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Case No: QBCOF 99/0122/CMS4
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION (CROWN
OFFICE)
Royal Courts of Justice
Strand, London, WC2A 2LL
Thursday, 3 February 2000
B e f o r e :
LORD JUSTICE STUART-SMITH
LORD JUSTICE WARD
and
LORD JUSTICE SCHIEMANN
- - - - - - - - - - - - - - - - - - - - -
|
THE
COMMISSIONERS OF CUSTOMS AND EXCISE
|
Respondent
|
|
-
and -
|
|
|
PLANTIFLOR
LIMITED
|
Appellant
|
- - - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
Mr R Cordara Q.C. and Miss P Cargill-Thompson (instructed by Mr. Dario
Garcia for the Appellant)
Mr N Paines Q.C. [Mr D Beard 3/2/00] (instructed by Solicitors for
Customs and Excise for the Respondent)
- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court
Crown Copyright ©
Thursday, 3 February 2000
JUDGMENT
LORD JUSTICE WARD:
Plantiflor Limited (`Plantiflor'), a subsidiary of a Dutch company, Bakker
voor de Tuin BV, which trades extensively throughout Europe, have a large
business selling plants, bulbs and other horticultural and related products
through catalogues. The customers can elect to collect the goods from the
company's garden centre in the Netherlands but nearly all take up the request
in the catalogue that Plantiflor arrange delivery on their behalf via Royal
Mail Parcelforce in which event, in addition to the price of the plants, they
pay a further sum of £2.50 for postage and handling charges. At the time
the postage charge as annually negotiated by Plantiflor and Parcelforce was
£1.63p. The conveyance of postal packets by the Post Office (which
includes Parcelforce) is exempt from VAT. The Commissioners of Customs and
Excise nonetheless contend that the whole of £2.50 is liable to VAT. Mr P
M F Horsfield Q.C., the chairman of the London Value Added Tax Tribunal
rejected that contention and his judgment is reported at [1997] V & D R
301. On 6 November 1998 Laws J. (as he then was) allowed the Commissioner's
appeal as more fully appears from his judgment reported at [1999] STC 51.
Plantiflor now appeal to us. The facts may appear to be deceptively simple
but, as in most VAT cases, the answer seems to be made to be anything but
straightforward.
The Facts.
Plantiflor trade as Bakker Holland, Spalding Bulb Company and Hortico Bakker.
They have a garden centre at Spalding in Lincolnshire. The parent company
carries on a very similar mail order business throughout Europe. In the United
Kingdom they send their catalogues directly to home gardeners and this produces
about 600,000 orders per annum. The catalogue contains a paragraph on the
`Convenience of Delivery to Your Door', stating:-
"Bakker deliver every order, whether large or small, direct to your home."
Then there is this provision for `Collection and Delivery':-
"Orders collected incur no handling charges. If you require delivery by
carrier then a nominal charge is made to cover mail order packing and handling.
We will happily arrange delivery on your behalf via Royal Mail Parcelforce if
requested, in which case please include the Postage and Handling charge on your
order. We will then advance all postal charges to Royal Mail on your
behalf."
The Order Form provides for the plants to be listed by catalogue number, name
and price. At the foot of the column there is provision for the `Total Order
Value' to be inserted. There is a charge of 25p for `Goods in Transit
insurance' which can be deleted if not required. Then there is provision for
`Contribution towards Post and Packing £2.50'. Then a `Final Total' is
entered. The so-called `invoice' raised for the particular transaction with
which we are concerned (though it should more accurately be called a receipt)
repeats the description of the bulbs and states the cost, in this case
£52.00. Then followed:-
"Postage (1.63) plus packing (0.87) charges 2.50
Transport insurance 0.25
Total 54.75
...
Specification V.A.T.
Total V.A.T. 53.12 17.50 % = £7.91"
It is apparent that the amount treated as liable to V.A.T. is the sum of
£52.00 for the cost of
the plants, the packing charge of 87p and the transport insurance of 25p.
In 1993 arrangements were made to bring the United Kingdom business into line
with the European Division because in both Holland and Germany the postage
value passed to the customer was not subject to output VAT. Given the volume
of business Plantiflor were able to pass to the Post Office, they had an
arrangement for a reduced postage price. By an agreement, signed in January
1994, but having effect from 1 August 1993, it was provided as follows:-
"2.1 Plantiflor despatch a minimum of 400,000 parcels in each year of this
Agreement.
2.2 ... Plantiflor shall use Parcelforce for the despatch and delivery of
100% of its parcels traffic."
A price was agreed for the postage of each parcel; it was to be index linked
and varied in August of each of the five years the agreement was to run. The
price was reduced when a system for bar coding was introduced. Although the
postage price was not known at the time in the summer when the catalogues were
printed, it was fixed by the time orders began to be placed and was thus
capable of ascertainment had enquiry been made to discover how much of the
£2.50 payment related to postage. Plantiflor delivered about £2000
worth of parcels by trailer each week. Parcelforce was paid weekly by direct
debit.
The intention of the new arrangement was that the customer would benefit from
the facility agreed with Parcelforce and that Plantiflor would act as agent for
their customers in arranging for delivery services to be supplied direct to
those customers, save in relation to the sending of replacement goods to
customers who were not satisfied with or had not received the plants that were
originally despatched. Plantiflor accordingly informed Parcelforce by letter
dated 21 September 1993 that henceforth they would make use of Parcelforce's
delivery service as agent for their retail customers. These changes were
effected with the approval of the Commissioners who agreed that the postal
expense could be treated as a disbursement and so shown on any VAT invoice.
