England and Wales Court of Appeal (Civil Division) Decisions

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		14-10-2003

CONTENTS

1 INTRODUCTION	1 – 10
2. THE UNDERLYING FACTS	11 – 27
3. THE LEGISLATIVE BACKGROUND AND SOME RELEVANT AUTHORITIES	28 – 94
4 THE ISSUE	95 – 96
5. THE TRIBUNAL'S DECISION	97 – 103
6 THE JUDGE'S JUDGMENT	104 – 113
7. THE BATTLE LINES ON THIS APPEAL	114 – 117
8. THE ARGUMENTS	118 – 150
9. CONCLUSIONS	151 – 179
10. RESULT	180 - 182

Lord Justice Jonathan Parker :

PART 1. INTRODUCTION

1. At issue on this appeal is the correct treatment for value added tax ("VAT") purposes of vouchers issued by a supplier pursuant to a scheme entitling a customer who is a member of the scheme to purchase the supplier's goods on preferential terms. The particular scheme in question in the instant case is the 'Clubcard' scheme operated by Tesco plc ("Tesco"). However, the instant case is in the nature of a test case, since its outcome may have an impact on the VAT treatment of other similar schemes.
2. The appeal is a statutory appeal under section 83 of the Value Added Tax Act 1994 ("the 1994 Act"). It is brought by Tesco against an order made by Ferris J on 21 October 2002. By his order, Ferris J dismissed Tesco's appeal against part of a Decision of the Value Added Tax and Duties Tribunal (London) (chairman: Mr Malcolm Palmer) ("the Tribunal") released on 24 August 2001, and allowed a cross-appeal by the Commissioners of Customs & Excise ("the Commissioners") against the remainder of the Tribunal's Decision.
3. Permission for a second appeal was granted by Arden LJ on the papers on 15 February 2003. On 15 May 2003 Master Venne granted the Commissioners permission to file a Respondents' Notice out of time. The Respondents' Notice invites the Court of Appeal to uphold the judge's order on different or additional grounds.
4. The proceedings concern not only what I may call the 'basic' Clubcard scheme, involving only Tesco and its customers, but also certain specified variants of the basic scheme involving third parties. I will refer to these variants collectively as 'third party schemes'.
5. The details of the basic Clubcard scheme are set out in Part 2 of this judgment (The Underlying Facts). For the present, the following short description of the Clubcard scheme will suffice. A customer of Tesco who joins the scheme acquires 'points' on purchases of goods ('premium goods') from Tesco. Periodically, Tesco issues vouchers by reference to the number of points accumulated by the customer during the period in question. The vouchers have a face value expressed in units of 50p, and will be accepted by Tesco ('redeemed') at face value on later purchases of goods ('redemption goods') by the customer. This appeal focuses on the VAT treatment of the vouchers, and in particular on whether they were issued by Tesco for consideration. It is common ground that 'consideration' in this context means consideration according to Community law.
6. Tesco contends that the vouchers were issued for consideration (in the Community law sense). On that footing, it contends firstly that by virtue of paragraph 5 of Schedule 6 to the 1994 Act the face value of the vouchers, as and when they are issued, falls to be deducted by Tesco from the shelf-price of the premium goods when accounting for VAT on the supply of the premium goods. Secondly, it contends that, as and when vouchers are redeemed, the face value of such vouchers is to be treated for VAT purposes as consideration for the supply of the redemption goods, so that for VAT purposes the total consideration obtained by Tesco for the redemption goods consists of the face value of the vouchers accepted by Tesco in respect of those goods, plus any cash payment made by the customer on the purchase of those goods.
7. From Tesco's point of view, the commercial significance of these contentions, if they are right, is twofold. In the first place, if Tesco is right it is accountable for the VAT element of the face value of redeemed vouchers on the supply of the redemption goods, rather than on the (earlier) supply of the premium goods. Hence there will be a cash flow benefit for Tesco, particularly if the popularity of the Clubcard scheme continues to grow. In this respect, the issue is (as the Commissioners described it in their Statement of Case to the Tribunal) "a tax point issue". Secondly, Tesco's VAT liability if its contentions are right will be less by an amount equal to the VAT element of the face value of vouchers which were not redeemed. On Tesco's unchallenged evidence, some 7 per cent of all vouchers issued are never redeemed.
8. The Commissioners, on the other hand, contend that Clubcard vouchers are not issued for 'consideration', in the Community law sense. In support of this contention they submit (pursuant to their Respondents' notice) that if (which they deny) any consideration is provided to Tesco under the Clubcard scheme, such consideration is attributable not to vouchers issued under the scheme but to the 'points' earned or awarded on purchases of premium goods. It follows, the Commissioners contend, that the vouchers do not fall within paragraph 5 of Schedule 6 to the 1994 Act.
9. Before the Tribunal was an appeal by Tesco against a decision of the Commissioners contained in letters from Mrs Gill Milliam of H.M. Customs & Excise to Mrs Sylvia Smith, Tesco's Group VAT Manager, dated 25 February 1998 and 15 April 1998. By those letters, the Commissioners rejected Tesco's contentions (as summarised above) on the ground that vouchers issued under the Clubcard scheme were not issued for consideration and accordingly do not fall within paragraph 5.
10. On Tesco's appeal, the Tribunal held in favour of Tesco in relation to the basic scheme and certain of the third party schemes, but in favour of the Commissioners in relation to the remaining third party schemes. Tesco appealed; the Commissioners cross-appealed. Dismissing Tesco's appeal and allowing the Commissioners' cross-appeal, the judge upheld the Commissioners' contention that vouchers issued under the basic scheme or under any of the third party schemes are not issued for consideration, and that accordingly paragraph 5 does not apply. The judge's judgment is reported at [2002] STC 1332.

PART 2. THE UNDERLYING FACTS

11. The underlying facts are not in dispute. I take them primarily from Mrs Smith's witness statement, the contents of which were not challenged before the Tribunal.

The basic Clubcard scheme

12. The Clubcard scheme is a business promotion scheme devised by Tesco with a view to developing and increasing customer loyalty. As at April 2001 there were some 9.5M members of the scheme (more than 80 per cent of Tesco customers).
13. A customer who wishes to become a member of the scheme fills up an enrolment form (enrolment forms are available in all Tesco stores), and 'posts' it in a box provided within the store. There is no fee for joining the scheme. The sample enrolment form exhibited to Mrs Smith's witness statement includes the following:

"Start saving today!

Simply complete this enrolment form and post it in one of the special in-store boxes. Then sign your Tesco Clubcard – it will now give you points when you shop. These turn into pounds and help save you money. Tesco Clubcard is free – it's our way of saying thank-you for shopping at Tesco. Here's how it works:

Check in at the checkout

Whenever you shop at Tesco have your Tesco Clubcard at the ready. The checkout assistant will swipe your card before your first purchase has been recorded. The points you earn will be shown on the till display and on your receipt. Your previous total will also be shown as long as you are shopping in the store where your card was issued.

Turn your points into pounds

Every quarter we will send you your statement. You'll see your points total and, providing you have collected 50 points or more [since increased to 150 points], we'll also send you Tesco Clubcard vouchers which you can spend in store. Simply present them at the checkout to claim your discount. They should be shown along with your card for security purposes."

14. Then, under the heading "Immediate free enrolment" there are spaces for the applicant to insert his name, his address, his sex, the number and age-groups of members of his household (including himself), and his signature. The form contains a statement by the applicant that he agrees to be bound by the terms and conditions listed on the back of the form. Those terms and conditions provide (so far as may be relevant):

"1. The Tesco Clubcard is issued by and remains the property of Tesco Stores Ltd, who reserve the right to decline issue [sic] or withdraw the card at any time, or to terminate the Clubcard scheme without notice.

2. All participants in the Tesco Clubcard scheme must be resident in the UK and aged 18 years or over.

....

4. To earn points for a transaction, your Tesco Clubcard must be presented at the checkout before your purchases are made .... The card is not transferable, and can only be used by the person whose signature is on the card.

....

6. You must spend at least £10 in a single transaction for that transaction to qualify for points. Then one point will be awarded for every £5 that is spent. [NOTE: The ratio of points to £s spent has since been changed to 1 point for every £1 spent.]

....

8. Rewards, in the form of Tesco Clubcard vouchers, will be mailed with a statement to customers who have accumulated at least 50 points by the end of each collecting period. [NOTE: The minimum number of points has since been increased to 150 points.]

9. .... Vouchers will be redeemable on qualifying purchases at all participating Tesco stores, and will not be exchangeable for cash and no change will be given.

10. The level of reward given will be based on the total number of points that a member has earned by the end of the last day of a collecting period.

11. Any points that a member has earned that fall between the level of reward that the member has qualified for and the next level up will be 'carried over' as the starting balance for the next collecting period.

12. Members who do not reach the minimum needed to qualify for a reward by the end of a collecting period will have their points total 'carried over' to the next collecting period.

13. Members who do not collect any points for 8 weeks may be removed from the scheme but may reapply at any time.

14. .... Tesco reserves the right to vary [the redemption value of points] at any time.

....

16. Tesco reserve the right to alter or amend the conditions of operations of the Clubcard scheme, or to terminate the scheme at any time.

...."

15. Also in evidence is a leaflet advertising the Clubcard scheme and including an 'Application Form' in slightly different terms to the sample enrolment form referred to above. However, it is common ground that for present purposes nothing turns on such differences.
16. As the sample enrolment form demonstrates, the basic scheme works in the following way. A member of the scheme who purchases goods from Tesco ('premium goods') earns 'points' calculated by reference to the total amount spent on his purchase. Since the price of the premium goods is VAT-inclusive, the points earned reflect both the price of each item exclusive of VAT and (save in respect of items which are zero-rated) the VAT on that price. Currently, points are earned at the rate of 1p per £1 spent. The till receipt for the purchase of goods by a member of the scheme is identical with the till receipt for the purchase of the same items by a customer who is not a member of the scheme, save only that the till receipt of the customer who is a member of the scheme shows the number of points earned in respect of his purchase (and it may also show the total number of points which he has earned to date during the current period). Thus, in each case the till receipt will list the various items purchased, together with the (full) price of those items. The till receipt for goods purchased 'in-store' will not show the VAT element of the total price, but in the case of purchases of petrol the VAT element is shown. At the end of each quarter the total number of points earned by that customer during the quarter are, with three important qualifications, converted into vouchers bearing a face value, which are sent to the member with a statement showing the number of points earned. The three qualifications are these. First, the face value of the vouchers is expressed in units of 50p, with any odd points in excess of 50 or a multiple of 50 being carried forward to the next quarter. Secondly, no entitlement to vouchers will arise if the total number of points earned by the member during the quarter in question (including any points carried forward from the previous quarter) is less than (currently) 150 (see condition 8 above). In that event, the total will be carried forward to the next quarter. Thirdly, if no points have been earned for a continuous period of 8 weeks, the member is liable to be removed from the scheme (see condition 13 above).
17. Vouchers issued under the scheme are accepted by Tesco at face value when tendered by the Clubcard member on future purchases of goods from Tesco ('redemption goods').
18. It is usual for promotional and marketing material to be included with the quarterly statement and the vouchers. Tesco also uses the membership data to circulate such material at other times. In addition, members may be invited to a 'Clubcard night' to introduce new ranges or simply to meet the manager of the local store.
19. Promotional literature for the Clubcard scheme exhibited to Mrs Smith's witness statement contains such statements as "You'll earn 1 point for every £1 you spend"; "Earn 150 points or more each quarter and we'll send your Clubcard Vouchers along with your statement and points balance"; and "For example, 150 points will give you £1.50 in Clubcard Vouchers".
20. Approximately 93 per cent of vouchers issued under a 'Clubcard' scheme are redeemed. About 60 per cent of customers redeem their vouchers within six weeks.

Third party schemes

21. In evidence before the Tribunal were three different categories of third party scheme. One such category consists of schemes in which a third party retailer participates ("third party retailer schemes"). A second consists of special promotions of specific goods supplied to Tesco ("special promotions"). In addition, there was in evidence a variant of the basic scheme in which the third party is Tesco Personal Finance Ltd ("TPF"), a joint venture company part-owned by Tesco ("the TPF scheme").

(i) Third party retailer schemes

22. Three third party retailer schemes were in evidence before the Tribunal, the retailers in question being B & Q plc, Norweb plc and Going Places Leisure Travel Ltd. In each case, the participation of the third party retailer is regulated by a written contract with Tesco. Under these schemes, a member of the Clubcard scheme purchasing goods or services from the third party earns 'points' under the scheme in the same way as if he had purchased premium goods from Tesco. These points are treated in the same way as points earned under the basic scheme. In each case, the third party agrees to pay Tesco a fee for its participation in the scheme, and it also agrees to reimburse Tesco in respect of points attributable to purchases of the third party's goods or services.
23. Such third party schemes are described by the judge in paragraphs 5 and 6 of his judgment, as follows:

"5. Tesco sometimes enters into arrangements with third party retailers under which the third party allocates Clubcard points to its customers who tender a Tesco Clubcard at the time of payment for goods or services acquired from the third party. The points so allocated are included in the customer's quarterly Clubcard statement and converted into vouchers in the same way as points earned in respect of purchases from Tesco itself. These vouchers are redeemable in the usual way on the making of future purchases from Tesco, but not in payment for future purchases from the third party retailer.

6. In each case such arrangements are governed by a formal agreement between Tesco and the third party retailer in question. The Tribunal received evidence of three agreements made between a Tesco subsidiary and B&Q plc, Norweb plc and Going Places Leisure Travel plc respectively. While the agreements are not in any standard form they all have the same essential features which the Tribunal described (in paragraph 21 of its decision) as follows:

'(a) The rate at which customers will be entitled to Tesco Clubcard points is defined.

(b) The Third Party Supplier is granted the right to operate the Clubcard Scheme in its business during the term of the agreement.

(c) Tesco undertakes to assist the Third Party Supplier in various ways in the proper operation of the Clubcard Scheme during the term of the agreement.

(d) Tesco undertakes to honour in accordance with the terms of the Clubcard Scheme the redemption of points awarded to customers for purchases of Premium Goods or services from the Third Party Supplier.

(e) The Third Party Supplier undertakes to pay defined fees to Tesco. These fees in all cases include, but are not limited to, an element equal to the face value of the points acquired by Clubcard members through transactions with the Third Party Supplier. In one case this is described as a reimbursement. These fees also include an additional element payable quarterly, which in two cases is defined as a fixed sum (£300,000 and £150,000 respectively) and in one case is a variable fee of 60p per call to the Tesco call centre relating to the participation of the Third Party Supplier in the Clubcard Scheme.

(f) The Third Party Supplier gives various undertakings relating to the proper operation of the Clubcard Scheme.'"

(ii) Special promotions

24. The nature of this type of scheme is explained by the judge in paragraphs 10 and 11 of his judgment, as follows:

"10. Sometimes a supplier of goods to Tesco may agree with Tesco that, during a particular period or in respect of a particular product line, extra Clubcard points, over and above the standard one point for each £1 spent, will be awarded to customers purchasing goods originating with that supplier and tendering their Clubcards at the time of payment. An arrangement of this kind will enable in-store promotions to be mounted based upon such offers as four bonus points on each purchase of a particular product.

11. The Tribunal did not have before it evidence of any particular example of such arrangements, although it must have accepted that they existed in some cases. There was no evidence of the terms agreed between Tesco and the supplier in any particular case. However it seems to me to be an inevitable inference that the arrangements between Tesco and the suppliers in question must include provisions for the cost of the promotion, including the cost of the additional points awarded, to be borne by the supplier. The customer will, of course, be made aware that additional points are to be awarded in respect of the purchase, this being the inducement which underlies the promotion, but he will not be told anything of the arrangements between Tesco and the supplier in question."

(iii) The TPF scheme

25. The judge describes the TPF scheme in paragraphs 7 to 9 of his judgment, as follows:

"7. Tesco Personal Finance Ltd ("TPF") is a joint venture company owned by a Tesco subsidiary and the Royal Bank of Scotland ("RBS"). It is part of the RBS VAT group but not part of the Tesco VAT group. As part of its business TPF carries on a credit card operation, issuing to its customers a TPF Visa card which can be used, like any other Visa card, at any outlet linked with the Visa network. In addition the TPF Visa card can be used as a Tesco Clubcard. Thus a customer purchasing goods from Tesco, or from a third party retailer within a scheme of the kind just described, may produce a TPF Visa card at the time of payment. The cost of the goods will be charged to the customer's Visa card account.

8. Under the arrangements which exist between Tesco and TPF the customer will also earn Clubcard points when he uses the TPF Visa card in this way. In the first place the customer will be credited with the number of Clubcard points appropriate to the cost of the goods purchased, without the need to produce a separate Clubcard. In addition the customer will be awarded an additional half a point for every £1 paid by the use of the TPF Visa card. Thus most purchases made at a Tesco store and paid for with a TPF Visa card will entitle the customer to one and a half points for each £1 spent.

