England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(Mr Justice Neuberger)

		Royal Courts of Justice Strand London WC2 Friday 12th October, 2001

1. LORD JUSTICE CHADWICK: This is a renewed application by the Commissioners of Customs and Excise for permission to appeal from an order made on 20 June 2001 by Neuberger J when allowing an appeal by Royal Midland Counties Home for Disabled People against a decision of the VAT and Duties Tribunal dated 22 December 2000.
2. The application falls within CPR 52.13 and section 55(1) of the Access to Justice Act 1999. Accordingly, permission cannot be granted for an appeal to this Court unless the appeal would raise an important point of principle or practice or there is some other compelling reason for the Court of Appeal to hear it.
3. The Royal Midland Counties Home for Disabled People (as its name suggests) operates nursing homes for disabled people in which, as one would expect, there is a variety of electrical equipment, including medical equipment. The Home purchased a standby generator capable of providing for the supply of electricity in the event that the mains supply was interrupted - for example, by a power cut. The generator is said to be a substantial piece of equipment. It costs many thousands of pounds. It is housed in its own enclosure in the grounds of the Home and is driven by a diesel engine.
4. The issue on an appeal would be whether the judge was right to hold that a standby generator supplied for the purpose described fell within the description "relevant goods" for the purposes of item 5 of Group 15 in Schedule 8 of the Value Added Tax Act 1994. If he was right so to hold, then there is no dispute that the supply is taxable at the zero rate. For that purpose "relevant goods" is defined by note 3 in the notes to Group 15 in these terms:

"`Relevant goods' means-

(a) medical, scientific, computer, video, sterilising, laboratory or refrigeration equipment for use in medical or veterinary research, training, diagnosis or treatment;

(b) ambulances;

(c) parts or accessories for use in or with goods described in paragraphs (a) or (b) above; ..."

5. It is common ground that, if the generator falls within that description, the other requirements under item 5 of Group 15 are satisfied. It is common ground also that a standby generator is not of itself within paragraph (a) of note 3; that is to say, is not of itself medical equipment for use in medical treatment. The question is whether it is to be regarded under paragraph (c) as an accessory for use with the medical equipment at the Home.
6. The Commissioners have issued guidance notes as to the meaning of "accessories" for the purposes of note 3 in the notes to Group 15. The relevant guidance is found in the Commissioners' Notice 701/6:

"`Accessories' means optional extras which can be used to improve the operation of the equipment or to enable it to be used, or to be used to better effect, in particular circumstances."

7. It is not, of course, suggested that that guidance note has statutory force; but, as the judge accepted, it provides a working definition of the meaning of accessories in paragraph 3(c). The judge did not suggest that that was not guidance which he should follow.
8. The Tribunal held, in effect, that a standby generator could not be regarded as an optional extra. When in use the generator took the place of the mains supply as the source of electricity for the electrical equipment at the Home. It was not an optional extra which could be used to improve the operation of the equipment in those circumstances; but a substitute source of supply, without which the equipment could not function at all.
9. That view, of course, places emphasis on the words in the guidance note "optional extra which can be used to improve the operation of the equipment or to enable [the equipment] ... to be used to better effect". But the guidance note is wider than that. It provides for circumstances in which the optional extra enables the equipment "to be used ... in particular circumstances" that is apt to cover a situation in which, without the optional extra, the equipment in those circumstances.
10. The judge took a different view from the Tribunal. He accepted the guidance note as a good working definition. He went on:

"... the word optional can mean different things in different circumstances. To my mind, the generator in the present case may properly be described as optional. In the first place, one can clearly acquire the medical equipment without it. Secondly, for virtually all the time the medical equipment will function without it.

In my judgment, the generator in the present case was an accessory for use with medical equipment within the meaning of Note 3(c). It was purchased with a view to enabling medical equipment to be dependable and reliable, or, to put it another way, to enable medical equipment to be used in particular and unusual circumstances, namely the breakdown of the mains electricity supply. The fact that the electricity supply itself could never be seen as an accessory, as the Tribunal said, is not really in point. The supply of mains electricity to equipment, like the supply of electricity from the generator or the supply of diesel oil to the generator could not be regarded as such an accessory either. The question is not whether the supply of electricity was an `accessory', as Mr McKay points out: it is whether the supply of the generator was as an `accessory'."

11. The judge held that it was.
12. Although, as I have said, the issue on an appeal would be whether the judge was right, that is not the question which I have to decide on this application. Nor do I have to decide whether an appeal against the judge's order would have a real prospect of success. If that were the case, then I would take the view that it was impossible to hold that an appeal would not have a real prospect of success in circumstances where the judge has come to a different conclusion from that of the Tribunal in a matter which he himself acknowledged was not an easy one. The point is plainly arguable.
13. The question which I have to decide, however, is whether the appeal raises an important point of principle. Parliament has thought it right to restrict second appeals in VAT cases, just as in other cases, to those which do raise an important point of principle or practice or which ought to be heard for some other compelling reason. The point of principle now identified on behalf of the Commissioners is "whether on the true construction of Note 3(c) in Schedule 8, Group 15 of the Value Added Tax Act 1994, the question whether an item of equipment is an accessory to one of the items listed in Notes 3(a) and (b) depends on a subjective assessment of the use to which the taxpayer puts the item or upon whether the item is objectively an accessory." take that read from paragraph 2 of the supplementary outline of the Commissioners' submissions dated 24 September 2001.
14. Whether or not that point is an important point of principle, it is not the point that would be raised in this appeal. There are two separate questions. The first is whether the item of equipment is supplied for use with goods described in paragraph 3(a) of the notes to Group 15. That is a subjective question, only in the special sense that it is necessary to ask in relation to the particular supply: "for what purpose are these goods to be used?" Clearly a generator could be supplied for use with equipment which fell wholly outside paragraph (a). The same generator could be supplied for use with equipment which falls within paragraph (a). The question is not to be determined by looking at the generator; but by looking at the use for which it is supplied under the particular transaction which is said to give rise to the charge for tax. If that is to be called a `subjective' question, so be it; but it does not involve any investigation into the mind or intention of the recipient. It is a question of fact: for what use is the equipment supplied? I do not regard that as a question of principle requiring consideration in this Court.
15. The second question is whether a generator which is supplied for use with medical equipment can be regarded as an accessory in circumstances in which the use will only be relevant when the primary source of electricity supply is not available? That is the point on which the judge differed from the Tribunal. But, in differing from the Tribunal, the judge adopted the test set out in the Commissioners' own notice. It is plainly arguable that the words in the notice which require accessories to mean "optional extras which enable the equipment to be used in particular circumstances", do cover circumstances in which the equipment could not be used without the particular "optional extra" which has been supplied. That does not seem to me to raise any question of principle. If the Commissioners take the view that their notice misinterprets the effect of the statute, then their course is to amend the notice. That may well give rise then to a question of principle as to whether the amended notice reflects the intention of the statute. But it seems to me premature to invite the Court of Appeal to consider the matter on the basis of the existing notice.
16. If this judgment gives rise to real difficulties in practice - and the matter cannot be met by an amended guidance note - then I have no doubt that there will be a suitable case in which the Court of Appeal can reconsider the question whether an appeal should properly lie. But as things stand at the moment, I am not persuaded that the proposed appeal in this case raises an important point of principle. It is not suggested, and could not be, that it raises an important point of practice. Nor, in the absence of some indication that this question is giving rise to serious difficulty, am I persuaded that there are compelling reasons why the issue needs to be determined now. There is no material to support a conclusion that the question is giving rise to difficulty in practice.
17. For those reasons, I refuse this application.