Plantiflor met all of the conditions prescribed in paragraph 83 of Customs
Notice 700 which was intended to give effect to Article 11 A 3(c) of the Sixth
Directive to which I will refer shortly. The main conditions were that
Plantiflor had to act as the agents of their customer when they paid the third
party and that the customer actually received the services provided by the
third party. Both in their letter dated 12 September 1994 and on a subsequent
visit to Plantiflor, Customs and Excise appeared to have been satisfied that
the arrangements were effective and the postage element was not treated as
subject to output tax. It came, therefore, as some surprise to Plantiflor that
in April 1996 the Commissioners changed their stance and claimed the VAT. That
has led to these proceedings.
The legislative framework.
The first EEC Council Directive of 11 April 1967 provides by Article 2
that:-
"The principle of the common system of value added tax involves the application
to goods and services of a general tax on consumption exactly proportional to
the price of the goods and services ..."
The EC Sixth Council Directive (77/388/EEC) provides by Article 2.1 that `the
supply of goods or services effected for consideration' should be subject to
VAT. By Article 6 `supply of services' means any transaction which does not
constitute a supply of goods. The taxable amount is regulated by Article 11 A
which provides as follows:-
"1. The taxable amount shall be:
(a) in respect of supplies of goods and services ... everything which
constitutes the consideration which has been or is to be obtained by the
supplier from the purchaser, the customer or a third party for such supplies
...
2. The taxable amount shall include:
(a) ...
(b) incidental expenses such as commission, packing, transport and insurance
cost charged by the supplier to the purchaser or customer. ...
3. The taxable amount shall not include:
(a) ...
(b) ...
(c) the amounts received by a taxable person from his purchaser or customer as
repayment for expenses paid out in the name and for the account of the latter
which are entered in his books in a suspense account. The taxable person must
furnish proof of the actual amount of this expenditure and may not deduct any
tax which may have been charged on these transactions."
The provisions of the Directive have been carried into effect by sections 2
and 19 of the Value Added Tax 1994. Section 2 provides:-
"(1) ...VAT shall be charged ... -
(a) on the supply of goods or services by reference to the value of the supply
as determined under this Act; ..."
Section 19 provides for the value of the supply of goods or services in these
terms:-
"(1) For the purposes of this Act the value of any supply of any goods or
services shall, except as otherwise provided by or under this Act be determined
in accordance with this section ...
(2) 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.
(3) ...
(4) Where a supply of any goods or services is not the only matter to which a
consideration in money relates, the supply shall be deemed to be for such part
of the consideration as is properly attributable to it."
Section 31 and Schedule 9 Group 3, giving effect to Article 13 of the Sixth
Directive, exempts:-
"1. The conveyance of postal packets by the Post Office.
2. The supply by the Post Office of any services in connection with the
conveyance of postal packets."
It is common ground that Plantiflor's goods delivered through Parcelforce are
`postal packets' covered by the exemption and that Parcelforce itself is an
emanation of the Post Office.
The decision of the London Tribunal.
The questions which arose before the Tribunal were:-
"(a) Whether the delivery of purchased goods to customers represented a
separate supply of a delivery service for VAT purposes or whether it was an
integral part of a single supply which includes the supply of the goods
themselves?
(b) If the delivery was a separate supply, whether it was a supply by the Post
Office direct to the customer (so as to be exempt under Group 3 Schedule 9 VAT
Act 1994) or was it or did it involve a supply by Plantiflor to the customer
which does not qualify for exemption?
(c) If delivery was or involved a separate non-exempt supply by Plantiflor,
whether the payment made for delivery formed part of the consideration which
governs the amount of output tax payable by Plantiflor or was it excluded
either (i) as not constituting consideration for Plantiflor's supply or (ii) as
being specifically excluded by Article 11.A.3.(c) of the Sixth Directive?"
As the decision is reported all I need do is state the essence of his
conclusions expressed in paragraph 7. They were :-
(1) The delivery service was a separate supply from the supply of the
goods itself. The two supplies were both physically (one was the supply of
goods and the other of a service) and economically dissociable and the service
element was not integral to the supply of the goods.
(2) The supplier of the delivery service was not Plantiflor but
Parcelforce. The role of Plantiflor was that of agent or other
intermediary.
(3) Article 11 A 2 (b) does not operate so as to prevent the delivery
of the goods being a separate supply.
(4) It was not necessary to decide whether the intermediary role of
Plantiflor was strictly one of agency in accordance with English law though if
it was necessary to decide that point the Tribunal would hold that Plantiflor
became an agent in relation to the posting of the packets under the wording of
the catalogue.
(5) Plantiflor did supply a non-exempt service in acting as that
intermediary but the consideration for that supply was included in the purchase
price of the goods (plus the packaging cost), so no extra VAT was payable as a
result.
(6) In the light of those conclusions the question whether the postage
moneys were consideration and/or whether they fell within Article 11 A 3(c) did
not arise though the Tribunal inclined to the view that the postage moneys did
fall within that Article but may not have fallen within the principles laid
down in H J Glawe Spiel-Und Unterhaltungsgeräte
Aufstellungsgesellschaft mb H & Co KG -v- Finanzamt Hamburg - Barmbek -
Uhlenhorst [1994] STC 534 and Nell Gwynn House Maintenance Fund Trustees
-v- Customs and Excise Commissioners [1999] STC 79.
Consequently he held that VAT was not payable on the postage charge of
£1.63.
The appeal to Laws J.
The characterisation of the supplies was not challenged and the critical issue
before him was whether the £2.50 paid by the customer to Plantiflor
represented the consideration for the supply of arranging delivery, as the
Commissioners submitted, or whether, as Plantiflor contended, £1.63 of
that sum could not be taken as consideration moving from the customer to
Plantiflor but only as the consideration for Parcelforce's supply of the
service of delivery to the customer.