9. No formal agreement exists between Tesco and TPF but the Tribunal was satisfied that the Clubcard scheme operates in relation to TPF as follows:

a) A TPF Visa card holder is entitled to Clubcard points as described above;

b) TPF periodically pays Tesco amounts calculated to reimburse Tesco for the costs incurred by it in support of the joint venture business of TPF;

c) The reimbursement does not, however, extend to the full face value of the points or vouchers acquired by the holders of TPF Visa cards. Instead it represents only 93% of that face value, that being the estimated rate of redemption of vouchers issued to Clubcard holders."

The present dispute

26. Prior to January 1997, Tesco's practice had been to include the full amount paid on the purchase of premium goods in its daily turnover, accounting for the VAT on that amount accordingly; and to deduct the face value of the vouchers from the amount paid on the purchase of redemption goods, as representing a discount on the full price for the redemption goods. The Commissioners contend that this was the correct procedure.
27. In January 1997, however, Mrs Smith wrote to Mr Hughes at H.M. Customs & Excise contending that the vouchers were issued 'for a consideration' within the meaning of paragraph 5, in that part of the sum paid by the customer on purchasing premium goods represented consideration for the issue of vouchers; and that the correct VAT treatment of the vouchers, applying paragraph 5, was to omit their face value from the daily gross takings (DGT) at the stage when the vouchers were issued but to include their face value in the DGT as and when they were redeemed, on the basis that their face value is the equivalent of a payment in cash. This contention was rejected by the Commissioners in the letters to which I referred earlier. Tesco appealed to the Tribunal.

PART 3. THE LEGISLATIVE BACKGROUND AND SOME RELEVANT AUTHORITIES

A. Community law:

28. The starting-point in Community law is art. 2 of EC Directive 67/227 issued on 11 April 1967 ("the First Directive"). Art. 2 sets out the basic principle underlying the VAT system, as follows:

"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, whatever the number of transactions which take place in the production and distribution process before the tax is charged.

On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods and services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.

The common system of value added tax shall be applied up to and including the retail trade stage."

29. Thus, value added tax is a tax on the supply to the ultimate consumer. It follows that, however many steps there may be in the process leading to such supply, the tax is based upon the consideration obtained for the supply by the supplier who supplies the ultimate consumer (see F & I Services Ltd v. C & E Commrs [2001] STC 939, [2001] EWCA Civ 762 ("F & I") at 947e per Robert Walker LJ).
30. I turn next to EC Council Directive 77/388 of 17 May 1977 ("the Sixth Directive"), which provides as follows (so far as material):

"Article 2

The following shall be subject to value added tax:

1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;

2. ....

Article 5

Supply of goods

1. 'Supply of goods' shall mean the transfer of the right to dispose of tangible property as owner.

....

Article 6

Supply of services

1. 'Supply of services' shall mean any transaction which does not constitute a supply of goods within the meaning of Article 5.

....

Article 10

1. (a) 'Chargeable event' shall mean the occurrence by virtue of which the legal conditions necessary for tax to become chargeable are fulfilled.

(b) ....

2. The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed. ....

....

Article 11

A. Within the territory of the country

1. The taxable amount shall be:

(a) in respect 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 including subsidies directly linked to the price of such supplies;

....

3. The taxable amount shall not include:

(a) ....

(b) price discounts and rebates allowed to the customer and accounted for at the time of supply;

...."

31. In the context of the present appeal, it is to be noted that 'consideration' for the purposes of art.11A(1)(a) includes consideration which is obtained by the supplier prior to making the supply: see the words 'has been or is to be obtained' (my emphasis). Thus, 'consideration' includes prepayments in cash or its equivalent. Conversely, art.11A(3)(b) excludes from the 'taxable amount', and hence from that which is to be regarded as 'consideration' under art.11A(1)(a), 'price discounts and price rebates accounted for at the time of supply'. For VAT purposes, therefore, 'consideration' and 'price discounts and rebates' are mutually exclusive. 'Price discounts and rebates' reflect an absence of consideration. Conversely, to the extent that there is consideration for a supply, there can be no 'price discounts or rebates'.
32. On this appeal, we were referred by Mr Roderick Cordara QC (who appears, with Mr Paul Key, for Tesco) to a number of authorities relating (a) to the approach which the court should take in analysing the relevant transaction and (b) to the Community law concept of 'consideration'. Mr Christopher Vajda QC (who appears, with Mr Tim Ward, for the Commissioners) does not take issue with Mr Cordara's analysis of these authorities, but since Mr Cordara relies on them I advert to them briefly. I shall then turn to the authorities relied on by Mr Vajda, relating specifically to voucher schemes.

(a) Authorities as to the approach to be adopted in analysing the relevant transaction

33. Mr Cordara referred us first to a passage in the judgment of Ralph Gibson J in Customs & Excise Commissioners v. Pippa Dee Parties Ltd [1981] STC 495 at 501g-j, which was specifically approved by this court in Customs & Excise Commissioners v. Diners Club Ltd & Anor. [1989] STC 407 at 420c-d. In the passage in question, Ralph Gibson J said this:

"It is clear therefore that a technical analysis of one part of a transaction, or of one set of obligations within a contract, even though accurate in legal principle, which is capable of explaining the service supplied, or the consideration given, in a restricted way, is not necessarily the right answer in law to the application of the provisions of this statute [the Finance Act 1972]. I accept counsel for the Crown's submission that this approach does indicate that taxable transactions should not be artificially dissected so as to demonstrate as being the service provided, or the consideration given, something other or less than that which appears to have been the service provided or the consideration given upon examination of the entire transaction. The meaning of 'entire transaction' for this purpose must be objectively determined upon the facts of the transaction by reference to the terms agreed."

Ralph Gibson J's 'entire transaction' test is reflected in the approach adopted by the European Court of Justice some 20 years later in Customs and Excise Commissioners v. Mirror Group plc [2001] STC 1453 (C – 409/98) (see paras 40 and 41 below).

34. In British Railways Board v. Customs & Excise Commissioners [1977] STC 221 (a case concerning student rail cards) Lord Denning MR said this (at 223g):

"The value added tax tribunal held that value added tax was payable on the £1.50. They regarded it as a question of fact …. I do not myself think it was a question of fact for the tribunal. We are told that some tribunals hold that value added tax is payable on these sums of £1.50 paid by the students; and that other tribunals hold that it is not payable. That will never do. Either value added tax is payable on all these sums of £1.50 or on none of them. It cannot depend on the state of mind of any individual student by asking him or her: what did you pay the £1.50 for? It must depend on the legal effect of the transaction considered in relation to the words of the statute. And that is a question of law."

35. Later in his judgment in that case, Lord Denning MR said this (at p.224g-j):

"I come back to the real question in this case: what did the board supply in consideration for the £1.50 they received? Did they supply transport by rail, or only an option to buy tickets? To my mind they supplied transport by rail; and the £1.50 was part payment for it. It is not correct to separate the £1.50 as if it was a separate payment for some separate service, separate from the travel by rail. The £1.50 is really part and parcel of the payment which the student makes for travelling on the railway."

36. In Customs & Excise Commissioners v. Reed Personnel Services Ltd [1995] STC 588 the issue was whether the taxpayer's supply was of nurses or of nursing services. In the course of his judgment, Laws J considered the nature of the court's jurisdiction on an appeal on such an issue. At ibid. p.591c he said this:

"I should at this stage break off to notice, and underline, the limited nature of my jurisdiction in an appeal of this kind. The right of appeal to this court arises under the Tribunals and Inquiries Act 1992 and is on law only. Just as with judicial review, that means that any findings of fact of the tribunal can only be impugned here on the familiar Wednesbury basis …. So much is common ground….. However, [the taxpayer] submits that where the issue for decision depends upon the construction of documents, the exercise of construction which the tribunal at first instance and the court on appeal must undertake is one of law, so that there is no difference between the nature of my task in relation to the contractual documents in this case, and the task which the tribunal had to perform. ….

I certainly accept that where any issue turns wholly upon the construction of a document having legal consequences, the exercise of construction is one of law for the judge. But for the proper resolution of a case of this kind, there are I think two qualifications. The first is that the concept of making a supply for the purposes of VAT is not identical with the performance of an obligation for the purposes of the law of contract, even where the obligation consists in the provision of goods or services. The second is that, in consequence, the true construction of a contractual document may not always answer the question – what was the nature of the VAT supply in this case? In so far as the answer to that question is not concluded by the legal process of construing the documents, there remains a question of fact; and for the purposes of an appeal of this kind, as I have made clear, the Wednesbury rule must therefore guide this court's approach in relation to it."

37. Later in his judgment, at ibid. p.595e, Laws J said this:

"In principle, the nature of a VAT supply is to be ascertained from the whole facts of the case. It may be a consequence, but it is not a function, of the contracts entered into by the relevant parties."

38. In the result, Laws J held that the tribunal's decision "rested on its overall view of the facts", and could not be faulted on Wednesbury grounds.
39. Laws J's approach was approved by the House of Lords in Eastbourne Town Radio Cars Association v. Customs & Excise Commissioners [2001] STC 606, [2001] UKHL 19 (see per Lord Slynn at para 14). In paragraphs 15 and 16 of his speech, Lord Slynn stressed the importance of the 'commercial reality' of the contract under consideration (an expression used by the European Court of Justice in H. J. Glawe [etc] [1994] STC 543, C – 38/93), and of not straying outside the four corners of the contract.
40. In Mirror Group, the High Court referred to the European Court of Justice the question of the true interpretation of the expression 'the leasing and letting of immovable property' in art. 13B(b) of the Sixth Directive. Rejecting the taxpayer's contentions as to the interpretation of that expression, the court said this (in paragraph 33 of its judgment):

"An approach of that kind would be contrary to the VAT system's objectives of ensuring legal certainty and a correct and coherent application of the exemptions provided for in art. 13 of the Sixth Directive. The court observes in this connection that, to facilitate the application of VAT, it is necessary to have regard, save in exceptional cases, to the objective character of the transaction in question…. A taxable person who, for the purposes of achieving a particular economic goal, has a choice between exempt transactions and taxable transactions must, therefore, in his own interest, duly take his decision while bearing in mind the neutral system of VAT …. The principle of the neutrality of VAT does not mean that a taxable person with a choice between two transactions may choose one of them and avail himself of the effects of the other."

41. In paragraphs 27 and 28 of his opinion in Mirror Group the Advocate-General (Tizzano) said this:

"27. In order to identify the key features of a contract .... we must go beyond an abstract or purely formal analysis. It is necessary to find the contract's economic purpose, that is to say, the precise way in which performance satisfies the interests of the parties. In other words, we must identify the element which the legal traditions of various European countries term the cause of the contract and understand as the economic purpose, calculated to realise the parties' respective interests, lying at the heart of the contract. In the case of a lease, as noted above, this consists in the transfer by one party to another of an exclusive right to enjoy immovable property for an agreed period.

28. It goes without saying that this purpose is the same for all the parties to the contract and thus determines its content. On the other hand, it has no connection with the subjective reasons which have led each of the parties to enter into the contract, and which obviously are not evident from its terms. I have drawn attention to this point because, in my view, failure to distinguish between the cause of a contract and the motivation of the parties has been the source of misunderstandings, even in the cases under consideration here, and has complicated the task of categorising the contracts at issue."

42. In Customs & Excise Commissioners v. Littlewoods Organisation plc [2001] STC 1568, [2001] EWCA Civ 1542 Chadwick LJ, giving the judgment of the court, said this (in paragraph 84 of the judgment):

"We reject the submission that there is any principle that transactions which have the same economic effect are, necessarily, to be treated in the same way for the purposes of VAT. The principle of neutrality, as explained by the Court of Justice in Elida Gibbs [1996] STC 1387 at 1403 and 1404, [1997] QB 499 at 561 and 562, paras 28 and 31, requires that the taxable person – that is to say, in the present case, the supplier – is not required to account for an amount of VAT which is greater than the amount actually paid by the final consumer – in the present case, the purchaser of the Lex car. As the Court of Justice emphasised in Elida Gibbs [1996] STC 1387 at 1402, [1997] QB 499 at 560, para 19, it is the final consumer who is intended to bear the tax; and the taxable amount upon which VAT is chargeable cannot exceed the consideration which the final consumer pays for the supply. But that principle does not provide the answer, in the present case, to the question 'what monetary equivalent did the parties attribute to the part exchange car?'; nor even to the question 'what monetary equivalent did the part exchange car represent to Lex when it accepted that car in part payment for the supply of the Lex car?' (see the judgment of the Court of Justice in Argos [1996] STC 1359 at 1373, [1997] QB 499 at 529, para 20)."

(b) Authorities relating to the Community law concept of 'consideration'

43. In Staatssecretaris van Financieren v. Cooperatieve Aardapelenbewaarplaats GA ("Dutch Potato") [1981] ECR 445, C – 154/80 the European Court of Justice stressed that the term 'consideration', when used in a VAT context, has an autonomous meaning, applicable in all member states. Thus, in paragraph 9 of its judgment, the court said this:

"It should be noted in the first place that the expression in issue is part of a provision of Community law which does not refer to the law of the Member States for the determining of its meaning and scope; it follows that the interpretation, in general terms, of the expression may not be left to the discretion of each Member State."

44. The court also stressed the need for a direct link between the supply in question and the alleged consideration for it, saying (in paragraph 12 of its judgment):

"So a provision of services is taxable, within the meaning of the Second Directive, when the service is provided against payment and the basis of assessment for such a service is everything which makes up the consideration for the service; there must therefore be a direct link between the service provided and the consideration received which does not occur in a case where [as in that case] the consideration consists of an unascertained reduction in the value of the shares possessed by the members of the cooperative and such a loss of value may not be regarded as a payment received by the cooperative providing the services."

45. In Commissioners of Customs & Excise v. Tron Theatre Ltd [1994] STC 177 the issue was as to the VAT treatment of fund-raising activities by the taxpayer company involving sponsorship of new theatre seats to raise money for the refurbishment of the company's theatre, and in particular whether there was a supply for consideration. The Lord President (Lord Hope), giving the judgment of the court, said this (at p.181c):

"In our opinion the answer to the point which has been raised in this case is to be found by giving the phrase 'a consideration in money' in sub-ss (2) and (4) of s. 10 [of the Value Added Tax Act 1983] its ordinary meaning. No question arises here as to whether there was or was not a direct link between the consideration and the supply. .... [R]eciprocity is not in question in the present case. The relationship between the company and its sponsors was clearly a direct relationship. The sponsors paid their money direct to the company and they received, or at least were entitled to receive, the benefits direct in return. The consideration for these benefits was the amount of money which had to be paid in order to receive them. The tribunal was satisfied that the benefits were not being given gratuitously but only in return for the payment of money to the company. The question then is what the sponsor had to pay to obtain these benefits. The tribunal held that this was a contract constituted by offer and acceptance, and on this view it appears to us that the sum of £150 was the consideration in money for the supply. Thus, the value of the supply falls to be determined in terms of s. 10(2) of the 1983 Act, and it must be taken to be, when grossed up by the addition of the tax chargeable, equivalent to the sum of £150."

46. In Tolsma v. Inspecteur der Omzetbelasting Leeuwarden [1994] STC 509, C – 16/93 the issue was as to the VAT treatment of voluntary donations solicited from members of the public by a street musician. The European Court of Justice held (see in particular para 14 of the judgment) that a supply of services was effected 'for consideration' within the meaning of art. 2(1) of the Sixth Directive, and hence was taxable, only if there was a legal relationship between the provider of the service and the recipient pursuant to which there was reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient; and that those conditions were not fulfilled in that case.
47. Town and County Factors Ltd v. Customs & Excise Commissioners [2002] STC 1263 (ECJ) was the converse of Tolsma in that there was a legal relationship creating the necessary link between the supply and the consideration for it. However, the court made clear that 'legal relationship' in this context did not necessarily mean a relationship which was enforceable in legal proceedings.
48. In paragraphs 38 to 41 of her opinion in Town & County, the Advocate-General (Stix-Hackl) said this:

"38. Whether there is a legal relationship in the Tolsma sense cannot depend .... on the presence of specific legal characteristics, in particular contractual or procedural ones, such as enforceability in legal proceedings. Since the conditions for the existence and content of legal relationships vary according to national legal systems, that would also be incompatible with the principle of fiscal neutrality and the objective of harmonisation of VAT. Otherwise the inclusion of a 'binding in honour only' clause could open the way to tax evasion.

39. All that need be examined is whether the components of reciprocal performance are exchanged in the framework of agreements – even ones that are binding in honour only – from which it is apparent that there is a direct link between them.

40. In the Tolsma case there were no agreements of any kind whatever which might have created a link between service and payment sufficient for it to be possible to speak of a transaction 'for consideration' within the meaning of art. 2 of the Sixth Directive; the 'provider of the service' (in that case a street musician) admittedly received certain sums 'for his service', but the 'recipients of the service' paid them purely voluntarily and in principle received the service regardless of their consideration ....

41. In contrast to the Tolsma case, in cases such as that in the main proceedings there is indeed a type of agreement under which the entry fee is paid for the service provided by the organiser of the competition. ...."

