England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE VAT AND DUTIES TRIBUNAL

		Royal Courts of Justice Strand, London, WC2A 2LL
		9th October 2003

Mr Justice Blackburne:

Introduction

1. This is an appeal against a decision of the London VAT Tribunal (Chairman: Mr Theodore Wallace) ('the Tribunal') released on 27 May 1999. The decision involved two separate appeals, one by Peugeot Motor Company plc ('PMC' or, more simply, Peugeot), the other by Citroen UK Ltd ('CUK' or, more simply, Citroen). There was a merger between the two motor groups on 1 July 1993, since when the two companies have been subsidiaries of Peugeot SA. PMC is, or at the material time was, the representative member of a VAT group, which, since the merger, has included CUK. Mr Roderick Cordara QC and Mr Paul Key appear for the appellant taxpayers.
2. The appeals to the Tribunal were against decisions of the Commissioners (2 April 1997 in the case of Peugeot and 4 June 1997 in the case of Citroen) refusing claims under section 80 of the VAT Act 1994 for recovery of output tax in respect of motor insurance provided to end-users (effectively members of the public) of Peugeot and Citroen cars under business promotion schemes. Those decisions related to events which occurred in 1994 to 1996 in the case of Peugeot and 1990 to 1996 in the case of Citroen. (Citroen also appeals against other aspects of the refusal of its repayment claim going back to January 1987 with which the Tribunal's decision was not concerned and with which therefore this appeal does not deal.) Mr Rupert Anderson QC appears for the Commissioners.
3. In the case of Peugeot, the appeal concerns sales either by dealers within its VAT group direct to customers (some of which may have involved a finance house) or by a wholesale company within the VAT group to independent franchised Peugeot dealers (ie not within Peugeot's VAT group) who then sold to customers, again sometimes involving a finance house. In both categories of sale the customer (ie the end-user) received motor insurance supplied by Orion Personal Insurances Ltd ('Orion') for no additional payment, Orion being paid by Peugeot. Peugeot claimed repayment of output tax totalling £2,707,581 for the twelve VAT periods from 1 January 1994 to 31 December 1996 on the basis (as recorded by the Tribunal in paragraph 3 of its decision) 'that the consideration received by the VAT group for the supply of the cars should be reduced by the amount which PMC paid to Orion for the insurance.'
4. In the case of Citroen, the categories of sale were essentially the same, ie sales by a member of the VAT Group direct to the end-user or sales by a member of the VAT Group to the end-user but with the intervention of an independent dealer or through a finance house. In Citroen's case insurance was provided to customers by Direct Line Insurance plc ('Direct Line'). As regards that element of its repayment claim concerned with free insurance, the amount in question is £5,585,751 of which the Commissioners contend that £1,496,335 would be capped.
5. Although, from the point of view of the issues arising for decision, both before the Tribunal and before me, there is no practical distinction to be made between the facts which gave rise to the two decisions, I will set out a little later in this judgment the Tribunal's findings of fact in relation to each tax payer. The essential issue was the same in both cases: was the whole of the sums paid to the taxpayer by the purchasers of that taxpayer's motor vehicles taxable at the standard rate of 17.5% or was there an element of the sums so paid, having regard to the right to a supply of insurance services which (so it was argued) was provided along with the car itself, which was not so taxable? What in substance was contended by the taxpayers was that the taxable amount on the supply of cars by Peugeot and Citroen should be reduced by the amount that those two suppliers were charged by Orion and Direct Line for supplying insurance to the end-user at no charge to those persons. I refer to 'end-users' meaning effectively ordinary members of the public, ie the everyday car owner, as distinct from intermediaries (independent car dealers or finance houses) to whom the cars in question may have been first sold by Peugeot or Citroen, usually as an intermediate step, before being acquired by the members of the public to whom the motor insurance was provided. Effectively, the issue was: what was the taxable amount on the supply of the cars by Peugeot or, as the case may be, Citroen?
6. Relevant to this is that, although the selling of cars is a taxable activity (it plainly involves a taxable supply: see sections 1(1)(a), (2), 2(1), 3(1), 4 and 5(2)(a) of the VAT Act 1994), the provision of insurance and the making of arrangements for such provision are exempt. The insurance exemption is contained in article 13B of the Sixth Council Directive (of May 1977) on the harmonisation of the laws of the Member States relating to turnover taxes (77/388/EEC). So far as material, article 13B provides as follows:

"B Other exemptions

Without prejudice to other Community provisions, Member States shall exempt the following under conditions, which they shall lay down for the purpose of ensuring the direct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse;

(a) insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents;

…"

The Directive has direct effect. The exemption also finds expression domestically in what is now group 2 of schedule 9 to the VAT Act 1994 (repeating, so far as material in identical terms, the provisions of schedule 6 to the VAT Act 1983) which includes within its scope "... the making of arrangements for the provision of any insurance or reinsurance …".