He held that Plantiflor did not act as agent for the customer and accordingly
could not contend that the postal charge was excluded from the taxable amount
by Article 11 A (3)(c). The determinative question was whether the postal
charge was received and held on behalf of the party to whom it would be
paid and whether there was a common intention that the specific fund in
question should belong to someone other than the tax payer. On the facts
Parcelforce had no special claim to the individual sums paid to cover the cost
of delivery and had no more nor less than a general right in contract to
recover from Plantiflor the amounts invoiced by it under the standing agreement
and paid by direct debit.
The critical issues raised before us.
The essential questions were:-
1. Who supplied what goods or services to whom?
2. What was the consideration for each such supply obtained by the supplier
from the purchaser?
The relevant supplies.
As already indicated, this was the principal issue before the Tribunal.
Indeed the suggestion that there was only one integral supply was the reason
given by the Commissioners for changing their minds in 1996. Dealing with that
aspect of the Tribunal's decision, Laws J. said at p.56j:-
"Though it was not his original position Mr Paines was prepared to accept that
Plantiflor may be taken to make two supplies to its customers, namely a supply
of goods, the plants themselves, and a supply of services, constituted by
arranging for the goods' delivery; and that Parcelforce makes a supply of
services to the customer by actual delivery of the goods. This concession (if
that is the right word) by Mr Paines has cleared a lot of ground which was
earlier disputed. And it was plainly rightly made. The Tribunal concluded
([1997] V & D R 301 at 322-323, paras 7.1 (1) and (2)): "The delivery
service was ... a separate supply from the supply of the goods itself ... (and)
the supplier of the delivery service was not Plantiflor but Parcelforce". Had
it been necessary I would have held that these findings were, on the facts,
unimpeachable on Wednesbury grounds ..."
In his oral submissions to us, not foreshadowed by his skeleton argument, Mr
Paines Q.C. sought to reopen those matters and to submit:-
(i) There was only one integral supply of the sale of delivered plants; and
(ii) alternatively, even if he is held to the finding that the delivery was a
supply by Parcelforce to the customer, that did not preclude the finding which
ought to be made of a further supply of services by Parcelforce to Plantiflor.
For my part I would refuse to permit those matters to be reopened for the
following reasons:-
1. They were conceded below, seemingly without adequate reservation of the
right to argue the points in this court. Although Laws J. expressed some doubt
as to whether or he was correctly describing it as a concession, he later at p.
59a says that the fact of separate supplies had been `rightly conceded' by
counsel. Mr Paines explained to us that he was merely referring to a layman's
view of the arrangements, not a VAT analysis of them. Laws J. clearly did not
so understand him. If, however, this were his only obstacle, I would not
prevent him trying to reopen matters.
2. In fact, however, neither challenge to the decision was raised in the
Respondents' Notice. Taking a point foreshadowed in the skeleton argument, the
notice given on 3 June 1999 sought only to contend that:-
"... the decision of the High Court should be affirmed, in addition to the
grounds relied upon by the learned judge, on the grounds that on the true
construction of section 19(2) of the Value Added Tax Act 1994 and/or Article
11A(2)(b) of the Sixth Directive the sum received by the Appellant and paid by
it to the Post Office forms part of the consideration upon which value added
tax is to be calculated."
That deals with a quite different point, namely the consideration for the
supply, not the nature of the supply itself. Insofar as section 19(2) or
Article 11A(2)(b) could be said to deal with supply, the Tribunal held in
paragraph 4.1, ([1997] V & D R 301 at 313-314):-
"Prima facie, therefore, Article 11A has nothing to do with the
identification of a supply, but operates, when the supply has been identified
to quantify the taxable amount in respect of the supply ".
That conclusion met with the full agreement of Lord Slynn of Hadley in
Customs and Excise Commissioners -v- British Telecommunications PLC
[1999] STC 758, 762g. I add my modest agreement.
3. No application was in fact made for leave to amend the Respondents' Notice,
Mr Cordara Q.C. having indicated his objections to the point being taken.
4. In any event, I consider that both submissions are bound to fail as I shall
explain.
An integral supply or separate supplies?
Mr Paines seeks to submit that the Tribunal misdirected itself by adopting the
test of whether or not one supply was physically and economically dissociable
from the other. He submits this test has become devalued as a result of the
decisions of the European Court in Card Protection Plan Limited -v- Customs
and Excise Commissioners (case C-349/96) [1999] 2 AC 601 and the comment
on that case by Lord Slynn in BT. Lord Slynn said at p. 765:-
"I do not read EC Commission -v- United Kingdom as introducing a
different test (the physically and economically dissociable test). The phrase
`economically and physically dissociable' was simply a description in that case
of the difference between a supply of goods and the provision of services in
question. It is to be noted that in Card Protection Plan Limited -v-
Customs and Excise Commissioners (case C-349/96) [1999] STC 270 the phrase
`physically and economically dissociable' is not used.
...
Card Protection Plan Limited was concerned with the supply of two
services whereas in the present case BT 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.g. because a separate charge is identified) is thereby necessarily
`dissociable'."
It may well be, therefore, that henceforth it will be preferable to concentrate
on whether one element is ancillary or incidental to the other. The Tribunal
did not limit itself to the former test but looked at the matter in the round.
Although at the beginning of paragraph 7.1(1) of the decision the Tribunal
referred to the dissociability test, the paragraph concluded:-
"In short this does not seem to me to be a case in which the service element
was `integral' to the supply of goods in the words of Lord Donaldson MR in the
BA case (or `so dominated by' the element of the supply of goods `as to
lose any separate identity' in the words of Millett L.J. in the BUPA
case)."
It is in the BUPA case to which the Tribunal fully directed itself that
Millett L.J. refers to the supplies being `ancillary' or `incidental' and so,
given the different ways of looking at the question, I cannot see any fault in
the approach of the Tribunal. Lord Hope of Craighead was of the opinion in
BT that it would not be right to take the physically and economically
dissociable factor `as the sole criterion' as to whether the supply was
separate and distinct from the other supply or was merely incidental or
ancillary to it, (p.768d). The chairman did not fall into that error, or any
error in this regard.