49. In paragraphs 43 and 44 of her opinion the Advocate-General concluded that even illegal transactions may be subject to VAT, and that for VAT purposes a 'legal relationship' may exist even in the case of an agreement which is not legally enforceable.
50. In Customs & Excise Commissioners v. Church Schools Foundation Ltd [2001] STC 1661, [2001] EWCA Civ 1745 this court held (Sir Andrew Morritt V-C and Arden LJ, Buxton LJ dissenting) that although there was a direct link in that case between the supply and the alleged consideration, nevertheless the supply was not a supply 'for' the alleged consideration, as required by art. 2 of the Sixth Directive; rather, the supply was effected 'with' the alleged consideration.
51. In Yorkshire Co-operatives Ltd v. Customs & Excise Commissioners [2003] STC 234, C – 398/99 manufacturers issued price reduction coupons to the public. The coupons could be used to purchase products nominated on the coupons from retailers participating in the scheme. When a customer purchased such a product, he paid the normal retail price less the face value of the coupon. The retailer then claimed reimbursement from the manufacturer. The issue was whether the nominal value of the coupons should be included in the taxable amount in the hands of the retailer. The European Court of Justice held (following its decision in EC Commission v. Federal Republic of Germany [2003] STC 310, C – 427/98) that although the manufacturer was to be regarded as a third party in relation to the transaction between the retailer and the customer, nevertheless the fact that part of the consideration for the sale of the goods came from a third party was immaterial. Accordingly, when on the sale of a product the retailer allowed the final consumer to settle the sale price partly in cash and partly by means of a coupon issued by the product manufacturer, who in turn reimbursed the retailer the amount indicated on the coupon, the nominal value of the coupon had to be included in the taxable amount in the hands of the retailer.
52. Mr Cordara cited Customs and Excise Commissioners v. Professional Footballers' Association (Enterprises) Ltd [1993] STC 86 (HL) for the proposition that it is not necessary for a customer to know how much of the money he pays constitutes consideration for a supply: the question is whether there was consideration for the supply. In that case the issue was whether (as contended by the association) the VAT-inclusive price paid by members of the association for an annual dinner at which trophies and medals were presented to award winners included an element of consideration for the supply of the trophies and medals, or whether (as the Commissioners contended) there was no consideration for such supply, with the result that VAT was chargeable on the cost of the trophies and medals. The House of Lords (affirming the decisions of the VAT tribunal, of the judge at first instance (Nolan J) and of this court) held in favour of the association.
53. Lord Slynn (with whose speech the rest of their Lordships agreed) identified the issue as being "whether it can be said that there was a direct link between the price of the dinner ticket (or part of it) and the awards" (see p.89f-g). Lord Slynn concluded that there was a sufficiently direct link, saying this (at pp.89j-90a):

"In my view the tribunal was perfectly entitled, indeed right, to find on the evidence that what each of those attending paid for included not merely seeing the presentation of the awards, but the actual provision or supply of those awards. It was a vital part of the evening."

54. At p.90e-f Lord Slynn said this:

"Nor does it matter in my view whether the diners knew or considered whether the price they paid included or constituted the costs of the awards. Such price in fact contributed to the cost of the evening which included the provision of the awards. That in my view is a sufficiently direct link."

55. Mr Cordara also referred us in this connection to Customs & Excise Commissioners v. Telemed Ltd [1992] STC 89 (QBD), where Hodgson J said this (at p.96a-b):

"[Counsel] for the commissioners .... points out that no individual advertiser can know what part of the money consideration provided by him is attributable to the supply of goods. That is no doubt true but not, in my judgment, relevant. The question is not whether the advertiser knew what part of the money he provided was for the supply of goods but whether there was consideration for the supply of goods."

(c) Authorities relating to voucher schemes

56. For a reason which will become apparent, Mr Cordara referred us to the decision of the Divisional Court in Davies v. Customs & Excise Commissioners [1975] STC 28 for the proposition that where a member of the Clubcard scheme redeems a voucher on the purchase of redemption goods the face value of the voucher is to be treated for VAT purposes as a payment of cash, and included in Tesco's turnover accordingly. In Davies the taxpayer was a retail draper who had an arrangement with a company (Provident) whereby he agreed to accept vouchers bearing a face value (referred to as 'checks') issued by Provident and presented by customers in exchange for goods supplied in his shop. Provident reimbursed the taxpayer, but subject to a deduction of 13.5 per cent, representing a commission paid by the taxpayer to Provident for encouraging custom in his shop by issuing the vouchers. The taxpayer was assessed to VAT on the total cash value of the goods supplied (that is to say, including the face value of the vouchers). He claimed that he was assessable to VAT on the discounted sum paid to him by Provident. A VAT tribunal found in favour of the Commissioners, and its decision was upheld by the Divisional Court.
57. In the course of his judgment (with which Mais and Croom-Johnson JJ agreed), Lord Widgery CJ said (at p.30a-b):

"This simple transaction has given rise to arguments at great length, many of which have gone up what I venture with respect to think were blind alleys. Consideration has been given to the question of whether a Provident customer acquiring goods through the Provident check is giving cash or something other than cash as a consideration. This point may be of some importance. From my point of view I am quite confident that the customer who presents the Provident check is paying cash and not consideration other than cash."

58. Mr Vajda's starting-point in his citation of authority is the decision of the European Court of Justice in Boots Co plc v. Commissioners of Customs and Excise [1990] STC 387, C – 126/88. In that case, the relevant facts were briefly as follows. Boots launched two promotional schemes. In one of them, it bore the entire cost; in the other, the cost was shared between Boots and its suppliers. Under the schemes, a customer who purchased specified goods (premium goods), priced at their normal selling price, obtained coupons at no extra charge entitling him to purchase other specified goods (redemption goods) at a reduced price, the amount of the reduction being equal to the nominal value of the coupons. In the scheme in issue in the case the entire cost of the scheme was borne by Boots. The Commissioners decided that the coupons constituted part of the consideration for the supply of the redemption goods and assessed Boots to VAT on the basis that its gross takings included the nominal value of the redeemed coupons. A VAT tribunal upheld the Commissioners' decision. On Boots' appeal, the High Court stayed the proceedings and referred to the European Court of Justice for a preliminary ruling on a number of questions including (as the third question) whether, as Boots contended, the nominal value of the surrendered coupons constituted a price discount or rebate within the meaning of article 11A(3)(b) of the Sixth Directive and accordingly was not part of the taxable amount in Boots' hands. The court upheld Boots' contention.
59. In paragraphs 11 to 13 of its judgment, in a section of the judgment headed 'Characteristics of the coupons', the court said this:

"11. In order to provide a helpful answer to the problem of interpretation raised by the questions submitted to the court, that problem must be defined with reference to the national court's findings of fact as to what the coupons represent in the relations between Boots and its customers from the economic and legal point of view.

12. According to the documents before the court, by the coupon given to the customer on the sale of the premium goods, Boots engages to grant the bearer of the coupon, on the subsequent purchase of one of the articles indicated in it, a price reduction equal to the nominal value also indicated on the coupon. Thus the coupon is constitutive of the bearer's right to a price reduction equal to the amount indicated on the coupon.

13. From the economic point of view, since the obligation assumed by Boots forms part of a promotion scheme the cost of which is borne by Boots itself, it affords Boots no advantage other than the prospect of increasing its turnover by increasing the volume of its sales of premium goods and redemption goods. It is only where the coupon is surrendered to Boots and is then recovered by its supplier, when the latter bears all or part of the promotion costs, that the coupon has monetary value for Boots equal to the amount actually paid by the supplier to Boots pursuant to their own contract. In the case in question, the coupon represents for Boots only an obligation to grant a reduction, which is allowed with the aim of attracting the customer."

60. In the next section of its judgment, headed 'The taxable amount', the court said this:

"15. According to art. 11A(1)(a) of the Sixth Directive, the taxable amount within the territory of the country is to be, in respect of supplies of goods, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser. Paragraphs (2) and (3) of art. 11A enumerate certain items which are to be included in the taxable amount and other items which are not to be included. Paragraph (3)(b) of art. 11A provides that the taxable amount is not to include 'price discounts and rebates allowed to the customer and accounted for at the time of supply'. Thus, the items referred to in para (2) of art. 11A are treated by the directive itself as constituting the 'consideration' and therefore the taxable amount and the items referred to in para (3) are excluded, likewise ex lege, from the concept of consideration.

16. It follows that each time the question of classifying a specific item arises, it is first necessary to examine whether the item falls within one of the categories referred to in paras (2) and (3) and it is only when the answer is the negative that reference must be made to the general concept in para (1)(a)."

61. Addressing the third question, the court said this (in paragraphs 18 to 22 of its judgment):

"18. 'Discounts and rebates' which, according to art. 11A(3)(b) of the Sixth Directive, are not to be included in the taxable amount, constitute a reduction of the price at which an article is lawfully offered to the customer, since the seller agrees to forgo the sum represented by the rebate in order precisely to induce the customer to buy the article.

19. That provision is merely an application of the rule laid down in art 11A(1)(a) of the Sixth Directive, as interpreted by the court in its decisions .... according to which the taxable amount is the consideration actually received.

20. The United Kingdom states that the promotion scheme used by Boots should be distinguished from the typical case of a price discount or rebate since the reduction allowed to the purchaser is granted in exchange for the coupon which has a value.

21. That viewpoint cannot be accepted. It is clear from the coupon's legal and economic characteristics described above that, although a 'nominal value' is indicated on it, the coupon is not obtained by the purchaser for consideration and is nothing other than a document incorporating the obligation assumed by Boots to allow to the bearer of the coupon, in exchange for it, a reduction at the time of purchase of redemption goods. Therefore, the 'nominal value' expresses only the amount of the reduction promised.

22. The answer to the question must therefore be that art 11A(3)(b) of the Sixth Directive must be interpreted as meaning that the expression 'price discounts and rebates allowed to the customer and accounted for at the time of the supply' covers the difference between the normal retail selling price of the goods supplied and the sum of money actually received by the retailer for those goods where the retailer accepts from the customer a coupon which he gave to the customer on a previous purchase made at the normal retail selling price."

62. The next case relied on by Mr Vajda is the decision of the European Court of Justice in Kuwait Petroleum (GB) Ltd v. Customs & Excise Commissioners [1999] STC 488, C – 48/97. Kuwait Petroleum is a supplier of fuel, both to consumers and to independent dealers. It operated a sales promotion scheme whereby customers buying fuel (premium goods) were offered vouchers which they were entitled to exchange for goods listed in a catalogue (redemption goods). The price of the fuel was the same, whether or not the customer accepted the vouchers. However, dealers who opted to join the scheme agreed to pay 0.22p (later, 0.33p) per litre for fuel, in addition to the normal wholesale price. In return, Kuwait Petroleum supplied all of the required promotional literature and other necessities. The Commissioners assessed the company to VAT on all redemption goods where the cost of the item exceeded £10, on the ground that such goods had been supplied otherwise than for a consideration. The company appealed to a VAT tribunal, contending that the redemption goods were supplied for consideration since there was consideration for the vouchers, and consequently for the supply of the redemption goods, such consideration consisting of a fraction of the VAT-inclusive price paid by the customer when purchasing fuel. The Tribunal stayed the proceedings and referred to the European Court of Justice for a preliminary ruling as to whether (among other things) the supply of the redemption goods was to be treated as a supply for consideration.
63. The court held that in determining whether, for VAT purposes, there was a supply for consideration, the principle to be applied was that goods were supplied for consideration only if there was a legal relationship between the supplier and the purchaser entailing reciprocal performance, and the price received by the supplier constituted the value actually given for the goods supplied. It further held that although it was for the national court to investigate whether, at the time of fuel purchase, there was an agreement between the company and the customers that part of the price paid for the fuel represented payment for the vouchers or the redemption goods, the evidence suggested that there was in fact no such reciprocal performance by the parties, since the sale of fuel and exchange of redemption goods for vouchers were two separate transactions. One of the factors to which the court pointed as supporting this conclusion was the fact that the price for the fuel was the same whether or not the customer accepted the vouchers.
64. The opposing arguments before the court in Kuwait bear a striking similarity to the arguments addressed to us on this appeal. In a section of his opinion headed 'Synopsis of the observations', the Advocate-General (Fennelly) summarised the opposing arguments as follows:

"30. Kuwait Petroleum contests the approach of the tribunal in divorcing the previous supply of the premium goods (fuel) from the later supply of the redemption goods. .... Supported by the Commission, it contends that, in the case of redemption goods provided in exchange for stamps obtained from its own sites, the consideration for the supply of the goods constitutes an unascertained part of the VAT-inclusive price paid by the motorist. If the consumer chose not to accept the stamps, he was opting not to avail of a right that he had paid for. In support of this contention it relies, in particular, on the court's judgment in Elida Gibbs .... while asserting that the commissioners' reliance on [Boots] is misconceived. Kuwait Petroleum repeats its argument before the tribunal that the sale of the fuel with the stamps forms part of the same single economic transaction as the supply of the redemption goods.

31. Kuwait Petroleum submits that this analysis also applies with respect to stamps supplied by dealers. In its view, the involvement of dealers should not affect the application of the Community VAT law principle of neutrality. It .... contends that the operation of the scheme imposed an additional burden on independent participating dealers; they, in effect, paid Kuwait Petroleum an extra 0.22p/0.33p per litre, plus VAT, for supplies of fuel in return for which they received a supply of stamps. ....

32. The United Kingdom disagrees, saying that there was but one pump-price for each grade of fuel. The stamps were issued, like the coupons in Boots, for no consideration; however, the subsequent supply of the redemption goods was free of charge, whereas the coupons issued by Boots served directly as discounts off the price of the goods subsequently purchased. At the hearing, it was claimed that the very rationale of promotions such as that in issue in the present case is that the customer should receive something without being required to pay anything in return. The simple fact that Kuwait Petroleum incurred costs in operating the scheme does not affect the question whether consideration was provided. Consideration is what is received by the taxable person for the supply. In this case, it cannot be viewed as an unascertained part of the purchase price paid by motorists; the motorist merely paid for the fuel while at the same time receiving stamps, without .... providing any additional consideration to Kuwait Petroleum for those stamps. The United Kingdom, thus, does not accept that the supply of fuel and the later supply of redemption goods constituted a single economic transaction. It submits that the additional 0.22p/0.33p per litre was paid to Kuwait Petroleum by the dealers for fuel in return for the right to participate in the promotion and the resulting opportunity for increasing their own turnover. It did not constitute third-party consideration provided by the dealers to Kuwait Petroleum in respect of the supply of redemption goods, since the payment had no 'direct link' with the delivery of redemption goods by Kuwait Petroleum. ...."

65. Then, under the heading 'Analysis', the Advocate-General said this:

"33. The divergent views concerning whether Kuwait Petroleum received consideration for the redemption goods depend essentially on whether the sale of fuel with stamps and the subsequent supply of redemption goods for the surrender of stamps constitute a single economic transaction, as claimed by Kuwait Petroleum, or whether, as alleged in particular by the United Kingdom ...., no distinct discernible consideration can be identified.

34. .... In the present case, then, the question is whether there was a 'direct link' between the supply of the redemption goods and the purchase of fuel by motorists who received stamps."

66. Then, after referring to Dutch Potato and Tolsma, the Advocate-General continued (at paragraph 38):

"38. It appears to me that the most useful point of reference for the resolution of the present case is [Boots]. .... Although the case was formally concerned with an alleged discount, the core issue was whether, as the United Kingdom asserted in Boots, the reduction on purchases of redemption goods was allowed 'in exchange for the coupon which has value' (see .... para 20); in other words, did the purchaser in the second transaction by surrendering coupons provide consideration equal to the face value of the coupon? Boots was, thus, in effect a price-reduction case. The court stated that the coupons at issue 'represents for Boots only an obligation to grant a reduction, which is allowed with the aim of attracting the customer' ....; the coupons were 'not obtained by the purchaser for consideration' and constituted 'nothing other than a document incorporating the obligation assumed by Boots to allow to the bearer of the coupon, in exchange for it, a reduction at the time of purchase of the redemption goods'."

67. After quoting from the opinion of the Advocate-General in Boots (Van Gerven), the Advocate-General continued:

"39. The supply of redemption goods under the sails scheme is not, in my view, made for consideration as explained in the above-mentioned cases.

40. I do not think it is possible to establish the necessary direct link between the supply of redemption goods and any identifiable element in the price paid for fuel at the pumps, even acknowledging that each motorist is entitled to demand stamps in proportion to his purchases .... It is apparent from such cases as .... [Boots] that the scheme at issue created its own identifiable link, both qualitatively and quantitatively. If the sails scheme had entitled the motorist to a given reduction or even, for example, the supply of a litre of fuel free for every 50 litres purchased, there would have been a straightforward reduction in the price of the fuel supplied, akin to that in Boots. ....

41. However, there are two other decisive considerations. Firstly, it is acknowledged that a significant proportion of the stamps to which motorists are entitled are not claimed, or, if they are, that they are not always used to claim redemption goods. Kuwait Petroleum's claim is that the price, ostensibly paid for fuel both at Kuwait Petroleum-owned and independent sites, is actually paid in part only for the fuel, the remaining part being paid for the redemption goods. Thus the motorists who do not claim stamps or goods are paying, pro tanto, for nothing. On that view, Kuwait Petroleum, or the independent retailers, should pay VAT calculated by reference to the amount of the stamps not claimed or used. That result, though logical, is too theoretical and unreal. ....