7. Relevant also was a further provision contained in the Sixth Directive, namely article 11A(1)(a) which, so far as material, provides that:

"1. The taxable amount shall be:

or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies ...

8. The effect of the Tribunal's decision was that direct sales by Peugeot or, as the case may be, Citroen (ie sales by an entity within the relevant VAT group direct to the end-user, there being no intermediate sale to an independent dealer or finance house) were not distinguishable from the decision of the Court of Appeal in Primback Ltd v Customs and Excise Commissioners [1996] STC 757 ('Primback') with the result, although this was not in terms spelt out by the Tribunal, that so much of the purchase price received by Peugeot or, as the case may be, Citroen for the particular car should be reduced by the cost to it of providing the customer with motor insurance. But in the case of indirect sales (ie sales to end-users where there was an initial sale by the entity from within the VAT group to an independent dealer or finance house), the Tribunal held that the principles to be derived from Primback in the Court of Appeal did not apply so as to enable the taxable amount received by Peugeot (or Citroen) to be reduced (either by the amount paid out for the provision of motor insurance to the end-user or by any other sum) and neither did the principles to be derived from the decisions of the ECJ in Elida Gibbs v Customs and Excise Commissioners [1996] STC 1387 ('Elida Gibbs'), HJ Glawe etc, v Finanzamt Hamburg - Barnbeck - Uhlenhorst [1994] STC 543 ('Glawe') or Card Protection Plan Ltd v Customs and Excise Commissioners [1999] STC 270 ("Card Protection"). I will come to those decisions, except Glawe, in more detail later.
9. The result was that in part (as to direct sales) the appeals, so far as they had progressed, succeeded but in part (as to indirect sales) they failed. The Tribunal did not go into the question of how much exactly the Commissioners were obliged to repay. It does not appear that it was asked to do so.

The judgment

10. The facts as found by the Tribunal (most of which were not in dispute and were in any event based on an agreed statement) are set out in paragraphs 11-37 of the decision. So far as material those findings were as follows, dealing first with Citroen and then with Peugeot.

Citroen facts

"13. CUK was the UK importer for Citroen cars from France. The cars were sold to final purchasers in the UK via a network of independent franchised Citroen dealers and wholly-owned retail dealers which latter were part of the VAT group. In respect of all retail sales since the merger in 1993, CUK sold the cars to the dealers via a wholesale finance company, PSA Wholesale Ltd ("Wholesale"), which was also a member of the VAT group; there was no evidence that a wholesale subsidiary was involved in Citroen sales before the merger. The assumption must be however that if there was a wholesale subsidiary it was part of a VAT group which included CUK together with any wholly-owned dealers.

14. The outputs with which the appeal was concerned were therefore sales by Wholesale (or before the merger by CUK or a wholesale company in the CUK group) to independent dealers and sales by group dealers to customers or the finance houses.

15. CUK accounted for output tax on sales of motor vehicles in respect of which free insurance was provided to final customers by paying output tax on the full selling price of the vehicles as invoiced to and paid by the independent dealers, or where relevant by the purchasers from group dealers, with no adjustment for the cost of the insurance.

16. Title to a new car sold after the merger ordinarily passed from CUK to Wholesale and then to the dealer immediately before the car was resold to the final customer or to a finance company entering into an agreement with the final customer.

17. CUK's sales and promotions incentives during the periods from 01/90 to 10/96 periodically included the provision of free insurance, offered by CUK and its dealers to eligible final customers in the UK in relation to specified Citroen models. The price paid by the independent dealer or by the customer or finance house remained the same whether or not a free insurance offer was taken up.

18. The terms and conditions of eligibility were set out in promotional brochures published by CUK, issued to its dealers and distributed by them to potential customers. The October 1996 brochure included the following terms and conditions:

'1. The models eligible for the offer are all new AX and Saxo petrol and diesel models

2. The cover is subject to the terms, conditions and exceptions of the Insurer's policy. All models will be subject to comprehensive insurance cover. The insurer for all models will be Direct Line Insurance Plc … .

3. The insurance offer is available to every eligible private purchaser, provided he/she is the registered keeper of the car.

4. The cover applies to any driver within the following age groups: ... 17-75 years.

5. The scheme does not apply to drivers who have been convicted of major driving offences, as stipulated by the insurer, in the last 5 years.

…

10. The cover is not available for leased or company vehicles. …

…

14. The offer applies only to the specified….models ordered after 30th September 1996 and registered by 31st October 1996'

19. The insurance cover for eligible customers was provided by Direct Line in accordance with agreements between Direct Line and CUK under which CUK paid specific agreed sums to Direct Line in respect of the premium payable for each customer accepted for cover. This sum, which might vary according to the model, was the same for all eligible customers and was computed by Direct Line using actuarial calculations based on demographic statistics of anticipated purchasers. The customers were unaware of the amount paid by CUK to Direct Line.