Like Laws J, I would not interfere with the Tribunal's conclusion; indeed I
consider that it was right. It is, as Lord Hope said at p. 768f, `a question
of fact and degree, taking account of all the circumstances'. The crucial
distinction between the BT case and this is that their property in the
motor cars passed on payment and so as a matter of `commercial reality' there
was one contract for a delivered car and it was artificial to split the various
parts of the transaction into different supplies for VAT purposes. Here
property passed at the latest when the plants were packed. Taking full account
of Lord Hope's warning that neither the fact that separate prices had been
identified nor the fact that delivery was optional was conclusive, nonetheless
I am quite satisfied that on the facts of the case before us, delivery was
quite separate from sale and the Tribunal was right so to treat it.
A fourth supply by Parcelforce to Plantiflor?
To support his submission that Parcelforce supplied a service both to the
customer and to Plantiflor, Mr Paines relies on Customs and Excise
Commissioners -v- Redrow Group PLC [1999] STC 161. It was a very different
case. Redrow was a house building company which operated a sales incentive
scheme whereby it agreed to pay the fees of estate agents it instructed in the
sale of the existing house of a prospective purchaser if and when the purchaser
completed on the purchase of a new home build by Redrow. Redrow claimed input
tax credit in respect of the estate agents' fees incurred under the scheme on
the ground that the estate agents' services were supplied to it as well as to
the purchaser so that VAT thereon was allowable input tax in its hand. The
first and obvious distinction between that case and this was that the estate
agents' fees came entirely out of the pocket of Redrow; there was no prepayment
of those fees by the house purchaser nor any reimbursement of them. There was
thus no question of any consideration for the selling of the purchaser's home
moving from the purchaser to the estate agents. In VAT terms, and assuming for
this purpose that the purchaser was in business, there was no taxable supply by
the estate agents to the purchaser because there was no consideration moving
between them. They enjoyed a benefit but they did not receive a supply.
Our attention was drawn to the speeches of Lord Hope of Craighead and Lord
Millett. Lord Hope said at p.166:-
"The service is that which is done in return for the consideration. ...
Questions as to who benefits from this service or who is the consumer of it are
not helpful. The answers are more likely to differ according to the interest
which various people may have in the transaction. The matter has to be looked
at from the standpoint of the person who is claiming the deduction by way of
input tax. Was something being done for him for which, in the course or
furtherance of a business carried on by him, he has had to pay a consideration
which attracted VAT? The fact that someone else, in this case, the prospective
purchaser, also received a service as part of the same transaction does not
deprive the person who instructed the service and who has had to pay for it of
the benefit of the deduction."
Lord Millett at p.168 emphasised that `the key concept is that of supply.' He
went on at p.171 to give the test appropriate in that case which was:-
"He must identify the payment of which the tax to be deducted formed part; if
the goods or services are to be paid for by someone else he has no claim to
deduction. Once the tax payer has identified the payment the question to be
asked is: did he obtain anything - anything at all - used or to be used for the
purpose of his business in return for that payment? This will normally consist
of the supply of goods or services to the taxpayer. But it may equally well
consist of the right to have goods delivered or services rendered to a third
party. The grant of such a right is itself a supply of services."
The conclusion in that case was, as Lord Millett expressed it at p.171:-
"Everything which the agents did was done at Redrow's request and in accordance
with its instructions and, in the events which happened, at its expense. The
doing of those acts constituted a supply of services to Redrow."
There the facts were plain: Redrow paid, the purchaser did not; so the taxable
supply was to the payer. Here there is no doubt that Plantiflor `paid' the
postage charges in as much as payments of in the region of £2000 a week
were made by direct debit from the suspense account which held the individual
payments of postage for the individual parcels. But the issue is whether
Plantiflor were paying as principal or as agent or, putting it another way,
whether Plantiflor were paying `their' money or their customer's money, in
answering which question the court may have to consider whether it should be
looked at it in a technical sense or as a matter of commercial reality. As the
issue has been defined here, the question was whether the postage was a
cost-component of Plantiflor's supply of services to its customer, as Customs
and Excise contend, or was it the consideration for Parcelforce's supply of a
separate delivery service to the customers as Plantiflor contend? The problem
with asking the question in that way is that it looks at the matter as between
Plantiflor and the customer and concentrates on the consideration - and the
possible apportionment of the consideration - passing between them. That may
be the wrong starting point. To determine what supply or supplies Parcelforce
make, one has to begin with what consideration Parcelforce received because, as
Lord Hope said, `The service is that which is done in return for the
consideration.'
Attempting, therefore, to limit this point to the question of supply and
particularly to whether or not there is a supply of a service by Parcelforce to
Plantiflor, and bearing in mind that the one thing which is certain is that
whatever Parcelforce did in the taxable transaction under consideration, it was
done in return for postal charges of £1.63, I now ask, in Lord Hope's
words, whether something was being done for Plantiflor for which it has had to
pay a consideration, or, as Lord Millett expressed the question: did Plantiflor
obtain anything at all in return for the postal charge?
In my view that must depend upon the arrangements reached between the parties
in this tripartite scheme and the commercial realities of the situation.
I must look firstly at the agreement between Plantiflor and Parcelforce. In
return for Plantiflor's undertaking to use Parcelforce for the despatch and
delivery of its parcels traffic of the minimum amount specified, Parcelforce
would allow Plantiflor a specially reduced rate. In my view the granting of
that facility as such was not a service by Parcelforce to Plantiflor. No money
passed. It was not a taxable (or an exempt) supply. The obligation was to
`use Parcelforce for the despatch and delivery of 100% of its parcels traffic'.