42. Secondly and more seriously, it seems to me impossible to adapt Kuwait Petroleum's theory of the single economic transaction to take account of the proportion of the sales of fuel which took place through the dealers. The proposed allocation of the contribution paid by the dealers to Kuwait Petroleum (0.22p or 0.33p per litre) to the price paid by the motorist at the pumps is entirely arbitrary. It bears no relationship either to the actual price paid by the consumer – who has no interest in the cost of the sails scheme – or even to the price of the redemption goods. This, of course, is the result of the impossibility of fitting the intermediate transaction between Kuwait Petroleum and the dealer into the framework of a supposed single economic transaction between Kuwait Petroleum and the consumer. In fact, it exposes the weakness of the argument. Moreover, .... it is not even possible to segregate the two types of transaction. There is no way of distinguishing those stamps received at dealer-operated sites from those supplied directly by Kuwait Petroleum.

43. In reality, it is not possible to treat as a single economic transaction a series of events consisting of two distinct transactions; sale of fuel coupled with the supply of stamps and the subsequent supply of redemption goods for those stamps. This applies a fortiori when, in addition to the above events, the sale of fuel to an independent dealer and the latter's participation in the sails scheme must also be considered. .... In the present case, as Kuwait Petroleum accepted at the hearing, a number of transactions are involved. At a minimum, the sale of fuel and the supply of the redemption goods were separable not only in time but as to subject matter. When the sails scheme is operated by a dealer, yet another transaction occurs."

68. Agreeing with the Advocate-General, the court said this (in paragraphs 26 to 31 of its judgment):

"26. Goods are supplied 'for consideration' within the meaning of art. 2(1) of the Sixth Directive only if there is a legal relationship between the supplier and the purchaser entailing reciprocal performance, the price received by the supplier constituting the value actually given in return for the goods supplied (see .... [Tolsma]).

27. It is for the national court to inquire whether, at the time of purchasing the fuel, the customers and Kuwait Petroleum had agreed – through the dealers, as the case may be – that part of the price paid for the fuel, whether identifiable or not, would constitute the value given in return for the Q8 vouchers. There is nothing, however, in the documents before the court to suggest that there was any such reciprocal performance by the parties concerned.

28. As the Advocate-General pointed out in para 43 of his opinion, the sale of fuel and the exchange of goods for vouchers are two separate transactions.

29. Moreover, there are two considerations in the case in the main proceedings which suggest that the exchange of goods for Q8 vouchers is a disposal free of charge, within the meaning of art 5(6) of the Sixth Directive, and that the application of those goods is therefore to be treated as a supply for consideration and, accordingly, taxable.

30. First, under the sales promotion scheme set up by Kuwait Petroleum, the redemption goods were described as gifts.

31. Second, it is not contested that the retail price of Q8 fuel [the premium goods], whether or not the purchaser accepted the vouchers, was the same, and this was the only price referred to on the invoice relating to the fuel purchase which .... [the company] or the independent retailers had to issue to the customers who were themselves taxable persons. That being so, [the company] cannot reasonably maintain that, contrary to the statements on the invoices which it issued, the price paid by the purchasers of fuel in fact contained a component representing the value of the Q8 vouchers or of the redemption goods."

69. At a subsequent hearing before a VAT tribunal, the tribunal found that customers purchasing fuel provided no separate consideration for the redemption goods. Kuwait's appeal was dismissed by Laddie J (see [2001] STC 62).
70. In paragraphs 23 and 24 of his judgment, under the heading 'The test for determining whether a disposal is 'free of charge', Laddie J said this:

"23. It seems to me that the starting point for deciding whether [counsel for Kuwait Petroleum]'s objections to the tribunal's findings have merit, is to appreciate what inquiry it should have undertaken to determine whether a disposal is 'free of charge' within the meaning of those words in art 5(6). As both parties agreed, this was addressed by the Court of Justice and is set out in the Kuwait judgment (see [1999] STC 488 at 509, [1999] ECR I-2323 at 2358, para 27). What has to be determined is whether, at the time of purchasing the premium goods, the customers and Kuwait Petroleum had agreed, directly or indirectly, that part of the price paid for the premium goods, whether identifiable or not, would constitute the value given in return for the redemption vouchers or the redemption goods. It would be insufficient to prove that Kuwait Petroleum alone thought that the redemption vouchers and redemption goods were being paid for by the customer through the price paid for the premium goods.

24. If the existence of such a consensus is the express and acknowledged view of the contracting parties, then the goods are not disposed of 'free of charge' and art 5(6) does not apply. However, here there was no such express and acknowledged view of the contracting parties. Both [counsel for Kuwait Petroleum] and [counsel for the Commissioners] agree that in those circumstances the inquiry is to be answered objectively. That is to say the fact-finding tribunal has to determine what the ordinary customer (the driver of the Clapham Ford Sierra) and Kuwait Petroleum should be taken to have agreed to at the time the premium goods were being purchased. That determination depends upon the inferences to be drawn from all the circumstances surrounding the transactions on the forecourt of the petrol stations. It is what the tribunal did here."

71. In paragraph 34 of his judgment, Laddie J said this:

"34. Furthermore, I do not accept [counsel for Kuwait's] criticism of the points which the Court of Justice in Kuwait thought were telling. The invoices supplied to the customers at petrol stations and the way in which the promotion was run by Kuwait Petroleum and its participating agents were likely to reinforce each other and convey to the customers the marketing message that they were indeed getting something for nothing. .... They were only incorrectly worded if the redemption vouchers and redemption goods were being paid for. If they were not, the invoices were correctly worded. In any event, as I have said above, what counts is what the customers thought they were agreeing to. Kuwait Petroleum and its agents went out of their way to make customers think that they were being given free gifts. That largesse was to be repaid by customer loyalty. Kuwait Petroleum can hardly complain if customers believed what it was telling them. In the light of these considerations, there is no difficulty in dealing with [counsel for Kuwait's] argument in relation to a promotion of the 'Buy one: get one free' kind. There is a limit to the reasonable gullibility of ordinary members of the public. A promotion of that kind would not persuade most customers that they were really getting half of their acquisitions free. They would think that they were receiving each of the products at half price and that they were paying for both. They would be likely to regard the vendor's assertion that one product was being given free as little more than a puff."

72. Laddie J accordingly upheld the tribunal's decision.
73. The next authority cited to us by Mr Vajda was Customs & Excise Commissioners v. Primback Ltd [2001] STC 803 (ECJ). Under the scheme operated in Primback: (1) Primback, as retailer, invoiced the customer for the full advertised price of the goods; (2) under a separate contract between the customer and one of a number of finance houses participating in the scheme the finance house agreed with the customer to pay the invoiced amount to Primback and the customer agreed to repay that amount to the finance house, interest-free, over a period; and (3) by oral agreements between the finance houses and Primback the finance house paid to Primback the invoiced price of the goods less a percentage by way of commission. Primback was assessed to VAT on the basis of the full invoiced price of the goods. Primback appealed, contending that it was only assessable to VAT on the discounted amount received from the finance house. The House of Lords stayed the proceedings and referred to the European Court of Justice for a preliminary ruling on the question whether, on a true construction of art. 11A(1)(a) of the Sixth Directive, the taxable amount in the hands of a taxpayer under a scheme of the Primback kind consisted of the amount paid by the purchaser for the supply (under the Primback scheme, the full advertised price of the goods) or the amount received by the retailer (under the Primback scheme, the discounted amount paid by the finance house).
74. Before the European Court of Justice Primback contended (as Tesco contends in the instant case) that commercial reality required that, for VAT purposes, the invoiced price had to be broken down into two components, one relating to the supply of the goods and the other relating to the cost of the credit borne ultimately by Primback, and that only the first component fell to be included in the taxable amount.
75. In paragraph 35 of his opinion, the Advocate-General (Alber) noted that there was (at least superficially) a clear agreement between Primback and the customer under which the consideration consisted of the full price of the goods. In paragraph 36 of his opinion, the Advocate-General turned his attention to the agreement between Primback and the finance house, and Primback's 'economic analysis' (that is to say the 'two components' analysis referred to above).
76. In paragraphs 37 to 41 of his opinion the Advocate-General said this:

"37. This manner of considering the transaction in economic terms is challenged in particular by the judgment in Chaussures Bally SA v. Belgium [1997] STC 209, C – 18/92. The issue for determination in Bally was whether, in the case of purchase by credit card, VAT was chargeable on the full price or whether the commission payable to the credit card company could first of all be deducted. The court ruled in that case that the taxable amount had to be the full price. However, the judgment in Bally is not directly transposable to the present case. .... Rejection of the economic method of considering the transaction in the present case can thus find support in the Bally judgment only to the extent to which general principles can be derived from that judgment. In addition to the Bally judgment, account should also be taken in the present context of that in [Kuwait] in which the court focused on how the transaction was perceived externally by the consumer.

38. The court found as a fact in [Kuwait] that the handing out of vouchers on sales of fuel was expressly stated to be without consideration and could therefore also not be used to reduce turnover for the purposes of VAT assessment (see [ibid.] para 30). There is a parallel with the present case in so far as the credit was expressly to be granted interest free.

39. In both [Kuwait] and Bally the party liable to VAT regularly carried on two types of transaction, in which it charged the same price to customers. In the credit card transaction – as formed the basis of the case in Bally – the same prices are typically charged between vendor and purchaser as in a cash transaction. The form of payment alone takes a different form. It is therefore consistent if VAT is charged in the same way as for a cash transaction. The court stressed in [Kuwait] that the price of the purchased fuel remained the same irrespective of whether or not the vouchers in question were accepted (see [ibid.] para 31).

40. There are in the present case no clear grounds for arguing that the purchase of goods on interest-free credit is based on any price other than the cash price. Counsel for Primback stressed at the hearing that cash purchasers could negotiate rebates, but conceded that rebates were not expressly offered to cash purchasers. Consequently the facts of the present case are also in principle on a par with Bally and [Kuwait]. ....

41. The court also pointed out in Bally .... that the retailer liable to VAT expressly indicated on the sales invoice the VAT for the full amount paid by the customer. That in principle does not occur in the present case, since Primback does not indicate any VAT whatever on the invoice. There was, however, a dispute during the hearing as to whether, if it were to indicate VAT on invoices, Primback would be entitled to limit that indication to the amount received from the finance company. Counsel for Primback conceded that, in the event of a cash purchase without rebate, VAT – were it to be indicated – would in any case relate to the full price."

77. The court agreed with the Advocate-General. After referring to Bally, the court said this (in paragraphs 35 to 43 of its judgment):

"35. According to Primback, the need to take account of the commercial reality leads inevitably to the conclusion that the different transactions between the parties involved cannot be analysed in isolation. Thus, in a situation where, as in the case in the main proceedings, the customer has the benefit, for a single price of two supply transactions, effected by two separate traders, one of which is taxable and the other exempt, but neither of which can be treated as being ancillary to the other, the correct method for determining the basis of assessment for VAT would be to divide the consideration in an appropriate manner between the two supply transactions at issue. Since the provision of credit undoubtedly has a value and the price advertised and invoiced to the purchaser in fact covers the cost of the interest-free loan enjoyed by the purchaser, the logical view would be that the consideration for the actual value of the goods is the difference between the advertised sales price and the cost of the credit which the retailer must himself ultimately bear.

36. Primback adds, in the alternative, that the amount of commission retained by the finance house would amount to a discount or a rebate on the price within the meaning of art. 11A(3)(b) of the Sixth Directive, which should therefore not be included in the taxable amount for determining the VAT payable by the retailer in respect of the supply of goods to the final consumer.

37. The arguments put forward by Primback cannot be upheld.

38. First, as follows clearly from para 16 of Bally ...., the relationships between seller and purchaser and between seller and finance house must be distinguished for the purposes of determining the basis for calculating VAT. Consequently, the fact that the supply of services by the finance house is, in principle, VAT-exempt has no bearing on the basis of assessment for the charging of VAT in respect of the transaction between seller and purchaser, which alone is in issue in the main proceedings.

39. For the same reason, Primback's alternative argument is irrelevant.

40. Second, with regard solely to the legal relationship betwen seller and purchaser, Primback cannot validly claim that, for purposes of determining the basis of assessment for VAT, one must break down the single price advertised and invoiced to the consumer, distinguishing between the portion relating to the value of the goods and the portion relating to the cost of the credit ultimately borne by the retailer.

41. According to the order for reference, where a customer makes use of the possibility of paying for goods purchased from Primback by way of interest-free credit, that customer receives from the seller an invoice stating the price of the goods as advertised in the store at the time of sale and concludes with a finance house a loan agreement for an amount equivalent to the cash sale price of the goods. The finance house undertakes to pay that amount directly to the seller, on the purchaser's behalf, in settlement of the price advertised and invoiced by that seller. The customer repays to the finance house only the amount of the loan.

42. It follows that, in the present case, the price agreed between the parties to the contract of sale and paid by the consumer was the same, irrespective of the means by which the purchase of the goods was financed, with the result that Primback cannot reasonably argue that the price advertised in fact contained a component representing the value of the credit (see, by way of analogy, [Kuwait] para 31)."

78. The court went on to observe that even if there were a separate supply of credit, such supply would in any event be ancillary to the principle supply, viz. the supply of goods, with the result that for VAT purposes there would still be a single supply; and that any reduction in the price of the goods would need to be negotiated and agreed with the customer. It continued (in paragraphs 47 and 48 of its judgment):

"47. Primback cannot validly argue that the provision of interest-free credit as such reduces the countervalue of the supply of the goods. On the contrary, the option given to customers to purchase on credit not only increases the volume of the retailer's sales, but also enables the retailer to avoid having to accept payment by instalments and guarantees him payment for the goods sold, with the result that, in consideration of this supply of services provided by the finance house, the seller accords to the latter a commission which reduces his profit margin. That commission constitutes for Primback a charge connected with its business in the same way as, for example, its costs in respect of financing, advertising or rent.

48. By calculating VAT on the total price advertised and invoiced by the seller, the commissioners are not therefore charging a taxable person such as Primback an amount of tax exceeding that ultimately borne by the final consumer (see Elida Gibbs ....). In contrast, if the tax authorities were able to charge VAT only on a fraction of the price invoiced to the purchaser and payable by him, as Primback argues, a portion of the advertised price of the goods sold to the final consumer would not be subject to tax, with the result that the principle of fiscal neutrality would be infringed."

79. The court accordingly ruled that in a scheme of the Primback type the taxable amount for the purposes of calculating VAT on the sale of the goods consists of the full amount payable by the purchaser.

B. National law:

80. Section 5(2)(a) of the 1994 Act provides that 'supply' for the purposes of the Act includes all forms of supply:

"....but not anything done otherwise than for a consideration".

81. Section 19 of the 1994 Act (headed "Value of supply of goods or services") together with Schedule 6 to the 1994 Act (headed "Valuation: special cases") carry into national law the provisions of art.11A of the Sixth Directive. They must accordingly be construed in accordance with the Sixth Directive and other relevant Community legislation. Section 19 provides as follows (so far as material):

"(1) For the purposes of this Act, the value of any supply of goods or services shall, except as otherwise provided by or under this Act, be determined in accordance with this section and Schedule 6, and for those purposes subsections (2) to (4) below have effect subject to that Schedule.

(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) If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration.

(4) Where a supply of any goods or services is not the only matter to which consideration in money relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it.

(5) ...."

82. Paragraph 5 of Schedule 6 is in the following terms:

"5. Where a right to receive goods or services for an amount stated on any token, stamp or voucher is granted for a consideration, the consideration shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds that amount."

83. Since there is no directly equivalent provision to paragraph 5 in Community legislation, there is no direct European authority as to the interpretation and application of the paragraph. Moreover, notwithstanding that a provision in the terms of paragraph 5 has been part of national legislation since 1972 (see Finance Act 1972 Schedule 3 paragraph 5 and the Value Added Tax Act 1983 Schedule 4 paragraph 6), there is little authority in national law relating to it. In particular, there is no authority in national law which addresses directly the issue which arises on this appeal.
84. In Customs & Excise Commissioners v. Granton Marketing [1996] STC 1049 at 1053f Waite LJ (with whom Swinton Thomas and Stuart-Smith LJJ agreed) accepted the submissions of leading counsel for the Commissioners that:

".... Schedule 4 [of the 1983 Act] is merely a valuation provision, and paragraph 6 [the immediate predecessor of paragraph 5 of Schedule 6 to the 1994 Act] needs to be read in its context as one of the provisions of that schedule designed to deal with distortions and anomalies. .... paragraph 6 is designed to avoid double taxation where a supply is capable of being subdivided into two separate transactions by reason of prepayment."

85. As Robert Walker LJ observed in F & I (at paragraph 16 of his judgment):

"Except in Granton Marketing, the statutory provision which now appears as Schedule 6, paragraph 5 of the 1994 Act has received very little attention either from the national court or in the Court of Justice."