20. The exhibited agreement between CUK and Direct Line [one of a number of schemes during the period covered by the repayment claims] was dated 21 November 1994. It defined the Scheme as "the Scheme outlined in Appendix A" and continued, "In consideration of Direct Line agreeing to participate in the Scheme:" followed by six clauses. The first two clauses contained indemnities by CUK and Direct Line to each other and the third provided that any dealer breaking the rules would be omitted from future schemes. Clause 4 provided.

'4. Neither Citroen nor any of its Agents or Dealers shall offer or give any thing of whatever nature (including cash) to potential purchasers of new Citroen motor vehicles which fall within the Rules of the Scheme in lieu of the free insurance offered under the Scheme by way of incentive not to take the free insurance, or otherwise and Citroen shall use all best endeavours to ensure adherence by its dealers to this Agreement.

Citroen shall not offer or give anything of whatever nature (including cash) to any of its Agents or Dealers as an incentive to offer free insurance under the Scheme to eligible customers, or otherwise.'

It was provided that breach of that clause was fundamental.

…

The scheme provided for submission of a monthly bordereau, specified a fixed premium per vehicle with insurance premium tax of 2.5 per cent added. The scheme provided for Citroen to pay a minimum premium based on 50 per cent of the anticipated sales specified in the scheme. There was provision for renewal notices to customers with varying no claims discounts. In relation to advertising it provided,

'All advertising and/or promotional material and/or documentation Citroen wishes to use in relation to the Scheme must be approved by Direct Line prior to its publication.'

21. When a contract to buy a Citroen had been agreed between the customer and the dealer, the customer would be given an insurance form to complete. The attractions of free insurance and the terms would already have been explained by the dealer's salesman. The terms and conditions on the reverse of the proposal form for October 1996 reproduced those on the brochure set out above. The proposal form contained the normal details. It contained a declaration (inter alia)

'I am the owner and registered keeper of the vehicle ...'

A letter from Direct Line stated that, if the vehicle was subject to finance, the purchaser (by which it must mean proposer) was still considered to be the owner and the same procedures applied. After filling in the proposal form the customer (not the dealer) telephoned Direct Line with his insurance details so that his application for cover could be processed. Direct Line processed the application on the telephone … .

22. [According to the unchallenged evidence of a Mr Soloman] CUK's sales and marketing divisions had a variable budget for offers which he described as 'taken from profit margins'. These offers were used as tactical tools at various times during the year depending on the state of the market. The nature of an offer depended on the type of car and the market segment at which it was aimed. Some cars were more attractive to younger buyers for whom free insurance offers were particularly appealing. Other cars were more popular among older drivers who were more interested in low cost finance. Market research showed that customers saw free insurance as having a substantial, albeit varying, monetary value. Mr Soloman considered that offers of the type in question were equivalent to a discount in that more money was provided to the target market in order to promote sales. The cost of the offers was expended from what would ordinarily be part of the profit margin. Expenditure of this type was viable provided sales increased. He regarded the cost of free insurance for a customer as in effect a discount to the customer who would otherwise have to pay for his own insurance.

23. Mr Flitton [owner of a franchised Citroen dealer] said that his company would emphasise the value to the customer of free insurance and would if necessary telephone a broker for a quotation with the customer present. He said that if a customer did not want free insurance, his company might if pressed offer another incentive, perhaps an enhanced trade-in value. Such other incentive would be at the dealer's expense".

Peugeot facts

"26. PMC provided cars to dealers on a consignment basis for display in the showroom while still remaining PMC's property. If the cars were not sold with the consignment period (usually 180 days) the dealers were obliged to purchase the cars. Some dealers were part of Robins & Day Ltd which was a member of PMC's VAT group, but most dealers were not.

27. When a dealer ordered a car from PMC, PMC sold the car to Wholesale and Wholesale sold it to the dealer.

28. In the vast majority of cases, cars provided to dealers on consignment were sold within the consignment period and title passed from PMC to Wholesale and then to the dealer immediately before title passed to the final purchaser or to the finance house as the case might be. The finance company used by PMC was PSA Finance Plc (trading as Peugeot Finance) which was not a member of the VAT group; Peugeot Finance used a conditional sale agreement under which it retained ownership until all payments were made and under which the customer was obliged to insure.

29. From time to time PMC made free insurance offers to encourage sales. The insurance cover was provided to customers by Orion for a charge which was paid by the Appellant. The offers were advertised to the public on television and in the press. The offers were also promoted by dealers to whom PMC provided brochures and instructions".

30. [The Tribunal then referred to two specimen proposal forms and continued:] "... Both were to be faxed both to Peugeot Insurance Centre and to Orion, whose address appeared at the bottom of the forms. The policies of insurance were issued by Orion.

