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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 ..... . The facts are stated in the opinion of Lord Walker of Gestingthorpe. 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 educa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also not in dispute that, as a matter 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principal "service", while one or more elements are to be regarded as ancillary "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 égard, compte tenu de la double circonstance que, d'une part, il découle de l'article 2, paragraphe 1, de la sixième directive que chaque prestation de service doit normalement être considérée comme distincte et indépendante et que, d'autre part, la prestation constituée d'un seul service au plan économique ne doit pas être artificiellement décomposée pour ne pas altérer la fonctionnalité du système de la TVA, il importe de rechercher les éléments caractéristiques de l'opération en c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a single supply even though it comprises more than one element. The court chooses to highlight the case where there is a principal supply and an ancillary, or accessory, supply. But, since the court envisages that the principal supply may itself comprise more than one element, plainly, in cases where there is no ancillary supply, a single supply may still be made up of more than one element. So where a taxpayer is involved in a transaction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of supplies. The question is whether, for tax purposes, these are to be treated as separate supplies or merely as elements in some over-arching single supply. According to the Court of Justice in Card Protection Plan Ltd v. Customs and Excise Comrs, at p 627, para 29, for the purposes of the Sixth Directive the criterion to be applied is whether there is a single supply "from an economic point of view". If so, that supply should not be artificially split, so as not to distort (altérer) 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 conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt supplies, it receives no output tax against which to set the input tax which it has paid in carrying on its activities, and it is in the position of a consumer which has to bear the burden of the input tax itself. If an enterprise makes no supplies except zero-rated supplies, it receives no output tax but is nevertheless able to treat each supply which it makes as a taxable supply and obtain a refund of the input tax which it has paid to its own suppliers. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the students. There are four main elements as follows: (a) study at home or in the workplace of material provided by the college; (b) preparation and submission of assignments; (c) attendance at face-to-face teaching sessions; and (d) access to the college's virtual learning environment provided on its website including academic forums for students and tutors and access to on-line lecture notes and sources of web-based information. "22. 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely different field and there is no realistic similarity. It is providing education at a high level as an entity. "61. In evidence, Mr Batho recognised that each course qualification was the end that students sought. The course qualifications carry advantage for the students in their specialised professional careers. Mr Sherry argued that the tuition could not possibly be enjoyed without the study materials but the latter can and in a minority of instances were 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al [2004] STC 1471 allowed the appeal in a single judgment delivered by Ward LJ, with whom Jacob LJ and Sir Charles Mantell agreed. Ward LJ did not have the advantage of Lord Hoffmann's observations, made three months later, in Beynon and Partners v. Customs and Excise Comrs [2005] 1 WLR 86, 90-91, para 19, to the effect that since the decision of the Court of Justice in the Card Protection Plan case, which gave authoritative guidance on this point, there is no advantage in referring to earlier cases 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sised the need to take an overall view, without "over-zealous dissection", and to look for the essential purpose (objectively assessed) of a transaction. In the British Telecommunications case he referred, at p 1384B, to the need to look at the commercial reality. In the same case Lord Hope of Craighead said, p 1386D-E, that a supply which comprises a single service from an economic point of view should not be artificially split. In Beynon's case Lord Hoffmann explained, at p 91, para 20: "The Court of Justice observed, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he only point on which I can find any significant error in the approach of the tribunal. The evaluative findings which the tribunal made at paras 60-63 of its decision, set out above (para 23), were conclusions which were open to it on the evidence. The only error was the ddition, in para 67, of the statement that the written materials were ancillary to the provision of education. The tribunal may have thought that authority required it to make this additional finding. In my view it was not necessary, nor (on any sensible use of the word "ancillary") was it correct. But it did not invalidate the tribunal'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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have not treated VAT classification in the same way as some questions of classification (for example, whether a contract is of service or for services) which, notwithstanding that there are no facts in dispute, are deemed to be questions of fact so as to exclude on appeal on a question of law: see the discussion in Moyna v. Secretary of State for Work and Pensions [2003] 1 WLR 1929, 1935, paras 22-25. On the other hand, as Lord Hope of Craighead said in the British Telecommunications case [1999] 1 WLR 1376, 1386, the question is one of fact and degree, taking account of all the circumstances. In such cases it is customary for an appellate court to show some circumspection before 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 VA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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