86. F & I was concerned with a proposed scheme devised by the taxpayer (F & I) under which books of vouchers were to be sold to car dealers to be offered by them to purchasers of cars. The vouchers were to be redeemable on purchases of goods or services from retailers participating in the scheme. The nominal value of each book of vouchers was £2,200, but the conditions for their use meant that the likelihood was that only a small proportion of them would in fact be redeemed. The books were sold to the car dealers by F & I at a price of £10.40 each plus VAT, and by the car dealers to their customers at a nominal price of £300 (without VAT). The £300 was included as part of the price for the car. The Commissioners took the view (contrary to their previous view) that the taxable amount in the hands of the car dealers included the proceeds of sale of the vouchers. F & I contended to the contrary. A VAT tribunal agreed with the Commissioners' view. It acknowledged that the retailers derived a general commercial benefit from the scheme, but it concluded that there was no direct link between that general benefit and the supply of goods when a voucher was redeemed; hence the vouchers were not issued for consideration. F & I appealed, contending (among other things) that paragraph 5 applied. Carnwath J dismissed the appeal, holding that as the vouchers could only be used by way of discount or part payment they were outwith para 5 as the only effect of using them would be to obtain a price reduction.
87. This court upheld that decision. In paragraph 44 of his judgment, Robert Walker LJ said this:

"Schedule 6, para 5 is directed to a voucher 'granted for a consideration'. It does not apply to the sort of 'money-off' or 'cash-back' vouchers considered in many of the cases cited to this court. Its most obvious application is to the sort of 'savings stamp' schemes which were used, at times when credit was not so easy to obtain as it is today, to enable consumers to put money aside in order to obtain goods or services, at some future time, from a particular supplier. That would be a clear case of prepayment contemplated by art. 11A(1)(a) ('the consideration which has been or is to be obtained'). If such savings stamps were sold by the supplier at a discount, it would appear to fall within art. 11A(3)(b) ('price reductions by way of discount for early payment'). But Sch 6, para 5 must not be construed so widely as to distort the general scheme of VAT as a Community tax, and I think that this court was right, in Granton Marketing, to be aware of that danger."

88. Rejecting a submission on behalf of F & I that the distinction between discount ('money-off') vouchers and payment vouchers was inconsistent with Community law, Robert Walker LJ said this (in paragraph 46 of his judgment):

"I cannot accept that submission. It is no doubt true that a customer who presents a '50p off' voucher at Boots probably does not know or care whether this represents a discount borne by Boots or a part-payment to Boots (because Boots can obtain reimbursement from the manufacturer). But it is not necessary for the customer to know that .... From the point of view of the retailer the distinction is of obvious economic and fiscal importance, as is illustrated by the different schemes considered in the Boots case. In that case the Court of Justice made clear that a voucher which was worthless in the retailer's hands was only 'an obligation to grant a reduction' – that is a discount."

89. Robert Walker LJ (with whose judgment Sedley and Arden LJJ agreed) went on to uphold the judge's finding that there was no direct link between the marketing benefit derived from the scheme by a retailer and the supply which the retailer made to the customer.
90. In Hartwell plc v. Customs & Excise Commissioners [2003] STC 396, [2003] EWCA Civ 130, the facts were briefly these. Hartwell sold new and used cars. On the sale of a used car Hartwell gave the purchaser three MOT vouchers, each of which entitled the customer to a free MOT test. The vouchers had a total face value of £96.33. Hartwell contended: (i) that the vouchers took effect as a discount, and (ii) that they were granted for a consideration within the meaning of paragraph 5, with the consequence that part of the price for the car should be deducted from its turnover. The Commissioners contended: (i) that the £300 formed part of the consideration for the car, and (ii) that in any event the supply of the car and the supply of the vouchers constituted a single supply, the supply of the vouchers being ancillary to the supply of the car, and that accordingly paragraph 5 had no application.
91. The tribunal dismissed Hartwell's appeal, on the basis that the supply of vouchers was ancillary to the supply of the car. Hartwell's further appeal was allowed by Patten J. On the issue as to the application of paragraph 5, the judge held that the tribunal had been in error in assuming that the provisions of paragraph 5 were avoided by its finding that the supply of vouchers was ancillary to the supply of the car. The Commissioners appealed to this court.
92. In this court, Chadwick and Ward LJJ allowed the Commissioners' appeal on the basis of their alternative contention, holding that the transaction under which the dealer supplied the car and the vouchers had to be treated for VAT purposes as a single transaction; that there was no separate consideration for the supply of the vouchers; and that no part of the consideration for the separate supply could be attributed to the vouchers. It followed that the vouchers were not 'granted for a consideration' for the purposes of paragraph 5.
93. In paragraphs 33 to 35 of his judgment Chadwick LJ said this:

"33. In my view it is clear that the transaction under which the dealer provides to the customer both the replacement car and the three MOT vouchers ought to be treated for VAT purposes as a single transaction. .... But, even if I were to take a different view (which I do not) I would not think it right to differ from the tribunal on a finding which it made after considering the evidence before it and directing itself correctly in the light of the authorities.

34. Nevertheless, I agree with the judge that a decision that the transaction is to be treated as a single supply is not determinative of the question whether para 5 .... has any application. The single supply is plainly a supply of goods; and, if it were necessary to categorise that supply, it would take its character from the dominant or principal element – the supply of the replacement car. But, as it seems to me, that does not lead to the conclusion that the goods supplied do not include the MOT vouchers. And so it remains necessary to consider whether the consideration for the single supply includes some separable element of consideration attributable to the vouchers. If it does, then that element of the consideration for the single supply must be disregarded except to the extent (if any) that it exceeds the amount of the face value of the vouchers. That is what para 5 .... requires.

35. In considering whether the MOT vouchers were supplied for consideration the tribunal asked itself whether, if Hartwell failed to honour the undertaking expressed in the vouchers (to provide an MOT test), the customer could enforce that undertaking. The tribunal thought that the customer could do so. In my view it was correct to reach that conclusion. But the conclusion that the undertaking to supply a service (the MOT test) in the future would be enforceable – because that undertaking is supported by consideration, in the sense recognised by domestic law – does not answer the question whether anything which has been obtained by the dealer (Hartwell) for the single composite supply (within which the supply of MOT vouchers is comprised) can be treated, for the purposes of art. 11A(1)(a) of the Sixth Directive, as a separate consideration for the supply of the vouchers. In my view the commissioners are correct in their contention .... that there is nothing which constitutes a separate consideration for the supply of the vouchers; and that no part of the consideration for the single composite supply can be attributed to the vouchers. ...."

94. The Commissioners' appeal was accordingly allowed. Arden LJ would have allowed the appeal on the primary basis contended for by the Commissioners, viz. that the £300 was to be treated for VAT purposes as part of the consideration for the car.

PART 4. THE ISSUE

95. As will by now have become apparent, the issue in the instant case is whether vouchers issued under the basic Clubcard scheme, and/or under all or any of the third party schemes, are vouchers to which paragraph 5 of Schedule 6 to the 1994 Act applies. That issue has been expressed in argument as being whether such vouchers are issued for consideration, for the purposes of paragraph 5. Formulated more precisely, perhaps, the issue is whether, for the purposes of paragraph 5, the right to receive goods up to the face value of a Clubcard voucher is 'granted for a consideration'.
96. In addressing this issue, it will be necessary to consider separately the basic Clubcard scheme and each of the three categories of third party scheme in evidence before the Tribunal, since Mr Cordara submits that, as the Tribunal's Decision itself demonstrates, different conclusions may follow depending on the precise nature of the scheme in question.

PART 5. THE TRIBUNAL'S DECISION

97. In determining whether the Clubcard vouchers were 'granted for a consideration' for the purposes of paragraph 5, the Tribunal adopted the test set out by the European Court of Justice in paragraph 27 of its judgment in Kuwait (quoted above). It also adopted Laddie J's elaboration of that test, as set out in paragraphs 23 and 24 of his judgment in Kuwait (quoted above). (See paragraph 51 of its Decision.)
98. Then, turning to the basic Clubcard scheme, the Tribunal said this (in paragraphs 52 to 57 of its Decision):

"52. The test can be restated for Clubcard Scheme In-store purchases. It is for this tribunal to determine whether, at the time of purchasing the Premium Goods In-store the Clubcard members and Tesco had agreed, directly or indirectly, that part of the price paid for the Premium Goods, whether identifiable or not, would constitute value given in return for the Clubcard vouchers. If the existence of such an agreement is the express and acknowledged view of both of the contracting parties, that is to say Tesco and its Clubcard holding customer, then the Premium Goods have been purchased for a consideration. If there is no such express and acknowledged view then the inquiry is to be answered objectively. We have to determine what the customer who drives to the store in a Ford Sierra and Tesco should be taken to have agreed at the time the Premium Goods were purchased. That determination depends upon the inferences to be drawn from all the circumstances surrounding the In-store purchases.

53. We do not believe that we have sufficient evidence of an express and acknowledged agreement on the part of both Tesco and the customer that part of the price paid at the till on the purchase of the Premium Goods is paid for the vouchers. The statement of entitlement to points on the till receipt is clearly an acknowledgement by Tesco of an entitlement to the vouchers. But the issues remain as to whether that entitlement was as the result of a gift, and, if not, whether it was agreed by both Tesco and the customer that part of the price was paid for the vouchers.

54. We are looking for a consensus. It is relevant what both Tesco and the Ford Sierra driver considered to be the agreement and the nature of the transaction. Was it a gift of a voucher? Or was part of the purchase price paid at the till paid for the right to receive vouchers? We have no difficulty in concluding that Tesco saw it as a right to receive vouchers the cost of which was borne partly out of the price paid at the till. There is no such thing as a free lunch. Tesco knew it had costs that must be covered to justify the Clubcard Scheme. While it might not have attributed the cost individually to each sale of Premium Goods, it was the prices received on those sales as a whole that it looked to to cover the costs. We have no doubt that Tesco considered itself bound to issue the vouchers in accordance with the terms of the Clubcard Scheme. Tesco considered itself both contractually bound by the purchase of the Premium Goods and as receiving consideration for that commitment from part, if an unidentified part, of the price paid at the till. We see no significance in the point made by Miss Whipple that the cost of the Clubcard Scheme can be looked at as overheads of Tesco. They are not a necessary cost for the sale of products at a store. They were introduced to improve or maintain turnover.

55. The real issue for us is whether we are satisfied that the Ford Sierra driving Clubcard member at the time of the purchase of Premium Goods at the till considered the vouchers to be a gift, or whether he or she considered that part of the purchase price paid at the till was paid for the right to receive the appropriate vouchers.

56. We have no hesitation in saying that we are satisfied that such a customer did consider that the price paid at the till was paid partly for the right to get the vouchers. We are satisfied that the vouchers were not considered to be simple gifts. In coming to that conclusion we take into account all the factors raised by Miss Whipple and set out in paragraph 32(d). What we find of overwhelming influence is the very high rate of redemption. Even if the first time the Ford Sierra driver uses his or her Clubcard, that is done with little thought to the future value of the vouchers, that cannot be the case after any reasonable length of time. The Clubcard member knows from experience that the Vouchers will come. The number of points promised is mentioned on the till receipt. A regular statement is received showing the number of points and vouchers that are due. The vouchers arrive. Trouble is taken to keep them. Trouble is taken to take them to a Tesco store. They are valued by the Clubcard members, or at any rate by Clubcard members holding 93% of the vouchers issued. If they are valued when used, it is simple to infer that they also become valued at the time the right to get them is obtained, that is to say at the time when the customer purchases the Premium Goods for a cash sum.

57. In short, it is difficult to believe that vouchers that are redeemed to the extent of 93% are looked on as mere gifts. It is not difficult to infer that the average Clubcard member realises that the value is part of what he is paying for at the time of purchase of the Premium Goods."

99. After considering Boots and other European authorities, the Tribunal expressed its conclusion in relation to the basic Clubcard scheme as follows (in paragraph 64 of its Decision):

"64. For these reasons we conclude for the purposes of this decision in principle that the Appellants appeal succeeds in so far as it relates to vouchers obtained by Clubcard members from In-store purchases. Those vouchers are obtained for the purposes of paragraph 5 of Schedule 6 to the 1994 Act for a consideration. It is not relevant for the purposes of this decision in principle to attempt to identify the extent of that consideration, whether by reference to the face value of the vouchers, the price paid for the Premium Goods, the proportion redeemed or otherwise, that is to be disregarded in accordance with that paragraph. Nor are we asked at this stage to make any decision upon when any amount is to be 'disregarded'."

100. The Tribunal then turned to the third party retailer schemes, saying this (in paragraphs 65 to 72 of its Decision):

"65. We apply the same test for these vouchers. But that means focussing on what happened at the time when the Clubcard member purchases goods or services from a Third Party Supplier. Mr Cordara effectively asked us to focus on the payments by the Third Party Suppliers to Tesco. He submitted that part of their payments to Tesco was the consideration to be disregarded under paragraph 5 of Schedule 6. [Kuwait] is however clear authority for the proposition that we should, at least in the first instance, look at the point when the Clubcard member purchases the relevant goods or services from the Third Party Supplier.

66. Restating the test for vouchers issued in relation to purchases from Third Party Suppliers, we conclude that it is for this tribunal to determine whether, at the time of purchasing the Premium Goods from the Third Party Supplier the Clubcard members and Tesco had agreed, directly or indirectly, that part of the price paid for the Premium Goods, whether identifiable or not, would constitute value given in return for the Clubcard vouchers. Again in the same way we have to determine that question with the inferences to be drawn from all the circumstances surrounding the purchases from Third Party Suppliers.

67. We conclude that the same consensus exists. The Clubcard terms envisage the possible use of Clubcards with Third Party Suppliers. In its promotional material Tesco tells the members the names of the appropriate Third Party Suppliers. Once a Clubcard member has purchased goods or services from a Third Party Supplier Tesco is bound to the member to supply the vouchers to him or her. That is when the right to the points and vouchers accrues. It would make no difference if the Third Party Supplier for some reason failed to make the appropriate payment to Tesco. In the same way that Tesco knows that part of the price paid for In-store Premium Goods covers the cost of vouchers, so it must know and agree that part of the price paid for Premium Goods paid to a Third Party Supplier by the Cardclub member covers the cost to the Third Party Supplier of paying to Tesco an equivalent sum for the vouchers.

68. In the same way that the Clubcard member agrees that part of the price paid for In-store Premium Goods is paid for the right to receive vouchers, so will the member agree that part of the price paid to the Third Party Supplier is paid for the right to receive vouchers. The same very high redemption rate applies. We see no reason why the Clubcard member should look at his or her purchases of Premium Goods from Third Party Suppliers in any different way to the purchase of Premium goods In-store. He or she equally knows that they are entitled to the vouchers, that they will arrive from Tesco, that they will have the same value and consequently that part of what they are paying for is the vouchers.

69. It follows that we are satisfied that when the Clubcard member uses his or her Clubcard to purchase Premium Goods from a Third Party Supplier the resulting vouchers are obtained for a consideration. It makes no difference in our view that the consideration is paid by the Clubcard member to a third party. The payment remains clearly linked to the agreement between the member and Tesco created by the membership of the Clubcard Scheme. Under the terms of that agreement Tesco is equally as bound to supply the vouchers as it is when the purchase is In-store.

70. Citing Telemed, Mr Cordara submitted that the payments by the Third Party Supplier to Tesco were the consideration for the vouchers to be disregarded for the purposes of paragraph 5 of Schedule 6 to the 1994 Act. He submitted that the Third Party supplier (A) is paying Tesco (B) to make a supply of the vouchers to the Clubcard member (C). But that ignores the fact that Tesco is committed to the Clubcard member to provide the vouchers as soon as the Premium Goods are purchased. It would make no difference that the Third Party Supplier might fail to make payment. The relevant consideration is that that has already been paid to the Third Party Supplier. That has to be the consideration to be disregarded under provisions of paragraph 5 of Schedule 6. This is a situation that is much more akin to the conventional voucher, for which paragraph 5 of Schedule 6 was apparently introduced. The voucher is purchased from retailer A and redeemed against a supply by retailer B. Here, as must be common in such a conventional situation, the purchaser of the voucher does not know, and is not interested in, the arrangements between the trader who supplies the Premium Goods and the trader who supplies the Redemption Goods. He simply knows that by making the payment he will get the voucher, which is part of what he wants.

71. Mr Cordara, when he heard that this was how we were tending to treat purchases from Third Party Suppliers, suggested that the Third Party Suppliers had an ostensible authority to receive the payments for the vouchers from the Clubcard members. It might well be possible to structure the Clubcard Scheme so that the payments of consideration for the purchase of these Third Party Supplier Premium Goods are received by the recipients as agents for Tesco. But Tesco has expressly denied that that is what is happening. The relevant agreements all make it clear that there is no agency between Tesco and the Third Party Supplier. While it may be possible in many instances to ignore the specific and express terms of an agreement and to look at the true commercial effect and reality of the relationship entered into by a registered trader, we do not see that can be done in favour of the trader who has himself drawn up the relevant agreement and now seeks to set it aside.

72. It follows that we are satisfied that vouchers supplied for transactions with a Third Party Supplier are granted for a consideration, but, contrary to the submissions of Mr Cordara, we are also satisfied that the consideration for the purposes of paragraph 5 of Schedule 6 to the 1994 Act is that paid by the Clubcard member to the Third Party Supplier. That is the consideration to be disregarded from any DGT, and presumably by the Third Party Supplier."