…

32. Although from 1993 the ultimate holding company of both PMC and CUK was Peugeot SA and they were members of the same VAT group, they operated independently as is demonstrated by the involvement of different firms of chartered accountants. Although the details of the free insurance offers were not identical and were varied by each company, the appeal was conducted on the footing that there was no material difference for the purposes of the appeal ... although there was no copy of an agreement between PMC and Orion, the inference is that the agreements were similar to those between Citroen and Direct Line apart from the fact that the initial insurance was not arranged by telephone, the proposal form being faxed; the arrangements for insuring the individual customers were similar. The arrangements for sales effected via Wholesale were presumably the same.

33. The Tribunal was told that most sales both of Citroen and Peugeot were by independent dealers ... . The majority of sales involved credit.

34. According to Mr Smith's statement [a company secretary in the Peugeot Group] at all material times finance for ultimate customers of Peugeot cars was provided by PSA Finance, a subsidiary of Wholesale. PSA Finance was not a member of the VAT group to which PMC belonged.

35. All agreements were based on PSA Finance's standard form Conditional Sale agreement regulated by the Customer Credit Act 1974. Clause 2 of the agreement provided as follows:

'You will become the owner of the goods if you comply with the terms of this agreement and when you have paid the total amount payable under the agreement. Until then the goods will belong to us even though you have possession.'

Under clause 5 the customer was obliged to insure the vehicle and pay all insurance premiums on time. The same agreement was used whether the dealer was within the Peugeot group or was independent.

36. The car was sold by the dealer to PSA Finance a few days prior to the actual conditional sale agreement. It would of course have previously been sold by Wholesale to the dealer. The documentation of the insurance arrangements does not appear to have been affected by the fact that PSA Finance was involved.

37. Since the merger, all finance for CUK sales has been provided through PSA Finance. It appears from Mr Smith's statement that Citroen sales were financed by PSA Finance before the merger but there is no evidence for how long this was the case. Nor was there any evidence as to Citroen's prior arrangements. It seems reasonable to assume that any finance company would have been outside CUK's VAT group."

11. After referring to provisions in the VAT Act 1994 and the Sixth Directive and after reciting the Parties' submissions, the Tribunal set out in paragraphs 73-79 what it described in paragraph 72 as 'the contractual position' observing that it was not affected by the existence of the VAT group.

"73. In the Peugeot case, PMC sold the cars to Wholesale which sold them to the dealers. There was no evidence as to the price charged to Wholesale which presumably took a turn to cover its costs. Ignoring for the present sales involving finance companies, the dealers sold to customers who were the final consumers unless themselves taxable persons. The price paid by the dealers was the same whether or not free insurance was involved; so presumably was the price charged to dealers since Wholesale was not involved in the insurance offers in any way. Because of the restrictions on retail price maintenance dealers were not obliged to sell at the published price, however they were debarred from offering anything including cash as an incentive not to take up free insurance.

74. The dealers used the free insurance offers as an inducement to customers to buy cars. In my judgment they warranted to the customers that the insurance would be provided so long as the purchaser was eligible.

75. The insurance contract was between the insurer and the customer. In my judgment the contractual consideration provided by the customer was the purchase of the car which entitled the insurer to a payment from PMC.

76. In my judgment there was a contract between PMC and the dealer under which in return for the dealer marketing the car and administering the offer PMC undertook to pay the premium for free insurance taken up. In my judgment there was also a collateral contract between PMC and the customer under which in return for the customer buying the car, PMC undertook to pay the premium.

77. The above analysis involves direct sales to customers by dealers. It is clearly more complex when a finance company was involved. There was no evidence that such a company would have been aware of any insurance offer. However it seems to me that the individual customer contracting with the finance company would nevertheless have had enforceable rights against the insurer, the dealer and PMC.

78. The position of Citroen purchasers and CUK was in my judgment substantially the same, although Wholesale cannot have been involved before the merger. If there were no wholesale company interposed before the merger, the contractual links would have been more direct.

79. I readily accept that the commercial and economic effect of the free insurance schemes may have been little different from cash back schemes. It is also clear that in commercial and economic terms the schemes were a marketing tool and the costs were part of the cost of the sales. If the Appellants had been able to provide insurance themselves, perhaps reinsuring in full, the cost of the reinsurance would have been a cost component of the supplies of the cars provided the supplies were composite supplies and would have given rise to an input tax deduction apart from the fact that insurance is exempt."