This is not inconsistent with Plantiflor acting as agent for the undisclosed
customer. The actual supply of a service by Parcelforce did not take place
until the later event of the delivery of the packet. Each delivery was a
separate supply even though payment was made each week. Parcelforce in fact
knew the terms upon which Plantiflor were intending to use the service. They
were set out in the letter of 21 September 1993 which stated:-
"In both Holland and Germany the postage value charged to the customer is not
subject to output VAT. This is because providing we charge the customer the
actual value of the postage paid to the PTT and that all contracts state
clearly that we are receiving postage, and posting parcels on their behalf, we
will no longer be the contract principal, merely the customer's agent.
...
To ensure cast iron protection I think it would be valuable to include an
additional clause/phrase whereby you acknowledge acceptance to deliver parcels
(a) for us as principal and (b) as agent of our retail customers."
Parcelforce never formally accepted that but the modus operandi was not
excluded by the subsequent agreement nor are the terms of that agreement
inconsistent with it. There was a clearly defined process distinguishing
between the deliveries made to customers at their request and on their behalf
and the replacement deliveries for lost or damaged plants which were undertaken
by Plantiflor on their own behalf. Plantiflor and Parcelforce knew which was
which and the accounting arrangements were separate and distinct. Nothing in
that agreement seems to me to prevent Plantiflor acting as agent for principals
undisclosed at the time the agreement was made but known from the addressee's
name on the packet by the time the parcel was dispatched.
I turn to the arrangements between Plantiflor and the customer. The catalogue
terms are clear enough to me. Laws J. found them to be `at best equivocal.'
True it is that the assertion that `Bakker deliver every order' will ordinarily
mean just that but the more relevant clause on `Collection and Delivery' soon
makes it clear in plain English that Plantiflor did not itself deliver the
goods, but merely arranged for their delivery. That point is concluded by the
findings that there was no single contract and that delivery was a separate
supply by Parcelforce, not by Plantiflor. The catalogue made it plain that if
the customer required delivery by carrier, then a nominal charge would be made
to cover mail order packing and handling. The offer seems quite unambiguous to
me. `If you require delivery by carrier' then `we will happily arrange
delivery on your behalf by Royal Mail Parcelforce if requested.' `In which
case, please include the postage and handling charge on your order.' `We will
then advance the postage charges to Royal Mail on your behalf.' To my mind
that is the plain language of agency. The customer knew he would not get his
goods unless he asked for them to be delivered. He knew that Plantiflor would
use Parcelforce on his behalf to get his plants to him.
It is against that background and looking at the commercial reality that one
endeavours to ascertain what service Parcelforce supplies to each. It seems to
me that Parcelforce supplied nothing more than a delivery service. To return
to Lord Hope's observation that the service is that which is done in return for
the consideration, then the first task is to identify the consideration
received by Parcelforce. It is, and it is only, £1.63. Any consideration
received by them for agreeing the reduced rate facility, viz., the placing of
bulk business, relates to an earlier, different and non-taxable commercial
agreement.
So the question is: what did they do for £1.63? The answer is that they
delivered the parcel. I cannot see that they performed any other service for
that consideration. The finding which stands is that the service of delivery
of the parcel to the customer was made by Parcelforce, not Plantiflor. The
question then is whether they delivered the parcel for Plantiflor or for the
customer. If delivery was all Parcelforce had to do in return for the
consideration of the postal charge, and if that delivery was to the customer,
then they did all they had to do for the customer and there was nothing left to
do for Plantiflor. Plantiflor may have had the benefit of the delivery to
their satisfied customer ensuring to the overall success of their business,
just as the purchaser had the benefit of the estate agents' services in
Redrow, but `questions as to who benefits from this service ... are not
helpful' - per Lord Hope. The important point is that there is no other
consideration paid to Parcelforce than the postal charge and, assuming the
delivery service to have been a taxable supply, then the only supply is
to the customer because no consideration moves from Plantiflor to Parcelforce
for any spin-off benefit received by them for the delivery to their customer.
I remind myself that, per Lord Millett, `the key concept is that of supply' and
that, per Article 2.1, the taxable supply is that which has been `effected for
consideration'. Nothing in the facility agreement nor in the individual acts
of posting the parcels seem to me to amount to the grant of a right to have
goods delivered to a third party - cf. Lord Millett again - but even if it did,
there was no consideration for the grant of such a right as opposed to the
consideration attributable to the service of delivery itself. On that analysis
there is no fourth supply to Plantiflor as Mr Paines would wish to contend.
I reach the same conclusion if I take a more homely analogy. If I send a gift
by post, the Post Office supply the service of delivery of the parcel for me,
not for the addressee who knows nothing of the transaction. If, however, an
absent minded house guest leaves some personal belongings at my home, writes
apologetically enclosing the postage stamps and requesting me to return the
items to him, my wrapping the parcel, stamping it with his stamps, taking it to
the post office and handing it over the counter, is my doing all that the guest
asked me to do and in those circumstances the delivery by the Post Office is in
reality a service to my guest: the Post Office does nothing for me. It cannot
make a crucial difference if my friend sends me a cheque to cover the postage
stamps. Nor would it make any sensible difference if, to change the terms of
the catalogue, Plantiflor had informed their customers that Plantiflor would
happily arrange for delivery of the plants via Royal Mail Parcelforce if
requested, in which case the customer should include the postage stamps, the
amount of which Plantiflor would give if the customer telephoned to ask for the
information. The answer to the question who is getting something from
Parcelforce cannot depend on who buys the stamps.