101. The Tribunal then turned to the TPF scheme, saying this (in paragraphs 75 to 77 of its Decision):

"75. The first point to make is that we are not in this part of our decision concerned with normal vouchers obtained for the use of a TPF Visa card for In-store purchases from Tesco of Premium Goods, but with the additional vouchers obtained for every pound spent using the TPF Visa card as a credit card. Secondly we consider that in order to apply the test in [Kuwait] we need to focus on the time at which the TPF Visa card holder uses the card and on the payments made by the holder to TPF for its use. Again, as in the case of Third Party Suppliers, Mr Cordara asked us to focus on the payments made by TPF to Tesco. But that is not the time when the clubcard member acquires his right to the vouchers under the Clubcard Scheme. Again, as in the case of Third Party Suppliers, the card holder does not know, and is not interested in the terms of any agreement and any payments made between TPF and Tesco.

76. The same conclusion applies to vouchers granted for the use of a TPF Visa card as for vouchers used for purchases of Premium Goods from a Third Party Supplier. The arrangements may be somewhat more complicated. But we have no difficulty in inferring that the holder of a TPF voucher is soon as aware of the value of vouchers obtained in this way as in any other. Furthermore vouchers which come from Tesco for the use of the TPF Visa card specifically indicate their source on their face. These vouchers have the same very high rate of redemption. They are not regarded as a gift. The basic difference is that there is no clear agreement between Tesco and TPF governing their relationship. It is, therefore, perhaps more readily open to Tesco to say that the consideration received by TPF from the card holder by reason of the use of the card is received as agent for Tesco. There is no clear agreement to say that there is no agency. But we are not satisfied that TPF is receiving any consideration as agent for Tesco.

77. We are, therefore, satisfied that the vouchers obtained by Clubcard members from the use of TPF Visa cards are obtained for a consideration for the purposes of paragraph 5 of Schedule 6 of the 1994 Act, and that that consideration is part of the consideration that TPF receives from the card holder, and not any sum received by TPF from Tesco."

102. Finally, the Tribunal turned to special promotions, saying this (in paragraph 78 of its Decision):

"78. That leaves open the 1% of vouchers issued for specific promotions agreed between Tesco and the suppliers of particular promoted products. We are not satisfied by the evidence we have that these should be treated in the same way as other vouchers issued for In-store purchases of Premium Goods. Admittedly they have the same high redemption rate. But that follows inevitably from the fact that the points are pooled when fixing the number of vouchers to be issued. It is not clear to us what inferences should be drawn in relation to the purchase of these goods. It is not clear the extent to which the Clubcard member considers or knows that he or she is buying these special vouchers when he purchase the relevant Premium Goods. And that, under the Kuwait Petroleum test is the time when we have to consider whether the vouchers are gifts or are supplied for a consideration. We cannot infer that the Clubcard member always knows, or generally should be taken to know, that the bonus vouchers will be available and we have no evidence to show that at that time the customer has any knowledge of any agreement between Tesco and its supplier."

103. In summary, therefore, the Tribunal found that vouchers issued under the basic scheme and under the third party retailer schemes were 'granted for a consideration' for the purposes of paragraph 5; but that vouchers issued under special promotions and the TPF scheme were not.

PART 6. THE JUDGE'S JUDGMENT

104. After summarising the facts, the judge (in paragraphs 12 to 15 of his judgment) set out a number of general considerations, as follows:

"12. A voucher scheme such as the basic Clubcard scheme gives rise to actual or potential VAT consequences at two separate stages. The first is that at which the vouchers are issued. This is the stage at which the customer acquires the goods or services which entitle him to the vouchers. (I ignore the fact that, under the Tesco scheme, when goods are purchased what the customer is given is points which are only subsequently converted into vouchers. This is a matter to which I shall return, but for reasons I explain later I equate the award of points with the issue of vouchers). The goods supplied at this stage are conventionally referred to as "premium goods".

13. The question which arises at this first stage is whether the retailer issuing the vouchers incurs a "cost" and, if so, whether he is entitled to deduct that cost when calculating the amount of VAT payable by him. Assuming a retailer all of whose supplies are of goods subject to VAT and who has takings of £100 but issues vouchers to the value of £5 redeemable against future purchases, is the VAT payable to be calculated on the basis that the value of the supplies made was £100 or on the basis that it was £95?

14. The second stage at which VAT has a potential impact is that at which the vouchers are redeemed by being applied in payment for goods (conventionally referred to as "redemption goods") supplied at that stage. Is the retailer obliged to account for VAT at that stage on the basis that the supplies made have a value equal to the full price of the redemption goods, or is that value reduced to the extent that the price of the redemption goods is satisfied by the tendering of vouchers? If the retailer supplies redemption goods to the value of £100 but accepts payment to the extent of £5 in the form of vouchers previously issued by him, must he account for VAT at that stage on the footing that he has made supplies to the value of £100 or only £95?

15. If the answer to these questions is that the retailer must account at each stage for VAT on £100 this will result in double taxation. This can be seen most clearly if one takes the example of a record token, which is a form of voucher. If a customer purchases a £10 record token from a retailer the retailer will, in a sense, have supplied goods to the value of £10. But record tokens are usually purchased as gifts and are likely to be redeemed by the recipient of the gift in payment for the purchase of a record from a retailer other than the one supplying the token. Is the retailer supplying the token liable for VAT on the value of the token, even though he will presumably have to account for its cost to the clearing house which issues the token? As for the retailer who supplies a record in return for the token, has he made a supply of no value or a supply worth the £10 which he can doubtless recover from the clearing house? If the retailer supplying the token is accountable for VAT on the money paid for the token and the retailer supplying the record is liable for VAT on the price of the record the same £10 will have suffered VAT twice."

105. Then, having referred to the relevant law, the judge turned first to Mr Vajda's submission (repeated before us) to the effect that even if (contrary to the Commissioners' case) 'consideration' in the Community law sense is obtained by Tesco in exchange for the benefits conferred on members of the Clubcard scheme, such consideration is attributable not to the vouchers but to the points (previously) awarded on the purchase of premium goods, with the consequence that the vouchers do not fall within paragraph 5.
106. The judge summarily rejected that submission, saying this (in paragraph 30 of the judgment):

"30. I do not accept this argument. It is true, of course, that a voucher gives the right to satisfy, pro tanto, a liability to pay for goods or services, while a point by itself gives no such right. But the only significance of a point is that, when aggregated with other points, it will automatically be converted into a voucher. Every point credited to a customer will, in time, be converted in this way. Thus so long as the present conversion rate of a penny a point is maintained, each point carries with it an entitlement, in due course, to one-hundredth of a £1 voucher."

107. The judge accordingly proceeded on the basis that there is no distinction in principle between points and vouchers.
108. The judge turned next to the concept of 'consideration' in national law, saying this (in paragraphs 32 and 33 of the judgment):

"32. If the question whether Clubcard vouchers are granted for consideration were governed by the concepts of English domestic law there would, I think, be no doubt that it must be answered in the affirmative. Tesco invites customers to join its Clubcard scheme and offers them in return benefits in the form of vouchers. Each customer provides consideration, in the domestic law sense, by providing the information which is required before membership is accepted (which is or may be of value to Tesco in that it facilitates Tesco's analysis of the spending habits of particular customers) and subsequently by purchasing goods on the footing that the promised benefits will be forthcoming. There is therefore an enforceable contract between Tesco and each Clubcard holder. Under this contract Tesco is obliged to award or allocate points to each customer in accordance with the rules of the scheme and the amounts spent by the customer. If Tesco were to decline to credit points to a customer who tenders his Clubcard when paying for goods or if it were to refuse to redeem a voucher at its face value in accordance with the scheme, the customer would clearly be entitled to sue for damages for breach of contract.

33. As I understood the argument, the Commissioners accepted this analysis as a matter of domestic law. But both parties accepted that for the purpose of VAT law the term "consideration" has an autonomous meaning determined in accordance with European community, not domestic, law. The point on which they differed was the nature of this autonomous meaning. On behalf of Tesco Mr. Cordara submitted that if there is consideration in the domestic law sense there must equally, or even more strongly, be consideration in the community law sense. Community law is based on continental law in which the doctrine of consideration, as understood in England, has no part. That doctrine is, however, strictly applied in English domestic law. It would be surprising, Mr. Cordara submitted, if community law requires a narrower meaning to be given to the term 'consideration' in community law than that given by English law. Mr. Vajda, on the other hand, declined to consider which meaning is the narrower. His submission was simply that the authorities show that vouchers of the kind issued pursuant to the Clubcard scheme cannot be regarded as 'granted for a consideration'. I must therefore examine the principal authorities."

109. The judge then turned to the authorities. In paragraphs 34 to 58 of the judgment he referred to, and analysed, Dutch Potato, Tolsma, Boots, Kuwait, Primback and Professional Footballers' Association. In paragraph 44 of his judgment the judge said this about Boots:

"44. The decision in Boots may be thought to have little bearing on the present case, because the issue in Boots was the amount of the consideration received on the supply of the redemption goods. In the present case the question is whether the points issued at the time of supply of the premium goods are "granted for a consideration". It is accepted that the word "consideration" must be given the same meaning in each case. But the exclusion of a discount from the consideration received on the supply of goods at the redemption stage does not obviously provide an answer to the question whether, at the stage when the premium goods are supplied, the obligation to give a discount is assumed for consideration. However I find it difficult to see why, on the authority of Boots, the credit against the purchase price of the redemption goods which is allowed by Tesco when Clubcard vouchers are redeemed is not a "discount" deductible in calculating the consideration received for the redemption goods. If this is right and Tesco is also right in its argument that it can deduct the "cost" of the points in calculating its liability for VAT on the sale of the premium goods, Tesco will be entitled to two allowances in respect of the same item. It does not seem to be likely that this should be so, for paragraph 5 of schedule 6 is clearly intended to prevent double taxation, not to provide double allowances. Nor does it seem acceptable that Tesco should be able to choose which allowance to claim. These aspects of the matter were not, however, explored in argument before me."

110. In his submissions on this appeal, Mr Cordara was at pains to emphasise that it was not, and never had been, part of Tesco's case that it was entitled to have its cake and eat it, by deducting the alleged consideration for the vouchers both at the stage when they were issued and at the stage when they were redeemed. He relied on Davies in support of the proposition that, if Tesco is right as to the application of paragraph 5, nevertheless for VAT purposes the face value of redeemed vouchers must be included in Tesco's DGT at the time of redemption. On that basis, no question of a double allowance can arise. He submitted that, in making the observations in paragraph 44 of his judgment quoted above, the judge must have misunderstood the nature of Tesco's case.
111. In the next section of the judgment (comprising paragraphs 59 to 75) the judge summarised the Tribunal's reasoning and conclusions.
112. In the final section of the judgment (comprising paragraphs 76 to 92), which is headed 'Conclusions on these appeals', the judge said this:

"76. In stating my conclusions on these appeals I will deal separately with (a) the basic Clubcard scheme; (b) the third party retailers scheme; (c) the TPF scheme; and (d) the special promotions scheme.

(a) The Basic Clubcard scheme

77. In my judgment the Tribunal asked itself the right question in respect of the basic Clubcard scheme. But I have reached the conclusion that it gave the wrong answer to that question. I do not accept that, at the time of purchasing premium goods in-store, Tesco, and the Clubcard member making the purchase, can be regarded as having agreed that part of the price paid would constitute value given in return for the Clubcard vouchers issued in respect of the points earned on that occasion.

78. I accept that, for reasons which I have already given, there is a contract between Tesco and the Clubcard member under which Tesco is obliged to allocate points and subsequently to convert them into vouchers. But, in my judgment, the Tribunal has failed to analyse correctly the "legal and economic characteristics" (to use the expression adopted by the ECJ in [Boots]) of the points and vouchers. In my view the analysis applied by the Advocate General and the ECJ to the coupons which were issued in [Boots] applies equally to the points and vouchers issued under the Clubcard scheme. The essence of the matter is not that the customer is buying points or vouchers from Tesco but that, as an inducement to the customer to make a subsequent purchase, Tesco is accepting an obligation to allow the Clubcard member who is issued with the vouchers a reduction at the time of the subsequent purchase of redemption goods.

79. The main consideration which has guided me to this conclusion is that, at the stage of the sale of the premium goods, the price charged to Clubcard members who produce their cards is the same as that charged to customers who are not Clubcard members. This was one of the two decisive considerations in [Kuwait] and was also of critical importance in [Primback].

80. Another way of examining what is, I think, essentially the same point is to ask whether the cost of the Clubcard scheme is borne by Tesco itself or by the Clubcard members. It seems to me that the answer to this question must be that the burden is borne by Tesco. What Tesco promises to its Clubcard members is that if they buy goods at the same price as other customers and tender their Clubcard at the time of purchase Tesco will, at its own expense, allow a discount on the subsequent purchase of other goods. It is of significance, in my view, that at the stage of purchasing the premium goods the customer has no choice but to pay the full price. He cannot choose to forego the points and pay a reduced price.

81. In my view the VAT invoice point which weighed with the ECJ in [Kuwait] probably also has its counterpart in the present case. There was no evidence as to the way in which Tesco expresses any VAT invoices which it issues to customers and it may be that it seldom has occasion to issue such invoices. But if Tesco were to issue a VAT invoice at the stage of the purchase of premium goods the only proper basis on which such an invoice could be prepared would, it appears to me, be one which records the whole of the price paid by the customer as being paid for the goods.

82. The factor which was considered by the Tribunal to be of overwhelming importance was the high rate of redemption of Clubcard vouchers. But I find it difficult to see why this should be of significance. Redemption occurs subsequently to the allocation of points, which is the stage at which the Tribunal was looking for the consensus which it referred to. A new Clubcard member making his first purchase in respect of which points are allocated would not, I think, be affected by the fact that a high proportion of vouchers issued to other Clubcard members are redeemed. He probably considers that it is worthwhile participating in the Clubcard scheme, for if he did not he would not have become a member. But it does not follow that he regards himself as buying points as well as goods when he makes a purchase, still less that part of the price which he pays is attributable to the points.

83. In my judgment the Tribunal was wrong in its conclusion that [Boots] did not provide guidance because it was not clear that the ECJ would have taken the same view of the economics if it had been shown that Boots could have assumed at the time of the supply of the coupons that almost all the coupons would be redeemed (Decision paragraph 60). To my mind the actual or anticipated rate of redemption is irrelevant to the analysis of the legal and economic characteristics of coupons or vouchers. If it were relevant then what would be the position if a scheme launched with an expectation of a low rate of redemption resulted in a high rate or in the converse situation where a high rate of redemption is expected but not realised? I cannot see how the analysis of the legal and economic characteristics of a coupon or voucher can be affected by such considerations.

(b) The third party retailer scheme

84. The effect of the third party retailer scheme is that Tesco agrees with the third party to provide to customers of the third party a benefit, in the form of a discount on future purchases from Tesco. The third party agrees to pay to Tesco the amount of the discount and, in one form or other, an administration charge. The question which has to be considered is whether the points and vouchers which evidence the customer's entitlement to the discount are granted for consideration.

85. In the light of my conclusion in respect of the basic Clubcard scheme, no part of the price paid by the customer to the third party can be regarded as the necessary consideration. That consideration must be found, if it is to be found at all, in the payment made by the third party to Tesco.

86. I confess that I have not found it easy to decide whether or not consideration can be found in this way. In the end, however, I have concluded that it cannot. My main reason for this conclusion is that the points and vouchers are supplied not to the third party retailer but to that retailer's customer. This leads me to the view that what is granted for the consideration moving from the third party is not a "token stamp or voucher" within paragraph 5 of schedule 6 but a service provided by Tesco to the third party in the form of participation in a promotional scheme which will assist the third party to increase its turnover. I consider, therefore, that the payments made by the third party are not such consideration as is referred to in paragraph 5 of schedule 6.

87. I am fortified in this conclusion by two further matters. The first is that the position is similar to that which existed in Boots in cases where the cost of the promotion was borne wholly or partly by the manufacturer of the goods to which the coupon related. As to this the situation is described as follows in paragraph 12 of the report of the Judge Rapporteur (see [1990] STC at page 389):

'In its appeal ... to the High Court, Boots did not dispute that it was liable to account for the value added tax in respect of any receipt from a manufacturer representing reimbursement, in exchange for coupons sent to it by Boots, of the cost of the promotion when that cost is borne, under the terms of the contract between them, wholly or partly by the manufacturer.'

I find nothing in [Boots] to suggest that this concession was wrongly made. It must, I think, have been founded upon an analysis similar to that which I have made.

88. The second matter is the anomalous and complex situation which would exist if points and vouchers attributable to purchases from third party retailers had to be treated differently from points and vouchers attributable to in-store purchases. The practical difficulties are perhaps less acute at the stage of allotment of the points, because it should be possible to ascertain what payments have been received from third parties in reimbursement of the face value of the points. It will nevertheless be anomalous that points attributable to in-store purchases have to be treated differently from points attributable to purchases from third parties. At the redemption stage the problems intensify. Is Tesco entitled to deduct, for the purposes of its VAT computation, the value of vouchers derived from points earned in respect of each type of purchase? If so, Tesco will obtain a double allowance for a single item of cost. If not, what is the basis for this distinction and how is it to be applied in practice? In my judgment an interpretation of paragraph 5 of schedule 6 which does not give rise to these problems is to be preferred to that urged on me on behalf of Tesco.