12. In paragraphs 80-124 the Tribunal considered and set out its conclusions in relation to the parties' submissions, including an application made late in the hearing by the representative for Citroen that there should be a reference to the ECJ for the proper interpretation of article 11A(1)(a). The Tribunal's conclusions, which are conveniently summarised in paragraph 125, were as follows:

"(1) The decision in Primback is not distinguishable on the facts in relation to sales by group dealers direct to customers …;

(2) Bally [Chaussures Bally SA v Belgium [1997] STC 209, a decision of the ECJ] is distinguishable because in that case the third party supply in question was to the primary supplier rather than to the consumer …;

(3) The principle in Primback does not extend to supplies by a third party to intermediaries between the dealer and the ultimate consumer …;

(4) Although Elida Gibbs involved intermediaries, there was a single chain of supply and no third party supply; that decision does not support an extension of Primback to cases involving intermediaries in addition to third party supplies ...;

(5) Elida Gibbs is not incompatible with Primback in relation to direct supplies; the Tribunal is therefore bound by Primback in relation to such supplies ...;

(6) Primback does not apply where the direct nexus between supplier and the consumer receiving the third party supply is broken by the insertion of a finance company ...;

(7) (Glawe is not directed to cases involving third party supplies;

(8) The Appellants did not themselves make supplies of insurance; even if they did make such supplies, no element of the consideration received from independent dealers or finance houses was attributable to insurance; Card Protection does not assist the Appellants ...;

(9) A ruling from the ECJ is not necessary to enable the Tribunal to give judgment; even if it was necessary a more focused argument would be desirable prior to a reference ... ."

13. Two considerations, above all others, were fundamental to the Tribunal's decision, so far as it affects issues which arise on this appeal: (1) that in the case of direct sales "the facts in Primback are prima facie not distinguishable from the facts in those cases where the sales were by dealers within the Appellants' VAT groups direct to customers and were therefore direct sales by group companies to customers" (see paragraph 87) and (2) that in the case of indirect sales:

"The supplies by CUK and PMC to dealers were of goods only and did not include supplies of insurance by the insurers. I accept that CUK and PMC agreed with the dealer to pay the cost of any free insurance but the insurance was not supplied to the dealer; all the dealer needed was the assurance that the premium would be paid. It is difficult to see how the consideration for the supplies of cars to dealers could be affected by the separate supplies of insurance by the insurers to customers neither of whom were party to the supplies in question; I do not consider that this is affected by the existence of a separate collateral contract between CUK or PMC and the dealer under which CUK of PMC undertook to pay the premium for free insurance." (see paragraph 97).

14. The facts of Primback were that customers of Primback, a furniture retailer, paid for their goods at the price as advertised and invoiced to them by Primback. They did so either directly or by an arrangement whereby, under a separate contract between the customer and one of a number of finance houses, the latter agreed to pay the invoiced amount to Primback and the customer agreed to repay that amount, with no interest added, to the finance house by a series of monthly instalments. However, the amount aid by the finance houses to Primback, in accordance with agreements between them which were not disclosed to the customers, was the invoiced sum less a percentage for commission. Primback was assessed to VAT on the basis of the full sales price in each case. In proceedings in which it claimed that the correct basis of assessment was the amount it actually received from the finance houses, the Court of Appeal, by a majority (Stuart-Smith and Hutchison LJJ), took the view that (1) the value of what Primback supplied was not the full invoice price, (2) the value of Primback's supply should not include the value of the provision of credit, (3) if the supply of credit were to be valued its value would, prima facie, be about equivalent to the sum deducted by the finance house when paying Primback, (4) for the Commissioners to assess the full amount of the invoiced price of the goods to VAT would mean that VAT would be charged on the supply of credit, and (5) that would conflict with the requirement in article 13B(d)(1) and in (what is now) group 5 of schedule 9 to the VAT Act 1994 that the supply of credit was exempt from VAT. In short, Primback succeeded. In his dissenting judgment Sir John May held that the supply of furniture, being for a consideration in money, was to be valued at such amount as, with the addition of the VAT chargeable on it, was equal to the consideration with the result that VAT was properly due on the full amount charged to the customer.
15. So far as material, I will come in due course to the facts and conclusions in the other decisions referred to in paragraph 125 of the Tribunal's decision.
16. Just over two months later, on 6 August 1999, Peugeot and Citroen appealed the decision. I will come later to the grounds of appeal. Although not apparent from the terms of the notice of originating motion by which it was launched, the appeal was against the decision insofar as it affected indirect sales since, on the basis of Primback in the Court of Appeal, the taxpayer had established an entitlement in principle to a repayment in respect of direct sales.

