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Cite as: [2000] EWCA Civ 227

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Case No: C/1999/1270/QBCOF

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR JUSTICE KEENE
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: Wednesday 26 July 2000

B e f o r e :
LORD JUSTICE SIMON BROWN
LORD JUSTICE WALLER
and
MR JUSTICE GAGE

	CO-OPERATIVE WHOLESALE SOCIETY LIMITED	Appellant
	- and -
	COMMISSIONERS OF CUSTOMS & EXCISE	Respondent

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(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)
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Mr D Ewart (instructed by Brian Lord & Co. of Manchester M60 4ES, solicitors) for the Appellant
Mr R Jay QC (instructed by Legal Dept of Commissioners of Customs & Excise, Manchester M60 9LB) for the Respondent
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Judgment
As Approved by the Court
Crown Copyright ©

LORD JUSTICE SIMON BROWN: This is the taxpayer's appeal against Keene J's order of 10 November 1999 dismissing its statutory appeal against the VAT Tribunal's decision on 24 November 1998 dismissing its initial appeal against assessments for VAT amounting to £70,385.26 including interest. It is brought with the permission of the judge below.
Keene J's decision is now reported: [1999] STC 1096. Rather than repeat all the detailed facts and history there set out, I shall instead take that judgment as read and for present purposes set out, necessarily in somewhat simplified form, only the most essential circumstances of the case. These are as follows.
The taxpayer (CWS) has a funeral services division. The assessments under appeal relate to a series of three agreements which CWS entered into with the Leeds Hospital Fund Limited (the Fund), an insurance company providing inter alia health care benefits for its Members. One such benefit is funeral expenses up to the value of £1,000.
Under the first agreement (the principal agreement) made on 4 November 1994, CWS agreed to provide a specified funeral service up to the retail value of £1,000 for a consideration of £6 per Member per annum. CWS's main obligation under the agreement was to "enter into a contract with the estate of the Member or other person ordering the Service". The "Service" was defined to mean "the funeral service to be provided by CWS to Members upon their death as set out in [the Schedule]." The Schedule then specified the various individual elements of the Service.
On 31 December 1994, the day before the principal agreement was due to commence, a second agreement (the first supplemental agreement) was entered into to give Fund Members a wider choice of funeral directors. This provided that:
"3. In consideration for CWS facilitating and administering the choice of an alternative funeral director including making the inclusive payment of up to £1,000 for the Service and in addition to [£6 per member per annum] the fund shall pay direct to the CWS:
3.1 A fixed annual administration fee of £50,000 plus VAT by equal quarterly payments in advance.
3.2 An annual amount of compensation equal to £1.25 for each Member of the fund."
The first supplemental agreement was to be read and to take effect as one with the principal agreement.
A second supplemental agreement was made on 16 February 1996, to be effective from 1 January 1996, again to be read and to take effect as one with the earlier agreements. Its essential effect was to eliminate the £50,000 annual administration fee and to provide that the additional £1.25 per member per annum "shall be reviewed on each anniversary date and shall continue until amended by written agreement between the Parties".
The agreements in fact continued without amendment for a total of three years and were not then renewed.
VAT was paid on the £50,000 administration fee for the year for which that fee was payable. It was not paid, however, on the other elements of the charge (which I shall refer to simply as the £6 and £1.25 payments) during the three years that these were paid. The assessments to VAT were made solely upon the £1.25 payments, the Commissioners being prepared to accept that the £6 payments were made in respect of supplies of services exempt under Group 8 of Schedule 9 to the Value Added Tax Act 1994:
"GROUP 8 - BURIAL AND CREMATION
Item No
1. The disposal of the remains of the dead.
2. The making of arrangements for or in connection with the disposal of the remains of the dead."
CWS's central submission throughout this succession of appeals against the assessments has been that under these agreements they made but a single supply of services to the Fund and that the whole of this supply is exempt. The Commissioners' rival contention, accepted both by the Tribunal and the judge below was that there have been two supplies, rather than a single composite supply: a supply within Group 8 insofar as CWS themselves were carrying out the funeral services; but a supply falling outside this exemption insofar as CWS were merely facilitating and administering funeral services undertaken by alternative funeral directors.
This appeal was opened before us on the footing that it raises an important issue not previously resolved by the courts, an issue formulated by Mr Ewart for the appellants as follows: Where alternative promises are made for a single price, is there for VAT purposes a single supply or two supplies?
Shorn of detail, the "alternative promises" made here were CWS's promise to the Fund that, upon the death of a Fund Member, they would, at the option of that Member's estate, either (a) enter into an agreement with the estate themselves to perform funeral services up to the value of £1,000, or (b) assist the estate to select and enter into an agreement with an alternative funeral director to bury (or cremate) the deceased, CWS themselves paying that other funeral directors' fee for his services up to a value of £1,000. The consideration for these "alternative promises" was, putting the matter broadly, £7.25 per member per annum paid quarterly in advance.
It is, submits Mr Ewart, impossible economically to split the two alternative promises made here. In the language of the ECJ in EC Commission v United Kingdom [1988] STC 251, these promises are not "dissociable". Therefore they cannot be separate supplies for VAT purposes.
The first and main difficulty I have with this argument is not, let me say at once, that for which Mr Jay QC successfully contended below - namely that the option to use alternative funeral directors was a distinct and separate service rather than a better means to enjoy the exempt service (the supply of CWS's own funeral services), powerful though that opposing argument undoubtedly is - but rather that I am quite unable to recognise within the supply of this promise (or these "alternative promises") to the Fund any supply of burial services whatever such as would attract exemption under Group 8.