(c) The [TPF scheme]

89. There are two parts of this scheme to be considered. The first relates to the points awarded by the treatment of the TPF Visa card as a Clubcard. The second relates to the points awarded as the result of the agreement of Tesco to give extra points for the use of the TPF Visa card as such, in preference to a rival credit card or cash.

90. As to the first, the position is, in my view, indistinguishable from the basic Clubcard scheme. It seems that the Tribunal itself took this view, although its conclusion as to the result was the opposite of my own (see paragraph 75 of the decision where the Tribunal said, "we are not ... concerned with normal vouchers obtained for the use of a TPF Visa card for in-store purchases").

91. As to the second I agree with the Tribunal that the same conclusion applies to vouchers granted for the use of a TPF Visa card as for vouchers issued (the Tribunal said "used", but I think this must be a mistake) for purchases of premium goods from a third party retailer (Decision paragraph 76). My reasons for arriving at this conclusion are rather different from those of the Tribunal, but the conclusion itself is the same.

(d) [Special promotions]

92. I do not consider that the case in relation to this scheme can be disposed of in the way that the Tribunal decided (see paragraph 75 above) although I arrive at the same result as the Tribunal. In my view the position under this scheme is the same as that in relation to the reimbursement of the value of points by third party retailers (see paragraphs 84 to 88 above) or by TPF (see paragraphs 89-91). In my judgment a supplier who reimburses Tesco in respect of the nominal value of points allocated on a special promotion of that supplier's goods is paying not for points or vouchers but for the provision of promotional services and paragraph 5 of schedule 6 does not apply."

113. The judge accordingly dismissed Tesco's appeal and allowed the Commissioners' cross appeal.

PART 7. THE BATTLE LINES ON THIS APPEAL

114. By its Appellant's Notice, Tesco contends that the only question at issue is whether, in return for issuing vouchers to members of the Clubcard scheme, Tesco received anything by way of consideration from any source. It contends that it matters not that the quantum of such consideration may not be identifiable, or that the customer purchasing premium goods may not have realised that he was paying for the vouchers in addition to paying for the goods. It relies on the existence of legally enforceable contracts, and the existence of consideration (under English law) supporting those contracts. It contends that the Community law concept of consideration, being wider than the English law concept, embraces everything which constitutes consideration under English law; and that there is a sufficiently direct link between the monetary consideration provided by the customers and (in the case of the third party schemes) by the third parties and the supply of the vouchers. It characterises the Commissioners as seeking to recover VAT on every voucher issued, even if never redeemed.
115. As to the authorities, Tesco contends that the Commissioners' reliance on Boots is misplaced, since (among other things) the vouchers in Boots were 'money-off' vouchers as distinct from face value vouchers (such as the Clubcard vouchers), and accordingly could not have fallen within the scope of paragraph 5. In support of this contention, Tesco relies on Granton.
116. As to the judge's judgment, Tesco contends (among other things) that the judge wrongly applied the case law as to the meaning and scope of the European concept of consideration, and that he failed to decide what is described in the Appellant's Notice as the "critical issue" whether the European concept of consideration embraces the English concept, with the consequence that anything which constitutes consideration in English law will also constitute consideration in Community law. It also contends that the judge was in error regarding as of critical importance the fact that non-Clubcard members pay the same price for the purchase of premium goods. In relation to the third party schemes, Tesco contends that the judge was error in accepting the Commissioners' submission that the third parties pay not for the vouchers but for participation in the scheme.
117. By their Respondent's Notice the Commissioners repeat the argument which the judge rejected in paragraph 30 of his judgment (quoted earlier) to the effect that any consideration provided by the customer, or by third parties (as the case may be), is attributable not to the vouchers but to the points accumulated by the customer on purchases of premium goods.

PART 8. THE ARGUMENTS

Mr Cordara QC's submissions on behalf of Tesco

118. Opening the appeal, Mr Cordara addressed us for the best part of two days and cited some seventeen authorities. I trust that the summary which follows will do justice to his submissions.
119. At the outset I should record that in the course of his submissions Mr Cordara abandoned the contention (raised by the Appellant's Notice) that the existence of contractual consideration under English law leads inevitably to the conclusion that consideration must also exist under Community law. Rather, he submits that, for the purposes of paragraph 5, the consideration for vouchers issued under the third party schemes is the contractual obligation of third party to reimburse Tesco in respect of 'points' awarded/earned under the scheme; and that under the basic scheme the consideration consists of a monetary payment made by a member of the scheme on his purchase of premium goods, such payment being a part (albeit unidentifiable) of the total amount paid on such purchase.
120. He submits that in determining whether the vouchers are issued for consideration the Court's approach should be to examine the entire cycle of transactions involved in the Clubcard scheme (Pippa Dee: see para 33 above); that the court must consider the whole commercial relationship of the parties (British Railways Bd., Eastbourne (esp. per Lord Slynn at paragraphs 15 and 16: see para 39 above)); and that motivation must not be confused with "cause" (Mirror Group, esp. paras 27 and 28 of the Advocate-General's opinion: see para 41 above).
121. Mr Cordara cites Littlewoods (para 42 above) in support of the proposition that the judge was in error in placing reliance on the fact that customers who are not members of the Clubcard scheme pay the same amount as members when purchasing premium goods, since the fact that two different transactions have the same economic consequences does not necessarily mean that they have the same VAT consequences. He submits that the right approach is to look at every transaction on its own merits and then to reach an independent VAT analysis, without reference to how the transaction could have been otherwise organised or to the fact that there were other, differently organised, transactions.
122. Mr Cordara submits that it is a relevant consideration that if the Commissioners' contentions are correct the result is that Tesco is accountable for VAT in respect of vouchers which are never redeemed (on the evidence, some 7 per cent of all vouchers issued). In his written skeleton argument (para 30) he describes this as the real issue in the case.
123. Mr Cordara further submits that the issue as to the existence or otherwise of consideration for the vouchers is, as he puts it, "fact-heavy". Relying on Reed (see paras 36 to 38 above) and on Edwards v. Bairstow [1956] AC 14 (to which he referred in his submissions but which he did not cite), he submits that there is no basis upon which this court could or should interfere with findings of fact made by the Tribunal on that issue.
124. Turning to the developing concept of consideration in Community law, Mr Cordara cites Town & County (esp. paras 38 to 41 of the Advocate-General's opinion: see para 48 above) and Yorkshire Co-operatives (see para 51 above) as recent examples of the width and flexibility of that concept. He also relies on those authorities for the proposition that consideration may exist under Community law notwithstanding the absence of any enforceable contract, provided that there is a requirement for reciprocal performance. He points out that in Town & County and Church Schools Foundation, Tolsma has been interpreted as not requiring that the relevant reciprocal obligations should be legally enforceable. As to the requirement of Community law that there should be a direct link between the consideration and the supply (Dutch Potato, Professional Footballers' Association and Littlewoods), Mr Cordara submits that on a true analysis of the Clubcard schemes that requirement is met in the instant case, both in relation to the basic scheme and in relation to the third party schemes.
125. Relying on Telemed, Kuwait (esp. para 27 of the judgment of the European Court of Justice: see para 68 above) and Professional Footballers' Association (esp. per Lord Slynn at p.90e-f: see para 54 above), Mr Cordara submits that consideration may exist for VAT purposes notwithstanding that it is not identifiable. He also submits, relying on the same authorities, that the fact that the consideration may be obtained from a third party makes no difference for VAT purposes, given that – as is plainly the case, as Mr Vajda accepts – A can pay B to make a supply to C.
126. Turning to the line of authority relied on by the Commissioners, and first to Boots, Mr Cordara points out that (as the judge acknowledged in the first sentence of paragraph 44 of his judgment) the judgment of the European Court of Justice in Boots did not address the issue as to what the consideration (if any) was for the issue of the vouchers; it was concerned merely with the existence of consideration for the supply of the redemption goods (as to which there is no issue in the instant case, given his submission that, on the authority of Davies, the face value of vouchers presented on a purchase of redemption goods falls to be treated as if it were a payment of cash). Secondly, he points out that the vouchers in Boots were not face value vouchers. It follows, he submits (relying on Granton Marketing), that they could never have come within paragraph 5. He also relies, as a further distinguishing feature between Boots and the instant case, on the fact that the vouchers in Boots were issued to bearer, pointing out that the bearer did not have to be the person who purchased the premium goods, still less was it necessary for him to have entered into any reciprocal obligations with Boots. Mr Cordara accordingly submits that Boots provides no support for the Commissioners' case, and that the Tribunal was right not to regard it as determinative. He submits that Boots does not lay down any rule: in each case one has to examine the particular facts in order to determine whether or not a voucher is issued for consideration.
127. As to Kuwait and Primback, Mr Cordara submits that, as in Boots, the underlying facts are distinguishable from those in the instant case. Thus, he submits that the promotional scheme in Kuwait was entirely different from the Clubcard scheme. He points to the following differences (among others): (1) in Kuwait there was no contractual nexus, even under English law, between the issue of the vouchers and the payments for petrol; (2) the vouchers in Kuwait had a very small face value; (3) the vouchers could not be used to make purchases of any kind from the taxpayer – they could only be used to select free gifts from a catalogue.
128. As to Primback, Mr Cordara points out that there were no vouchers involved: there was simply a discounting arrangement with a finance house. He submits that, in contrast to the instant case, in Primback the means of payment was a vital consideration. He also submits that considerations of policy relating to credit cards played a part in the court's decision: an element which is not present in the instant case.
129. Mr Cordara submits that Hartwell is of no assistance to the Commissioners. He submits that, on the authority of Hartwell, even if there is a supply of promotional services to a third party it does not follow that paragraph 5 does not apply.
130. Mr Cordara submits that the likelihood of a voucher being redeemed is a relevant factor in determining whether it was issued for consideration, on the basis (as I understand the submission) that the greater the value of the voucher – and hence the greater the likelihood that it will be redeemed – the stronger will be the inference that it was issued for consideration.
131. Turning to the facts, Mr Cordara submits that the instant case is in all material respects on all fours, for VAT purposes, with the VAT treatment of the supply of a record token (as explained by the judge in paragraph 15 of his judgment, quoted earlier), in that the supply of vouchers is a separate supply for which Tesco obtains separate consideration. Under the third party schemes that consideration is, he submits, to be found in the third party's contractual obligation to reimburse Tesco in respect of its cost of 'points' awarded under the Clubcard scheme. He submits that there is the clearest link between such consideration and the supply of the vouchers, which in turn reflect the points in respect of which the reimbursement is made.
132. As to the basic scheme, Mr Cordara submits that the Tribunal was right to conclude (in paragraph 56 of its Decision) that a member of the scheme purchasing premium goods would consider that "the price paid at the till was paid partly for the right to get the vouchers", and (in paragraph 57 of its Decision) that "[i]t is not difficult to infer that the average Clubcard member realises that the value [sc. of the vouchers] is part of what he is paying for at the time of purchase of the Premium Goods". He submits that in making those findings the Tribunal adopted the correct approach to the analysis of the basic scheme, and that the findings were plainly correct. In any event, he submits, they were findings which were open to the Tribunal on the material before it, and this court should not interfere with them.
133. In response to the Commissioners' Respondent's Notice, Mr Cordara submits that there is no relevant distinction for present purposes between vouchers and 'points' accumulated by a member of the Clubcard scheme on purchases of premium goods. He stresses that Tesco does not seek to contend that paragraph 5 comes into operation in relation to any voucher at any time prior to the issue of that voucher. He submits that vouchers are the inevitable product of points, which are in turn paid for by the customer when he buys premium goods. He further submits that equating vouchers and points in this way does not create any, or any significant, anomalies in the application of the VAT system.
134. He submits that in talking of 'points' and 'vouchers' one is using shorthand for the real subject-matter of paragraph 5, which is the rights which are granted. Whether the voucher is physically brought into existence is, he submits, logically independent of the question whether the right is granted for consideration. He submits that if the case is approached on that basis it can be seen for what it is: a progressive grant of rights, measured in units of monetary amount, i.e. points. When the units have built up to a pre-agreed level, they are formally recognised by the issue of a voucher. Thus, he submits, the case is no different from one involving trading stamps where only the complete books of stamps can be presented for redemption (see the example given by Robert Walker LJ in paragraph 44 of his judgment in F & I: quoted earlier). In each case there is a pattern of progressive spending leading to the progressive build up of rights, which are from time to time formally recognised by the issue of some form of certificate of entitlement. In the instant case, he submits, the substance and 'commercial reality' of the Clubcard scheme (cf. paragraphs 15 and 16 of Lord Slynn's speech in Eastbourne, quoted earlier) is that rights are granted via vouchers which are supplied via a points mechanism, and consideration for the point is the same as consideration for the voucher.
135. Nor, Mr Cordara submits, does any analytical difficulty arise, for paragraph 5 purposes, from the fact the voucher only comes into existence after the rights have come into existence. There is, he submits, no requirement that the voucher must physically exist before the rights; nor can it be that events must be so timed that the rights and the voucher come into existence simultaneously. These, he submits, are technicalities which would be disproportionate to the achievement of the objective of paragraph 5 (the avoidance of double taxation and of taxation on zero-rated sales). In support of this submission hr relies on the observations of Lord Hoffmann, in a different context, in paragraphs 25 and 27 of his speech in C. R. Smith Glaziers v. Customs & Excise Commissioners [2003] STC 419 at 427, [2003] UKHL 7.
136. Mr Cordara submits that no practical issue arises from the fact that there is hiatus between the progressive coming into existence of points and the document which evidences their existence and permits their use, i.e. the voucher. He stresses, as noted earlier, that Tesco will not adjust its DGT until the voucher exists.
137. As a fall-back position, Mr Cordara submits that, if necessary, the till receipts for the purchases of premium goods could be treated as 'vouchers' for the purposes of paragraph 5. However, he submits that it is not necessary for the court to be concerned with such complications; rather, it should follow the practice of the industry.
138. On the issue as to attributability, that is to say as to whether it is possible to track points through to individual vouchers, Mr Cordara submits that since this aspect was not explored in evidence it is inappropriate for the court to speculate about it. In any event, he submits that it is possible to attribute points to vouchers, on a first in/first out basis. And even if it were not possible to do so, there is no difficulty in making an overall calculation of the sums which Tesco has received from various sources (e.g. third party retailers).
139. Finally, Mr Cordara submits that under the third party schemes the third party is paying not for the points as such, but rather for Tesco's promise to redeem the points under the terms of the scheme (i.e. in units of 50p, and subject to a minimum of 150 points).

Mr Vajda's submissions on behalf of the Commissioners

140. Mr Vajda's primary submission (pursuant to the Respondent's Notice) is that the judge was in error in equating points with vouchers for present purposes. In particular, he submits that the judge was in error when he said (in paragraph 30 of his judgment):

".... the only significance of a point is that, when aggregated with other points, it will automatically be converted into a voucher". (Emphasis supplied.)