Later events

17. This conveniently brings me to what happened between the launching of the appeal and its hearing before me nearly four years later.
18. By letter dated 25 October 1999, Peugeot (on behalf of itself and Citroen, by then long since part of the Peugeot group of companies) made a claim for repayment in respect of direct sales, setting out the amount claimed by reference to an attached calculation. It went on to say that it assumed that since the Commissioners had not appealed 'there will be no claw back of this repayment should Primback lose in the European Court.' (This was a reference to the fact that the House of Lords had referred the case to the ECJ for a preliminary ruling.) The calculation attached to the letter related to periods which did not coincide with those that had been the subject of the decision but to periods between December 1992 and September 1999. The claims totalled £301,891.
19. The Commissioners acceded to the claim. On 9 December 1999 they issued a Notice of Voluntary Disclosure in the sum of £301,891 and made payment of that sum at the same time.
20. On 15 May 2001 the ECJ gave its decision in Primback. Its effect was to reverse Primback in the Court of Appeal. It led to a letter from the Commissioners dated 6 November 2001 which referred to the fact that the Commissioners had received a favourable ruling from the ECJ and that, in the light of that ruling, a recovery assessment to claw back the £301,891 paid in December 1999 would be made. A notice of assessment also dated 6 November 2001 was enclosed. The claim was made in purported exercise of powers contained in sections 80 (4A) and 78A of the VAT Act 1994.
21. Peugeot challenged the assessment and appealed to the Tribunal. It did so on the basis that the Tribunal, in its May 1999 decision (ie the decision currently under appeal), had determined that it was entitled to payment of the amount which it received in December 1999 and accordingly that payment by the Commissioners of that amount had not exceeded the Commissioners' repayment liability (as defined in section 80(4B) of the VAT Act 1994) but was no more than a discharge of the Commissioners' then (established) liability. The appeal came before the VAT Tribunal (Stephen Oliver QC as Chairman) in March 2003. In order to determine the appeal, he had to consider what the earlier Tribunal had determined. After reviewing the circumstances which led to the earlier decision and after reviewing the decision itself, he said (in paragraph 15) that the earlier decision 'neither allows nor dismisses the appeal, either wholly or in part. It makes no directions as to what the next steps are to be. It states certain conclusions on the law. These are set out in paragraph 125….'. In paragraph 16 he went on to say:

"[The earlier decision], as I read it, has exactly the effect that it expresses and no more. It is a decision in principle; this was acknowledged in paragraph 6 of the Decision. It sets out the legal framework upon which the dispute is to be progressed. The key conclusion is that the Primback decision of the Court of Appeal is not distinguishable on the facts in relation to sales by group dealers direct to customers. The decision did not determine the matter and the next steps, therefore, lay with the parties."

22. He went on to discuss and reject Peugeot's submissions in relation to section 80(4A) with the result that the appeal failed. In paragraph 27, he again stated that the earlier decision 'provides the legal framework upon which the parties should proceed in seeking a final determination; but it goes no further than that.' He then added:

"Overall it seems to me that the Tribunal that produced the 1999 Decision still has jurisdiction to complete that appeal and so to determine the amount payable by the Commissioners. The right course, therefore, is to re-list that appeal before Mr Theodore Wallace once the High Court has ruled on the correctness or otherwise of the 1999 Decision."

23. I respectfully agree with those observations as to how the matter stood as a result of the earlier decision.
24. In the meantime and in order to safeguard their position in the light of the ECJ's decision, favourable to them, in Primback, the Commissioners decided that they should themselves appeal the Tribunal's earlier decision to the extent that it had decided, as a matter of principle, that direct sales were governed by Primback in the Court of Appeal and, therefore, that the taxpayers' claim to repayment was, to that extent, well founded. Accordingly, on 1 November 2002 they issued a respondents' notice seeking to appeal against that part of the decision. In a separate application they sought an extension of time to 1 November 2002 within which to serve their notice which, by then, was long out of time. They explained, in Part C of the application, that:

"No cross-appeal was made against the Tribunal's decision at the time, since the view was taken that the effect of the Tribunal's decision was simply to align that part of the case with the outcome of the outstanding reference to the European CJ in [Primback] ... . Accordingly the Commissioners took the view that if the effect of the judgment of the European CJ was to reverse the Court of Appeal in Primback, there would be no need to appeal that part of the Tribunal decision, since the money repaid to Peugeot in the meantime would be recoverable, pursuant to section 80 (4A) of the VAT Act 1994."