In my judgment, any suggestion that there was there some kind of fourth supply
by Parcelforce to Plantiflor of a separate service of, or somehow relating to
delivery is inconsistent with the finding that there was only one supply of
delivery in this case and that was as the Tribunal found a service by
Parcelforce to the customer. Some service of the kind contended for would only
have been necessary if there had been a single supply of delivered goods but
that case was rightly rejected. In the circumstances I cannot accept the
submission that there was any other supply of any other kind by Parcelforce to
Plantiflor.
Consideration: what was the consideration for each supply obtained by the
supplier from the purchaser of that supply?
If one begins with the supply of delivery by Parcelforce to the customer, the
consideration for that supply was the postal charge of £1.63. The amount
of the postal charge was included in the sum of £2.50 paid by the customer
to Parcelforce. He may not have known how much of the £2.50 was to cover
the separate items of postage and the handling charge but the postal charge was
a certain and identifiable figure at all material times. I seem to remember
that certum est quod certum reddi potest. It does not seem to me to
matter that the customer did not know exactly how much he was paying for the
postal service. In Argos Distributors Limited -v- Customs and Excise
Commissioners [1996] STC 1359 Argos sold goods by retail as listed in their
catalogue. They operated a voucher scheme under which vouchers were issued to
other businesses at a discount on the face value of the vouchers. Most
customers were unaware that the vouchers had been issued at that discount. In
assessing the taxable amount of the supply of the goods, the Court of Justice
held that the consideration was that which was actually received by them, a
`subjective' value. Advocate General N Fennelly observed:-
"The word `subjective' is not used here in its normal sense in English, but
rather to describe the value placed by the parties on the key elements in the
transaction."
The court held in paragraph 21 that:-
"The fact that a buyer of Argos goods does not know the real money equivalent
of the voucher used by him is irrelevant: the important issue in this case is
to determine the actual money equivalent received by Argos when it accepts
vouchers in payment for its goods, since only that actual equivalent can
constitute the taxable amount."
So it should be here: the fact that the customer does not know the precise
amount does not matter because the actual postal charge can be determined as
the consideration for the supply. It is probably too simple for a VAT analysis
but it seems to me fairly obvious that if the customer requests the supply of
delivery to him, if the customer includes an ascertainable amount to cover the
cost of that supply, and if the supply is made by Parcelforce to him, then the
consideration for the supply is that ascertainable sum revealed in the
`invoice'. It moves from the recipient of the supply, the customer, to the
supplier, Parcelforce. If £1.63 is the consideration for the supply by
Parcelforce to the customer, then, once it has been extracted from the
£2.50, it cannot also be part of the consideration of any service
rendered by Plantiflor to the customer. The same sum from the customer cannot
serve as consideration for separate supplies by separate suppliers.
As I say, that seems too simple a way of looking at it and I must therefore
turn to the issue as it was presented to the judge below and to us, namely does
the sum of £2.50 charged to the customer represent the consideration
obtained by Plantiflor for the supply of arranging delivery or (which comes to
the same thing) was the element of £1.63 part of Plantiflor's turnover and
a cost-component of its service. That is the Commissioners' case. Plantiflor
contends on the contrary that the £1.63 is no part of any consideration
moving from the customer to Plantiflor; the consideration for its service of
arranging delivery is merely 87p. Even when the question is asked in that way,
I find the answer to be simple because the catalogue makes it plain that if the
customer wants delivery to be made to him by a carrier then a nominal charge is
made to cover mail order packing and handling. Packing and handling is the
service provided by Plantiflor. They pack the plants, they take them to
Parcelforce, they hand them over to Parcelforce and they `happily arrange
delivery' on the customer's behalf via Royal Mail Parcelforce. What do they
get for doing that? Answer: 87p. There is, as all accept, a further taxable
amount in this transaction, namely the 25p consideration for the transport
insurance as an incidental part of the delivery arrangements. I do not agree
with the Chairman that the sum of £52 being the price of the goods, forms
any part of the consideration for arranging for delivery as he suggested in
paragraph 7.1 (5). The consideration for arranging for delivery was only 87p
(or 87p plus 25p if one includes the insurance.)
Mr Cordara has suggested how one can confirm the correctness of that
conclusion (though I am not sure if he would fully endorse my simplistic
approach to it.)
He relies on Primback Limited -v- Customs and Excise Commissioners
[1996] STC 757, a case which unfortunately was not cited to the judge to enable
him to spot the error in his thinking. Primback were furniture retailers
selling their goods at the advertised price but on terms that the customer was
to be entitled, at no extra cost to himself, to pay the price by instalments
over a stated credit period. The credit which the customer received was
arranged by the retailer but was provided by a finance company. The customer
did not know that the finance company agreed with Primback to be entitled to
deduct the interest it would have charged from the amount it repaid to
Primback. The question was whether Primback were entitled to treat as their
gross takings the amount received from the finance company instead of the full
price charged to the customer. The issue was whether output tax was payable on
that difference. Expressed in language appropriate to the law relating to VAT,
the retailer supplied (i) goods, and (ii) arrangements for credit facilities;
and the finance company supplied credit facilities which was an exempt supply.
This court held that Primback was obliged to account for VAT only on the
payments received by it from the finance company rather than on the invoice
price to the customers. In the course of his judgment Huchison L.J. said at
p.768:-
"5. If one were to suppose that the supply of credit was standard-rated, the
Commissioners' argument means that they would be entitled to VAT on the credit
element twice over, once from the retailer and once from the finance company.
Such a result would obviously be wrong. It makes no difference in principle
that the supply of credit is exempt: and the Commissioners are seeking to levy
tax when they should not do so."
Stuart-Smith L.J. was characteristically pithy. He said at p.773:-
"If the contention advanced by the Commissioners is correct, the result in my
view is both surprising and contrary to the general principles of VAT law as
enshrined both in the Community and United Kingdom legislation, namely that
Primback pays tax on a supply of credit, which is exempt, and which it does not
make."