141. Mr Vajda submits that when the mechanics of the Clubcard scheme are examined, whether in relation to the basic scheme or in relation to the third party schemes, it can be seen that no such automatic conversion occurs. In support of this proposition he relies in particular on the requirement that a member of the scheme must have (currently) at least 150 points to his name as at the end of a 'collecting period' (currently, every quarter) before he becomes entitled to a voucher, and on Tesco's right to terminate his membership should he not make a purchase for a continuous period of eight weeks. Hence a member who makes purchases of premium goods every quarter, earning points on each occasion, may not become entitled to a voucher for some considerable time; and if he makes no purchases for a continuous period of 8 weeks is liable to be removed from the scheme, notwithstanding that he may have points to his name which have been carried forward from quarter to quarter. Hence, Mr Vajda submits, it is impossible to link a particular voucher with any particular points, and hence with any particular purchases of premium goods. It follows, he submits, that in the context of the basic scheme it is impossible to point to particular payments made on the purchase of premium goods as representing consideration for the issue of the voucher. Similarly, in the context of the third party schemes, the reimbursement obligation relates to points, not to vouchers. Accordingly, neither under the basic scheme nor under the third party schemes can it be said that vouchers (as distinct from points) are issued 'for a consideration' for the purposes of paragraph 5. On that short ground, he submits that the appeal must fail.
142. Mr Vajda also put before us examples of what he submitted would be anomalous situations which would or might arise if Tesco's contentions are held to be correct.
143. Turning to the issue as to the existence of consideration (and assuming for this purpose that the judge was correct to equate vouchers with points), Mr Vajda does not take issue with Mr Cordara's analysis of the authorities as to the Community law concept of consideration, or with the broad principles of VAT law to which Mr Cordara adverted. His submission, in summary, is that the decisions of the European Court of Justice in Boots, Kuwait, and Primback are decisive of the issue on this appeal, and that the effect of those authorities has recently been recognised by this court in Hartwell. Accordingly, he submits that in order to succeed Tesco has somehow to distinguish these authorities: an impossible task, as he submits.
144. As to the general approach to be adopted in analysing the Clubcard scheme, Mr Vajda submits that the Tribunal erred in law in attempting the impossible task of finding what "the Ford Sierra driver" (an expression used by Laddie J in paragraph 24 of his judgment in Kuwait to identify "the ordinary customer") thought he was paying for when purchasing premium goods. In support of this submission, Mr Vajda relies on the observations of Lord Denning MR in British Railways Bd., quoted earlier. He submits that the correct test is an objective one, taking account of the terms in which the scheme is advertised and presented.
145. In any event he submits that, on Edwards v. Bairstow principles, this court is fully entitled to interfere with Tribunal's conclusions as to the existence of consideration. The issue, he submits, is one of mixed fact and law, and cannot be determined simply by reference to the primary facts. He reminds us that the term 'consideration' has an autonomous meaning in Community law (Dutch Potato), and submits that the determination of the issue whether, on a particular set of primary facts, consideration exists for VAT purposes is heavily dependent on the application of European authorities.
146. Mr Vajda submits that the critical fact (as the judge rightly recognised) is that the price charged on the sale of premium goods to Clubcard members who produce their cards is the same as that charged to customers who are not members of the scheme (cf. Kuwait para 31 and Primback para 42, quoted earlier). He submits that for present purposes the position of Tesco is identical to that of the taxpayers in those two cases.
147. Mr Vajda further submits that the judge's conclusion on the VAT invoice point (see paragraph 81 of his judgment, quoted earlier) was correct, and that a VAT registered trader purchasing premium goods from Tesco for business use would be entitled to reclaim VAT on the full price of those goods.
148. Turning to the third party schemes, Mr Vajda submits that the third party schemes are factually different from the basic scheme only in so far as Tesco charges the third party a fee for its participation. The question is whether that fee, or any element of it, is consideration for the issue of the vouchers. However (he submits), once again the critical fact is that the customer under any of the third party schemes pays the same price for premium goods as a non-member. The position of the third parties is, he submits, materially identical to that of the finance house in Primback. Yet in that case the value of what was supplied to the customer was not affected by the arrangements between the retailer and the finance house. In the instant case, he submits, the arrangements between the third parties and Tesco cannot affect the question whether the vouchers are supplied to the customer for a consideration. Mr Vajda accordingly supports the judge's reasoning and conclusions on this aspect of the case.
149. Mr Vajda further submits that the judge's conclusion that what the third party is paying for is the right to participate in the scheme is reinforced by the fact that the third party receives, in exchange for its payment, a great deal more than the mere issue of points to the customer; it obtains the right to use the promotional material, together with Tesco's assurance that it will honour the points on redemption and other services provided by Tesco.
150. Finally, Mr Vajda submits that, given that VAT is a tax on consumption, paragraph 5 should not be interpreted so as to carve out a separate supply (i.e. the supply of a voucher for consideration) from the taxable supply of goods and services, the effect of which would be that a significant proportion of the value of those goods or services would enter into consumption VAT-free.

PART 9 : CONCLUSIONS

The Edwards v. Bairstow point

151. The issue is whether vouchers issued under the Clubcard scheme fall within paragraph 5 of Schedule 6 to the 1994 Act. That in turn depends on whether they are issued for 'consideration', as that term is understood in Community law. Thus in making its determination the Tribunal had to apply Community law to the undisputed primary facts. On an appeal on a point of law, the duty of the appellate court (as formulated by Lord Radcliffe in Edwards v. Bairstow at p.36) is:

"… to examine the determination having regard to its knowledge of the relevant law."

152. Lord Radcliffe continued:

"If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances too, the court must intervene. It has no option but to assume that there has been some misconception of the law and that this has been responsible for the determination. So there, too, there has been an error in point of law. I do not think that it much matters whether this state of affairs is described as one in which there is no evidence to support the determination, or as one in which the true and only reasonable conclusion contradicts the determination."

153. There is nothing on the face of the Tribunal's Decision which is erroneous in point of law. However, in my judgment the instant case falls, potentially, within the second of the two categories of case identified by Lord Radcliffe in the above passage. The judge in the instant case having concluded that, applying Community law to the undisputed facts, the vouchers are issued for consideration within the meaning of paragraph 5, it was in my judgment open to him – indeed it was his duty – to say so. And the position must be the same in this court.
154. Moreover, in so far as the Tribunal's determination was based on a finding that "the Ford Sierra driving Clubcard member" (i.e. "the ordinary customer": see Laddie J in Kuwait at para 24, quoted in para 70 above) considered that he was paying for the vouchers when purchasing premium goods, that was not a finding of primary fact but (at most) an inference drawn from the primary facts. In my judgment an appellate court is in as good a position to draw the necessary inferences from the primary facts in the instant case as was the Tribunal, and must be free to do so. In any event, in my judgment, for reasons given below, the Tribunal erred in law in so far as it based its determination on that finding.
155. In my judgment, therefore, it was open to the court below, as it is open to this court, should it disagree with the Tribunal's determination of the issue as to the application of paragraph 5, to substitute is own determination of that issue.

The general approach to analysing the Clubcard scheme

156. To my mind there is an air of unreality about the Tribunal's finding (in paragraph 56 of its Decision, quoted in para 98 above) that members of the Clubcard scheme "did consider that the price paid at the till was paid partly for the right to get the vouchers". The same applies, to my mind, to Laddie J's conclusion (in paragraph 34 of his judgment in Kuwait, quoted in para 71 above) that customers taking advantage of a 'Buy one: get one free' offer "would think that they were receiving each of the products at half price and that they were paying for both". I respectfully doubt whether most customers in that position would do more than conclude that they were getting two items for the price of one. You might as well ask the customer which of the two items he thought he was paying for and which one he thought was free.
157. On the other hand, it could be said that in reaching a conclusion as to how the Clubcard scheme is perceived by a typical customer joining it, the Tribunal was doing no more than applying an objective test as to the true nature of the scheme, as perceived objectively. It will be recalled that in paragraph 37 of his opinion in Primback (quoted in para 76 above) the Advocate-General observed that in Kuwait the court had "focused on how the transaction was perceived externally by the consumer". Similarly, Lord Slynn's conclusion in Professional Footballers' Association (at p.90a: quoted in para 53 above) that for those who attended the dinner the presentation of the awards was "a vital part of the evening" demonstrates that there may come a point where it is not altogether easy to distinguish an objective approach from a subjective one. Mr Vajda relies on British Railways Board (see paras 34 and 35 above), but that was an extreme example of a subjective approach being applied by different VAT tribunals, whose decisions appear to have turned on the state of mind of the particular student buying a travel card.
158. It seems to me, therefore, that the assumption that there is inevitably a clear distinction between an objective and a subjective approach to analysing a particular transaction may not be a sound one. Be that as it may, in the case of a scheme like the Clubcard scheme, the membership of which runs into millions, a subjective approach, requiring a finding (on the balance of probabilities) as to how a particular (undefined, and I would have thought, undefinable) category of member would or might perceive the scheme, seems to me to be of little assistance in resolving the issue which arises in the instant case.
159. So what is the correct approach in the instant case? There are number of pointers in the authorities referred to in Part 3 of this judgment, under heading (a) 'Authorities as to the approach to be adopted in analysing the relevant transaction'. The more significant of such pointers in the context of the instant case seem to me to be these:

1. The resolution of the issue as to the application of paragraph 5 in the instant case depends upon the legal effect of the Clubcard scheme, considered in relation to the words of the paragraph (British Railways Bd. esp. at 223g per Lord Denning MR: see para 34 above).

2. In considering its legal effect, the entire scheme must be examined (what is the 'entire scheme' for this purpose being objectively determined by reference to the terms agreed) (Pippa Dee esp. at 501j per Ralph Gibson J: see para 33 above).

3. The terms contractually agreed may not be determinative as to the true nature and effect of the scheme (Reed, see paras 36 to 38 above): it is necessary to go behind the strictly contractual position and to consider what is the economic purpose of the scheme, that is to say "the precise way in which performance satisfies the interests of the parties" (the Advocate-General's opinion in Mirror Group, para 27: see para 41 above).

4. Economic purpose is not the same as economic effect. The fact that two transactions have the same economic effect does not necessarily mean that they are to be treated in the same way for VAT purposes (Littlewoods esp. at para 84 per Chadwick LJ: see para 42 above).

5. Equally, the economic purpose of a contract (what the Advocate-General in Mirror Group called the 'cause' of a contract: see para 27 of his opinion) is not to be confused with the subjective reasons which may have led the parties to enter into it (in so far as those subjective reasons are not obviously evident from its terms) (see ibid. para 28). The Advocate-General went on to observe (an observation which seems to me to be particularly apt in the context of the Tribunal's Decision in the instant case):

".... failure to distinguish between the cause of a contract and the motivation of the parties has been the source of misunderstandings, .... and has complicated the task of categorising the contracts at issue."

160. Bearing all these considerations in mind, I consider that, for VAT purposes, the correct approach to the analysis of the Clubcard scheme (that is to say both the basic scheme and the third party schemes) is to examine the entire cycle of transactions which it comprises, in order to determine objectively (that is to say without regard to the parties' subjective intentions, save in so far as they are reflected in the terms of the scheme), and having regard to the scheme's economic purpose, whether its legal effect is such that vouchers issued under it fall within paragraph 5: that is to say, whether vouchers issued under it are issued for 'consideration', in the Community law sense of that term.
161. On that approach, it is irrelevant whether members of the scheme buying premium goods knew or considered whether the price they paid included a payment for points or vouchers; just as it was irrelevant in Professional Footballers' Association "whether the diners knew or considered whether the price they paid included or constituted the cost of the awards" (see per Lord Slynn at p.90e-f: quoted in para 54 above). Accordingly, in my judgment the Tribunal erred in law in so far as it based its Decision on its assessment as to what the ordinary Clubcard member (whoever he or she might be) would be likely to think when purchasing premium goods.

The points/vouchers issue

162. In my judgment the point taken by the Commissioners in their Respondents' Notice is a good one.
163. Paragraph 5 takes effect where there is a grant, for a consideration, of a right to receive goods or services for an amount stated on a token, stamp or voucher. It is the right which has to be granted for a consideration; not the token, stamp or voucher on which the quantification of the right appears. Plainly paragraph 5 cannot apply unless there is in existence a token, stamp or voucher which performs that function; but it does not necessarily follow from the existence of such a token, stamp or voucher that the paragraph applies.
164. I turn first to the basic Clubcard scheme. Under the basic scheme it seems to me impossible to say that there is monetary consideration for the issue of a voucher in the form of a monetary payment made by the member when he purchases premium goods (assuming for present purposes that such a payment is made). As explained in Part 2 of this judgment, the voucher is not a direct product of the particular 'points' which are awarded to, or earned by, a member of the scheme when purchasing premium goods. Given (a) the stipulated minimum of (currently) 150 points in any one quarter, and (b) the fact that a member who has not earned any points in a continuous 8-week period is liable to be removed as a member of the scheme, notwithstanding that he may have points to his name carried forward from an earlier period, it cannot be said with any degree of certainty when (if at all) points earned in a purchase of premium goods (where those points, when aggregated with any points already standing to the purchaser's name, amount to less than 150 points) will be reflected in, or will contribute to, the issue of a voucher. Nor, as Mr Vajda points out, is it possible to identify the particular points which trigger the issue of a voucher, and hence the specific 'consideration' for that voucher.
165. It follows that the judge was in my judgment in error in saying (in paragraph 30 of his judgment) that "the only significance of a point is that, when aggregated with other points, it will automatically be converted into a voucher" (my emphasis); and that "every point credited to a customer will, in time, be converted in this way".
166. In my judgment, adopting the approach to the analysis of the scheme which I have set out above, the true position is that even if (as I assume for present purposes) a member of the scheme when purchasing premium goods pays for something else in addition to the premium goods, that something else can only be the points which he 'earns' on his purchase of those premium goods. I do not see how, on any objective analysis, he can be taken to be paying for a voucher or vouchers: the issue of vouchers is a subsequent, and distinct, stage in the operation of the scheme.
167. In my judgment, the same applies even more starkly in relation to payments made to Tesco by third parties under the third party schemes. The third party never receives a voucher: it is doing no more than reimbursing Tesco in respect of its cost of the points in question.
168. The point is a short one, and in my judgment it is fatal to Tesco's appeal.

The 'consideration' issue

169. In the light of my conclusion on the 'points/vouchers' issue, it is not strictly necessary to address the 'consideration' issue. However, since extensive argument was addressed to us on it, I state my conclusions briefly. I do so on the basis (contrary to my earlier conclusion) that the judge was correct to conclude that there is no difference in principle for present purposes between points and vouchers.

(i) The basic scheme

170. In considering the effect of the basic scheme, the European authorities relied on by Mr Vajda, viz. Boots, Kuwait and Primback, seem to me to be of direct relevance.
171. Turning first to Boots, it is to be noted that the scheme with which the court was concerned involved only Boots and its customers. Moreover, as Mr Cordara points out, the scheme in Boots differed from the Clubcard scheme in a number of respects. Thus, the coupons in Boots were of the 'money-off' type, and as such could not (on the authority of Granton Marketing and F & I: see para 44 per Robert Walker LJ) fall within paragraph 5. A further difference was that the coupons were redeemable by bearer. Nevertheless, I agree with the judge that the reasoning of the court in Boots is of direct significance in the instant case.
172. As the court observed in Boots (para 11: quoted in para 59 above) it is the function of the national court to determine "what the coupons represent in the relations between Boots and its customers from the economic and legal point of view". The court concluded that the only advantage to Boots resulting from its obligation to honour the coupons was the prospect of increased turnover by increasing its sales of both premium and redemption goods. In the result, it held that a coupon was not to be regarded as consideration for the redemption goods, notwithstanding (a) that (under English law, at all events) the customer had a contractual right to a discount; (b) the coupon bore a face value of a specified amount (as opposed to, for example, a '10% off' coupon); and (c) that the cost of the coupon was borne by Boots. In paragraph 21 of its judgment it concluded that the coupon was not obtained by the purchaser for consideration and that it did no more than entitle him to a discount equal to its face value.
173. In my judgment, notwithstanding that it was concerned with the position on redemption of the coupons rather than on their issue, the court's decision in Boots provides clear support for the Commissioners' contentions in relation to the basic scheme, as the judge rightly recognised.
174. Even stronger support for the Commissioners' case is, in my judgment, to be found in the court's decisions in Kuwait and Primback. In each of those cases the court considered it to be a highly material factor that a member of the scheme and a customer who is not a member paid exactly the same amount on purchasing premium goods (that is to say an amount equal to the full shelf-price of the goods) (see Kuwait para 31 and Primback para 42: quoted in paras 68 and 77 respectively above). The point is not that the two transactions (one by the member, the other by the non-member) have the same economic effect: rather, it is that the amount paid by the member when purchasing premium goods is exactly equal to the full shelf-price of those goods. Hence, to the extent that any part of what he paid is not consideration for those goods, he must have purchased them for less than their full shelf-price. The question, therefore, is whether, viewing the entire scheme objectively in accordance with the approach set out earlier, that is the effect of the scheme.
175. The decision of this court in Hartwell (see paras 90 to 94 above) also provides clear support for the Commissioners' case.
176. I agree with the judge that (viewing it objectively, in accordance with the approach set out earlier) the Clubcard scheme cannot be taken to have that effect. In the first place, there is nothing in the scheme documentation to support such an interpretation: the whole emphasis of the sample enrolment form and the leaflet referred to in Part 2 of this judgment is on the fact that 'points' are freely earned on the purchase of premium goods. Secondly, the economic purpose of the scheme is to encourage customers to make further purchases, thereby increasing customer loyalty. That seems to me to be a strong indication that the essence of the scheme – its 'cause', to use the Community term – is to enable its members to make future purchases (i.e. purchases of redemption goods) at preferential rates.

(ii) The third party schemes

177. In relation to third party schemes, Primback seems to me decisive in favour of the Commissioners. In Primback the court rejected the argument for the taxpayer that the transaction between the seller and the purchaser and the transaction between the seller and the finance house were to be regarded as a single transaction for VAT purposes; and this notwithstanding that there was in that case a contractual relationship (completing the triangle, as it were) between the purchaser and the finance house. It accordingly concluded that the price agreed between seller and purchaser was unaffected by the means by which the purchase was financed. In reaching that conclusion it effectively endorsed the view of the Advocate-General (in paragraph 40 of his opinion) that there were "no clear grounds for arguing that the purchase of goods on interest-free credit is based on any price other than the cash price".
178. The same applies, in my judgment, in the instant case. Indeed, as I see it, all the external indications are that what the third parties were paying for in each of the third party schemes (whether by way of fee or by way of reimbursement) was the right to participate in the scheme. I am therefore in full agreement with what the judge says in this connection in paragraph 86 of his judgment.
179. The same result can also be reached, in my judgment, by inquiring whether there is the necessary direct link (Dutch Potato and Professional Footballers' Association) between the alleged consideration provided by the third parties and the supply of points/vouchers. In my judgment on the facts of the instant case, and on the authority of Primback, there plainly is not.

PART 10: RESULT

180. I would dismiss this appeal.

Lord Justice Latham :

181. I agree.

Lord Justice Schiemann :

182. I also agree.