25. They went on to explain that they had since raised an assessment with a view to recovering the money repaid by them to Peugeot, that the assessment had been appealed and that there would be no need to pursue the cross-appeal if the Tribunal hearing that appeal ruled in their favour. This was, of course, a reference to the appeal which came before the Tribunal in March 2003.
26. Although that Tribunal ruled in their favour, the Commissioners nevertheless wished to pursue their cross-appeal. Their reason for this was that they had expected the Tribunal at the March 2003 hearing to find that Primback as decided in the ECJ applied to all categories of sale, including not least direct sales. But the Tribunal has sidestepped that issue and determined the matter in the Commissioners' favour on a much narrower ground.
27. During the course of counsels' submissions before me, I said that I would give the Commissioners leave to cross appeal out of time. The issue raised by the cross appeal, namely the extent to which the decision of the ECJ in Primback affects direct sales and in effect justifies recovery by the Commissioners of the repayment made by them following the original decision, is essentially one of principle. It would be wholly artificial to consider the impact of that decision on indirect sales but not on direct sales. In opposing the Commissioners' application for leave to cross appeal, Mr Cordara expressed concern lest there should be any attempt to re-visit the Tribunal's findings of primary fact as set out in the decision. That was part of a wider concern that, given that the law had moved on since 1999, it would not be appropriate to allow the Commissioners a free hand over what points they would take since, if the taxpayers and their advisers had known at the time the matter was before the Tribunal in late 1998 and early 1999 what they now know about the law, it may well be that they would have wished to adduce additional factual material.
28. The fact is that the jurisprudence relevant to the issues which fell for determination by the Tribunal is a developing one. Thus, after the conclusion of oral argument but before the Tribunal had given its decision, the House of Lords in Primback referred certain questions to the ECJ (that was on 1 February 1999) and on 11 February 1999 gave judgment in Customs and Excise Commissioners v Redrow Group plc [1999] STC 161 ("Redrow"). On 25 February 1999 the ECJ gave judgment in Card Protection. Since the decision was released in late May 1999, there have been further developments in the relevant law, notably the ECJ's judgment in Primback given on 15 May 2001. the House of Lords judgment in Customs and Excise Commissioners v Plantiflor [2002] UKHL 33 [2002] STC 1132 ('Plantiflor') given on 25 July 2002 and the Court of Appeal's decision in Hartwell plc v Customs and Excise Commissioners [2003] EWCA Civ 130 [2003] STC 396 ('Hartwell') given on 12 February 2003.
29. In view of this developing jurisprudence, there is little point in examining whether, on the law as it stood at the time that the decision was released and having regard to the submissions made to it, the Tribunal came to the correct conclusions. For that reason, the approach before me on both sides has been, correctly in my view, to argue the issues arising in the light of the law as it now stands without, of course, seeking to revisit any of the Tribunal's primary findings of fact.

The grounds of appeal

30. Essentially two grounds of appeal were argued. They were as follows. The Tribunal failed to apply the proper test established by the ECJ in Card Protection to the facts of the cases whereas, if properly directed, it ought to have concluded that Peugeot/Citroen (as for convenience I shall refer to them) were acting as insurance suppliers and/or were making arrangements for the supply of insurance with the result that the part of the price constituting the value of the insurance supply should be exempted from VAT. I call this the 'insurance supply point'. Alternatively, the Tribunal failed to apply the proper approach established by the ECJ in Elida Gibbs and Glawe to the particular facts of the cases whereas, if properly directed, it ought to have concluded that the premium paid out by Peugeot/Citroen was an expense paid out in the name and for the account of the end-user and/or that such sum was in effect a discount to the purchaser. I will call this 'the Elida Gibbs point'.
31. In the course of his submissions, Mr Cordara advanced an alternative argument and sought leave to amend the grounds of appeal in order to raise it. Without formally giving leave, I allowed him to develop it 'de bene esse'. This is that Peugeot and Citroen provided an exempt service o-f assuring payment of the premiums under the insurance policies. For convenience I call this "the exempt financial services point".
32. No positive submissions were advanced in relation to any argument based upon Glawe since it was conceded that, on the current state of the authorities, the point was (as it was put) 'difficult' to pursue. However the point was not formally abandoned in case the matter should be taken further and the authorities alter. I propose therefore to say no more about it.
33. A further and alternative ground of appeal, that the Tribunal failed to apply properly to the fact of these cases the test established by Primback in the Court of Appeal, was abandoned in the light of the ECJ ruling in that case. Indeed before me, so far from arguing that there is no factual difference between Primback and the instant cases, the stance now adopted by the taxpayers is that Primback is irrelevant.

The taxpayers' contentions: the insurance supply point

34. Before the Tribunal, this point appears to have been raised by Peugeot's representative rather as an afterthought. The Tribunal introduced its discussion of the point at paragraph 120 of the decision by observing that it appeared 'to involve a fundamental departure from the grounds of appeal.' Before me, the point has become the principal ground of appeal.
35. In order to understand the point, it is appropriate to begin by referring to three decisions that feature prominently in it. The first is Card Protection.
36. In that case Card Protection Plan Ltd (CPP) offered holders of credit cards, on payment of a certain sum, a credit card protection plan which was intended to protect them against financial loss and inconvenience resulting from the loss or theft of their cards or of certain other items such as keys, passports and insurance documents. The plan also included other services to assist cardholders in the event of the loss of their credit cards. CPP obtained insurance cover in respect of cardholders who purchased the plan by instructing an insurance broker to arrange a block policy from an insurance company. The cardholders, as CPP's customers, were mentioned in the block policy as the assured. The services offered by CPP in respect of indemnification of a cardholder against financial loss in the event of the loss or theft of his credit cards corresponded to the insurance cover described in the schedule to the block policy. In the course of its judgment, the ECJ said this:

"20... CPP acknowledges that it merely promised its customers to do what was necessary for insurance to be provided to them by a third party, and that it did not itself undertake to provide insurance cover. In this respect, the Commission has pointed out that CPP is the holder of a group policy for its customers.