The result contended for by the Commissioners before us would be equally
surprising and wrong. One tests it in this way. As set out in Article 2 of
First Directive, VAT is a tax on consumption exactly proportional to the price
of goods and services. The tax is paid by the ultimate consumer. As
Elida Gibbs Limited -v- The Customs and Excise Commissioners
[1996] STC 1387 confirms in paragraph 31, the position of taxable persons must
be neutral the principle of neutrality is offended if:-
"The tax authorities would receive by VAT a sum greater than actually paid by
the final consumer, at the expense of the taxable person."
As Mr Cordara says, it is wrong for VAT to be paid on VAT.
Accordingly for the purpose of this test one must assume that the supply by
Parcelforce is a taxable one. In Mr Cordara's example the plants cost
£10, the cost of packing and handling is £1 and the cost of postage
is £1. On the Commissioners' case VAT is payable by Plantiflor on the
£10 sale price and the £2 arrangement price but if there is a taxable
supply by Parcelforce to the customer, then the customer would also have to pay
VAT on the £1 postage charge. The final consumer has only paid £12
which is the sum upon which tax should be levied but Customs and Excise will
have received VAT on £13. That has to be wrong.
In his next submission Mr Cordara relies on the Glawe Spiel case.
Glawe installed and operated gaming machines in bars and restaurants. The
machines were so equipped that the money placed in the machines separated into
the `reserve' box from which the winnings were paid out, and the `cash box'
which held the coins which the operator of the machine was able to remove and
retain for his own benefit. As soon as the reserve was full the coins entered
the cash box if the reserve was not full the coins entered the reserve. The
machines were automatically pre-set so that they paid out on average at least
sixty per cent of the coins inserted. The dispute was whether Glawe was
assessable to VAT on the total of the coins inserted or only on the coins which
entered the cash box. The European Court held that the proportion of coins
paid out as winnings could neither be regarded as part of the consideration for
the provisions of the machines nor as the price for any other service provided
such as giving players the opportunity of winning or the payment of the
winnings itself. The court held:-
"8. ...(Article 11 A(3)(b) of the Sixth Directive) is merely an application of
the rule laid down in Article 11 A(1)(a) of the Sixth Directive ... according
to which the taxable amount is the consideration actually received.
9. In the case of gaming machines such as those concerned in the main
proceedings, which, pursuant to mandatory statutory requirements, are set in
such a way that they pay out as winnings on average at least sixty per cent of
the stakes inserted, the consideration actually received by the operator in
return for making the machines available consists only of the proportion of the
stakes which he can actually take for himself."
Mr Cordara relies heavily on that statement that the consideration is what `he
can actually take for himself' and he submits that all Plantiflor can take for
themselves is the balance of £2.50 after disbursement of the postage
charges of £1.63.
In my judgment Glawe Spiel is unhelpful for the following reasons:-
1. I accept Mr Paines' criticism of that case, and of the several which apply
similar principles. He points out that all are concerned with taxation of
transactions which involve simply the exchange of money on which a profit is
made. They are, as Lord Slynn observed in Nell Gwynn at p.89:-
"... involved quite simply (with) the question as to how the remuneration for
the services provided should be calculated. Cases involving simply the
exchange of money on which a profit is made are really in a category of their
own."
The facts of this case are not in that category. Here the transactions are, as
Mr Paines describes them, three-cornered transactions.
2. Simply to ask how much Plantiflor can keep for itself is not a satisfactory
test because it is more likely to confuse than to clarify. As Laws J.
correctly observed at p. 63h, `It proves too much.' Applied literally it can
erroneously be thought to apply equally to payments out to sub-contractors so
fuelling Laws J.'s fear at that Glawe Spiel will not serve " to
distinguish the case from the ordinary situation where the taxpayer pays his
sub-contractor or other supplier of goods or services to him." Of course Mr
Cordara himself does not fall into that error.
Mr Cordara accepts, and it is common ground, that VAT is a tax on turnover,
i.e. whatever is available as profit, for meeting overheads and for discharging
the cost-components of the supply. My difficulty, and it may also be Laws J.'s
difficulty as well, is that Glawe Spiel itself does not help identify
what a cost-component is. Laws J.'s search for principle leads him to require
that money to be paid away to the third party should be money received and held
on behalf of the party to whom it is paid. He says at p.64:-
"What must be shown is that the common intention of the parties to any relevant
transaction is that the specific fund in question should belong to
someone other than the tax payer."
I see the force of Mr Cordara's criticism that there is nothing in Glawe
Spiel or the cases which apply it, or indeed elsewhere in the
jurisprudence, which prescribes the need for money to be held on behalf of the
third party, still less for the property in the fund to pass to him. Thus it
seem to me that the principle best capable of producing the correct VAT answers
are the basic VAT principles of identifying the supply of the goods/services,
the supplier, the `purchaser' (taking that word from Article 11 A) and the
consideration. A proper analysis of those concepts should produce the right
answers. In a typical case where the main contractor engages a sub-contractor,
the supply is the goods manufactured or the services rendered; the supply is
made by the sub-contractor to the main contractor, not the customer; and the
consideration moves from the main contractor to the sub-contractor, even if the
customer has or will put the main contractor in funds to cover that outlay.
That typical situation is not the one identified here. What Laws J. seems to
have overlooked is that in this case the supply of delivery is a supply by
Parcelforce to the customer not to Plantiflor. As I have tried to indicate,
once that distinction is made and appreciated, then all seems to fall more
easily into place.