The plain fact is, as it seems to me, that insofar as any supply here was being made by CWS to the Fund itself, rather than to the estates of Fund Members who died during the relevant period, it was indeed the supply of a promise and not the supply of a Group 8 service. The supply of a promise in such circumstances may well be an insurance service falling for consideration under Group 2; it is not, however, a Group 8 supply. As was held in Card Protection Plan Limited v Customs & Excise Commissioners [1999] STC 270, the essentials of an insurance transaction are that the insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of materialisation of the risk covered, with the service agreed when the contract was concluded. That in my judgment precisely describes the nature of these agreements between CWS and the Fund. These payments of £6 and £1.25 were in the nature of a premium such as to entitle Fund Members in the event of death to the agreed service. It is wholly unreal to regard the supply of burial services here, irrespective of whether they were provided by CWS themselves or by alternative funeral directors, as supplies made to the Fund. I repeat, the Fund were supplied merely with CWS's promise that in specified circumstances they would make (or facilitate) the supply of burial services to others.
Strictly, therefore, as it seems to me, insofar as VAT is to be assessed upon these agreements by reference to the supply of services by CWS to the Fund itself (the basis of assessment hitherto), those supplies are liable to VAT unless exemption is claimed for them under Group 2 of Schedule 9 (namely as insurance services). No such claim has ever been advanced and, indeed, Mr Ewart on instructions has not surprisingly disavowed any such claim. CWS have no authority under UK law to carry on the business of insurance and although, as also was held by the ECJ in Card Protection Plan Limited v Customs & Excise Commissioners, the relevant part of the Sixth Directive makes no distinction between lawful and unlawful transactions in national law, CWS's reputation is obviously dearer to them than the VAT presently under appeal.
Recognising the court's difficulty with the approach previously adopted towards this case (a difficulty which we indicated to counsel early in the hearing), Mr Jay immediately re-cast the Commissioners' analysis of these agreements in such a way as still to entitle CWS to Group 8 exemption for the supply of the burial services they themselves provided for Fund Members, albeit not to allow exemption for services which CWS arranged for other funeral directors to provide. The Commissioners' revised analysis runs essentially thus:
1. By s.1 of the Act, tax is exigible on the supply of goods and services.
2. Supply is not synonymous with the making of a contractual promise.
3. Although the contractual promises here were made between CWS and the Fund, the benefit under the agreements was to be supplied to the estates of deceased Members.
4. For VAT purposes the supplies were accordingly made to the estates.
5. Once it is recognised that the VATable services were those made by CWS to the estates, the Commissioners' case that there were here two distinct services rather than a single unitary service becomes even more irresistible than appeared below.
I find this new analysis altogether more persuasive than the original one. And to my mind it accords with the realities. CWS were providing actual services to the Fund Members' estates; they were providing the Fund itself with no more than a promise that they would do so. Insofar as CWS themselves provided funeral services, then plainly these supplies were exempt from VAT under Group 8. In those cases, however, where CWS merely facilitated and administered the estate's choice of an alternative funeral director (themselves paying that alternative funeral director up to £1,000 for his supply of funeral services), CWS's services were plainly not exempt under Group 8. CWS's role in these cases was no closer to the actual supply of funeral services to the deceased's relatives than was the brokers' role in introducing the Fund to CWS in the first place, a role which Moses J rightly held in Network Insurance Brokers Ltd v Customs & Excise Commissioners [1998] STC 742 insufficiently proximate to the supply of funeral services to attract exemption for the brokers' commission.
In accordance with s.6(4) of the Act, the supplies here were to be treated as taking place at the time CWS received payment in respect of them. Payment for both the exempt and the non-exempt supplies was made to CWS by the Fund in the form of the £6 and £1.25 payments. CWS have never sought to challenge the Commissioners' assessments (based as they were on the £1.25 payments) as to quantum. True, they argue that little if any weight should be attached to the reference in the first supplemental agreement to the separate figure of £1.25 and, as stated, contend that the £7.25 total cannot sensibly be split. But those arguments go solely to the question whether CWS have been making one or two supplies. That, and that alone, has been the issue throughout. If, as I would hold, the taxpayer's case that they made but a single supply fails, the Commissioners' quantification of the VAT payable stands undisputed.
I would summarise my conclusions as follows:
1. If (as hitherto assumed) CWS's supplies under these agreements were made to the Fund rather than its Members' estates, then either they were exempt as insurance services (which is not contended for) or they were VATable in full; they were certainly not Group 8 services.
2. If the supplies were made to Fund Members' estates (as the Commissioners are now prepared to accept), then, insofar as CWS themselves provided funeral services, they were plainly exempt; insofar, however, as funeral services were supplied by other funeral directors, whom Members' estates had chosen instead of CWS, CWS's services in this connection were not exempt.
3. Keene J's analysis of the legal principles governing the question whether, for VAT purposes, a taxpayer makes a single supply or separately assessable supplies seems to me both accurate and valuable. For the reasons given, however, this analysis is scarcely required for these particular transactions. Once CWS's services are approached in the only way which can possibly give rise to a Group 8 claim for exemption, the question of separate supplies resolves itself.
I would dismiss this appeal.
Lord Justice Waller: I agree.
Mr Justice Gage: I also agree.
Order: Appeal dismissed with costs.
(Order does not form part of approved judgment.)