 2, paragraphe 1, de la sixi me directive que chaque prestation de service doit normalement tre consid r e comme distincte et ind pendante et que, d'autre part, la prestation constitu e d'un seul service au plan conomique ne doit pas tre artificiellement d compos e pour ne pas alt rer la fonctionnalit du syst me de la TVA, il importe de rechercher les l ments caract ristiques de l'op ration en cause pour d terminer si l'assujetti livre au consommateur, envisag comme un consommateur moyen, plusieurs prestations principales distinctes ou une prestation unique. 30. Il convient de souligner qu'il s'agit d'une prestation unique ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction in which he performs several services, none of which can be singled out as the dominant or principal supply, it may nevertheless be necessary to consider whether, for tax purposes, they are properly to be regarded as elements of a single supply. The supply of restaurant services is one example: Faaborg-Gelting Linie A/S v. Finanzamt Flensburg (Case C-231/94) [1996] ECR I-2395. 11 The point would scarcely be worth re-emphasising, were it not for the position adopted by the commissioners in this case. They persuaded both the tribunal and Lightman J that the supply of the printed materials by the college was ancillary to the college's principal supply of education. They advanced an argument to that effect in support of their appeal to your Lordships' House. But it is hard to swallow. After all, the tribunal found as a fact that the average student was expected to spend about 94% of his time using the printed materials. Taken together, the remaining elements, including face-to-face teaching and sitting examinations, counted for only 6% of the average student's time. Supplying the printed materials for the students to study was therefore, by far, the main metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be artificially split, so as not to distort (alt rer) the functioning of the value added tax system. The answer will accordingly be found by ascertaining the essential features of the transaction under which the taxable person is operating when supplying the consumer, regarded as a typical consumer. Since the 1994 Act has not adopted any different mechanism to give effect to this aspect of the Sixth Directive, the same approach must be applied in interpreting the provisions of the Act. The key lies in analysing the transaction. 13 In the present case the tribunal, having taken into account all the factors, concluded that the college made one supply, the provision of education. In my view, the tribunal were entitled to reach that conclusion on the basis of the findings which they made especially their finding that the students took the courses in order to obtain the relevant qualification offered by the college. The transaction was therefore one which gave the students the opportunity, by successfully studying the printed materials and completing the other necessary steps, to obtain a valuable qualification. That was what the students were purchasing. For the reasons given by Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That is the effect of sections 25(3) and 30(1) of 1994 Act. If an enterprise makes both exempt and zero-rated supplies it will be in an intermediate position. The details of this are complicated and it is unnecessary to go into them, but the enterprise will almost always be better off financially if it can establish that some of its supplies are zero-rated, and that is what the college has been trying to achieve in this litigation. 16 The college's appeal was dismissed by the tribunal (Mr Rodney P Huggins and Mr Sunil K Das) [2003] V DR 165 on 29 November 2002. The college appealed to the Chancery Division of the High Court but its appeal was dismissed by Lightman J [2004] STC 235 on 13 November 2003. But its further appeal to the Court of Appeal (Ward and Jacob LJJ and Sir Charles Mantell) [2004] STC 1471 was allowed on 11 August 2004. The commissioners now appeal to your Lordships' House. The facts 17 The college was founded in 1919 and incorporated by Royal Charter in 1922 as a college associated with London University. In 1969 it obtained a supplemental charter enabling it to move to and become associated with the University of Reading. That occurred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The college provides all necessary materials to enable students to pass their examinations. The majority of materials comprises A4 binders of printed material written, produced and printed at the college's premises at Reading University. Typically, students receive one or two binders per module studied. For most pre-qualification courses, students are expected to study four modules per year. The printed study material may be supplemented by textbooks, audio and video tapes and CD roms. 23. The amount of materials and other methods of communication provided by the college is vast. 24. Study is focused around regular assignments which students are expected to complete. These are submitted to the college for marking and comments. It is possible to pass a course without completing the assignments, although this reduces the chance of success. The assignments make up 30% of the mark and the pass mark for each course is 40%. A significant number of students fail to complete all of the assignments. 