For his next submission, Mr Cordara submits that the matter is covered by
Article 11 A (3)(c), which, I remind myself, provides that amounts received by
a taxable person from his purchaser or customer as repayment for expenses paid
out in the name and for the account of the latter which are entered in his
books in a suspense account are not included in the taxable amount. Mr
Horsfield Q.C. held that in the light of his conclusion that the consideration
for the service of arranging for delivery did not include the £1.63, then
the question whether that sum fell within Article 11 A 3(c) did not arise but
that if it were necessary, he would have decided that the postage moneys fell
within those provisions. I agree with him on both scores. Laws J. rejected
the argument because he had concluded that Plantiflor had not acted as the
customer's agent in arranging for delivery. I have already explained why I
think Plantiflor were acting on behalf of their customer. As I see the
position, £1.63 was received as a repayment of an expense to be incurred,
i.e. a disbursement, viz., the postal charges. This was paid out in the name
of the person appearing on the package as the addressee and for his account.
Although the money was not held in an account in the name of the customers, it
was entered in the books in a separate account which was treated by the
Commissioners as a suspense account for the purposes of the Article. They
originally approved the arrangement and allowed it to operate for some years.
I see no justification for their change of heart.
The point also arose in Nell Gwynn. There Mr Cordara argued that the
operation of Article 11 A (3)(c), which does not explicitly refer to agency,
was capable of applying in a situation in which a person acting in a
representative capacity, albeit not directly as agent, (for example a trustee),
used his principal's funds to reimburse himself for expenses incurred by him
openly in that capacity in procuring services for his principal's benefit.
Without deciding that point Slade L.J. was willing to assume it to be well
founded. He went on to draw the important distinction between:-
"(i) the case when the relevant expenses paid to a third party C have been
incurred by A in the course of making his own supply of services to B and as
part of the whole of the services rendered by him to B; and (ii) the case where
specific services have been supplied by the third party to B (not A) and A has
merely acted as B's known and authorised representative in paying C."
His approach was approved by the House of Lords at pp. 90-91. In my judgment
this case falls under the second limb.
Mr Paines sought to rely on Article 11 A (2)(b) which provides that the
taxable amount includes incidental expenses such as `packing, transport and
insurance cost charged by the supplier to the purchaser or customer.' As
already explained, that Article does not assist in the identification of the
supply. If there had been an integral supply of delivered plants, then the
Article would undoubtedly lead to the conclusion that the cost of postage would
be incidental because the supply of delivery would itself have been held
ancillary to the main purpose of the transaction. If, however, one considers
the £1.63 as part of the £2.50, then the £1.63 for postage is
the main expense, not an incidental cost of arranging delivery. The Article
does not assist the Commissioners' case
Conclusion.
For the reasons set out above, I would allow the appeal and restore the
decision of the Tribunal.
LORD JUSTICE SCHIEMANN:
I agree that this appeal should be allowed for the reasons given by Ward L.J..
In particular, I agree that the Tribunal was entitled to conclude that the
service which Plantiflor rendered to its customers did not include the carriage
of the goods from Plantiflor's gardens to the customers but that this carriage
was a separate service rendered by Parcelforce to those customers. The fact
that this supply by Parcelforce is exempt from VAT is irrelevant to the prior
question: who was supplying what service to whom? Had the supply by
Parcelforce not been exempt, then Parcelforce would have needed to charge VAT
on the value of that supply, namely, £1.63. The fact that the customer
did not know, at the time when he asked Plantiflor to arrange for the supply of
the service of carrying the goods, that this service would cost £1.63
would have been irrelevant in those circumstances and remains irrelevant in
circumstances where the supply is exempt. So is all the background of
negotiations between Plantiflor and Parcelforce as to the proper rate of
postage. So is the fact that Plantiflor might well have had many fewer
customers if it did not itself provide the service of asking Parcelforce to
carry out the carriage to the customer.
Laws J., at page 57b of the report, records Mr.Paines as having submitted that
the £2.50 paid by the customer to Plantiflor represents the consideration
for the supply of arranging delivery and so attracts tax at the standard rate
and describes it as the critical issue in the case. That submission was
reformulated before us in these terms: Mr. Paines submitted that the critical
issue was whether the charge made by Parcelforce is a cost component of the
service which he submits was supplied by Plantiflor, namely, arranging
delivery. These formulations suffer from the defect that "arranging delivery"
is a phrase which is apt to cover either of the following:-
1. arranging with someone else (Parcelforce) that they will effect
delivery
2. arranging to deliver, albeit using the services of someone else
(Parcelforce).
In my judgment the arrangements entered into between the customer and
Plantiflor fell into the former class. The phrase in the catalogue "We will
happily arrange delivery on your behalf via Parcelforce if requested in which
case please include Postage and Handling charge in your order" lends support to
that view. If, after Plantiflor has arranged for Parcelforce to deliver the
goods, Parcelforce then loses them I consider that the customer has no remedy
against Plantiflor.
The judge considered that Plantiflor was not acting as agent so as to put the
customer into a contractual relationship with Parcelforce. That may be so, but
it is not, in my judgment productive of the answer to what are the two critical
questions in the case, namely, "was the supply of effecting delivery to the
customer made by Parcelforce and, if so, was that supply made to the customer".
As was conceded by Mr. Paines and accepted as correct by the judge I consider
that it was Parcelforce which made that supply. Further I consider that the
supply was made, not to Plantiflor, but to the customer. Had there been no
exemption, the question which would have arisen would, in the words of Article
11A of the Sixth Directive, have been "what constitutes the consideration which
has been or is to be obtained by the supplier from the purchaser, the customer
or a third party for such supplies?" The answer would have been £1.63.
however, by reason of the exemption that question did not need to be answered
in the present case.
As I have said, I would allow this appeal.
LORD JUSTICE STUART-SMITH:
I also agree that this appeal should be allowed for the reasons given by Lord
Justice Ward. I also agree with the additional comments made by Lord Justice
Schiemann.
Order: Appeal allowed with costs.
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