25. An average student is expected to spend about 94% of their time using the study material provided, 4.5% of their time in face-toface teaching and 1.5% in sitting exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere used without face-to-face tuition. That may be the case but we find that on the evidence before us the printed materials are not an end in themselves for the students. Furthermore, only the students can obtain the printed materials; they are not on general sale. 62. In our view, although the means of educating the students relies, principally, on the provision of written materials, this does not detract from the college providing overall a supply of education. 63. We have found that the college employed several means in order to provide education. These include mainly: the written materials, assignments which count towards qualifications and are marked by experts, face-to-face teaching sessions, access to the college's website and examinations. The tribunal sought to apply the principles laid down by the Court of Justice of the European Communities in Card Protection Plan Limited v. Customs and Excise Comrs (Case C-349/96) [1999] 2 AC 601. The tribunal concluded (para 66) that there was only one supply, which was the provision of education. It added, in para 67: The supply of the printed materials is an ancillary element and a means of better enjoying the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and their citation should be discouraged. Ward LJ referred, at p 1483, para 43, to a large number of authorities and extracted an anthology of citations which he regarded as standing out as litmus tests . He sought to apply these principles in the last four paragraphs of his judgment, beginning, at the outset of para 44, with the statement: There clearly was a separate supply of goods, namely the printed material from which the students were to prepare their assignments and study for their examinations. He considered that the supplies separated out easily and naturally into supplies of goods and services. 27 Ward LJ then asked himself whether the supply of written material was ancillary to the other supply of education. He said, at p 1484, para 45: The tribunal's conclusion that the printed materials were not an end in themselves for the students is, however, an inference to be drawn from the primary facts which this court is as capable of deciding as the tribunal was. Ultimately it is a question of law what the essential object [or] character of this contract was. He made some observations about the provision of distance-learning courses for employed students ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, in paras 27-29, that the diversity of commercial operations made it impossible to give exhaustive guidance as to how to approach the problem correctly in all cases. Regard should always be had to the circumstances in which the transaction took place. Every supply of 'a service' is by definition distinct and independent but a supply which 'from an economic point of view' comprises a single service should not be artificially split into separate 'services'. What matters is 'the essential features of the transaction'. Lord Hoffmann then went on to quote para 30 of the judgment of the Court of Justice in the Card Protection Plan case [1999] 2 AC 601, 627: There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied: Customs and Excise Comrs v. Madgett and Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al's earlier conclusions, which were determinative of the matter. 32 Lightman J perceived this difficulty and sought to deal with it in paragraph 34 of his judgment [2004] STC 235, 244, which I have already quoted. But he seems, with respect, to have been hindered by the same perception that every case had to be squeezed into a matrix of what was principal and what was ancillary . What the judge called a component part of a single supply may be (in the fullest sense) essential to it a restaurant with no food is almost a contradiction in terms, and could not supply its customers with anything and yet the economic reality is that the restaurateur provides a single supply of services. Without the need to resort to gnomic utterances such as the medium is the message , the same sort of relationship exists between the educational services which the college provides to a student who takes one of its distance-learning courses and the written materials which it provides to the student. 33 Where ancillary goods or services are relevant to the analysis, Lightman J's description of them as add-on may be helpful, so long as it is borne in mind that they may be optional e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore interfering with the decision of the tribunal merely because it would have put the case on the other side of the line. 36 This case seems to me to reinforce the importance of that call for circumspection. The tribunal saw and heard the witnesses giving their oral evidence. Not every nuance of a first-instance tribunal's assessment of the evidence can be conveyed in its written reasons, however carefully prepared (see Biogen Inc v. Medeva Plc [1997] RPC 1, 45: characterisation of supplies for VAT purposes, like a question of obviousness in patent law, involves applying an abstract categorisation to a sometimes disparate aggregation of primary facts). Ward LJ substituted his own view as to the evaluative conclusion to be derived from the primary facts. In my respectful opinion his reasons for doing so (as explained at the end of his judgment [2004] STC 1471, 1484, para 45) were inadequate and unconvincing. 37 In the course of the hearing in your Lordships' House a question was raised as to paragraph 4 of Group 6 in Schedule 9 to the 1994 Act, which provides for the exemption (subject to certain conditions) of the supply of any goods or services (other than examin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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