21. In those circumstances, it must be noted that CPP is the holder of a block insurance policy under which its customers are the insured. It procures for those customers, for payment, in its own name and on its own account, to the extent of the services mentioned in the continental policy, insurance cover by having recourse to an insurer. Consequently, for the purposes of VAT, there is a supply of services between Continental and CPP on the one hand, and between CPP and its customers on the other, and the fact that Continental under the terms of its contract with CPP provides insurance cover directly to CPP's customers, is not material in this respect.

22. Such a supply of services by CPP constitutes an insurance transaction within the meaning of art 13B(a). It is true that the exemptions provided for by art. 13 of the Sixth Directive are to be construed strictly...however the expression 'insurance transactions' is broad enough in principle to include the provision of insurance cover by a taxable person who is not himself an insurer but, in the context of a block policy, procures such cover for his customers by making use of the supplies of an insurer who assumes the risk insured."

37. In Redrow the taxpayer, which was the representative member of a group of 21 companies involved in the construction of houses, designed and operated a sales incentive scheme whereby it agreed to pay the fees of estate agents whom it instructed in the sale of the existing house of a prospective purchaser if and when the purchaser completed on the purchase of a new home built by the group. Redrow claimed input tax credit in respect of the estate agents' fees incurred under the scheme on the ground that the estate agents' services were supplied to it as well as to the purchaser so that the VAT thereon was allowable input tax in its hands. Redrow's claim succeeded. in the course of his speech (at [1999] STC 171) Lord Millett referred to two particular features of VAT and said this:

"The first is that anything done for a consideration which is not a supply for goods constitutes a supply of services. This makes it unnecessary to define the services in question. The second is that unless the services are rendered for a consideration, they cannot constitute the subject matter of a supply. In fact, of course, there can be no question of deducting input tax unless Redrow has incurred a liability to pay it as part of the consideration payable by him for a supply of goods and services.

In my opinion these two factors compel the conclusion that one should start with the taxpayer's claim to deduct tax. He must identify the payment of which the tax to be deducted formed part; if the goods or services are to be paid for by someone else he has no claim to deduct. Once the taxpayer has identified the payment, the question to be asked is: did he obtain anything - anything at all - used or to be used for the purposes of his business in return for that payment? This will normally consist of the supply of goods or services to the taxpayer. But it may equally well consist of the right to have goods delivered or services rendered to a third party. The grant of such a right is of itself a supply of services.

In the present case, Redrow did not merely derive a benefit from the services which the agents supplied to the householders and for which it paid. It chose the agents and instructed them. In return for the payment of their fees, it obtained a contractual right to have the householder's homes valued and marketed, to monitor the agents' performance and maintain pressure for a quick sale, and to override any alteration in the agents' instructions which the householders might be minded to give. Everything which the agents did was done at Redrow's request and in accordance with its instructions and, in the events which happened, at its expense. The doing of those acts constituted a supply of services to Redrow."

38. In Plantiflor, the third of the three decisions, the taxpayer, Plantiflor, carried on business selling plants and other garden products. Most of its products were delivered to its customers through Parcelforce, an agency of the Post Office. Plantiflor stated in its catalogue that it was prepared to arrange delivery on the customer's behalf by Parcelforce, if required, in which case the customer was requested to include the postage and handling charge in his order. It was also stated that Plantiflor would then advance all postal charges to Parcelforce on the customer's behalf. The order form referred to a contribution towards post and packaging of £2.50, of which £1.63 was Parcel-force's charge. Under a standing contract between Plantiflor and Parcelforce, Plantiflor agreed to despatch a minimum number of parcels each year and to use Parcelforce for the delivery of the whole of its parcels traffic. It was provided that Parcelforce would charge Plantiflor at a specified variable rate per parcel and that Plantiflor would pay invoices submitted by Parcelforce by direct debit transfer. The question was whether what Plantiflor promised to the customer with regard to the delivery of their purchases if requested by the customer to do so and the £2.50 contribution was paid amounted to a taxable supply made by Plantiflor to the customers. It was held that it did. In the course of his speech, Lord Millett said this:

"67. To sum up: there were three distinct supplies in the present case, and it is necessary to identify the particular supply for which the payment made by the customer was the consideration: (i) the supply by Parcelforce to Plantiflor of the service of delivering its customers' goods. This was supplied pursuant to a contract for delivery made between Parcelforce and Plantiflor and was for a consideration payable by Plantiflor. It is (or, if Parcelforce were a private carrier, would be) a taxable supply. (ii) The supply by Parcelforce to the customer of the service of delivering his goods to him or his order. This supply was also made pursuant to the contract for delivery between Parcelforce and Plantiflor. It was made in circumstances in which the customer incurred no liability to Parcelforce to pay a consideration and was not (and, even if Parcelforce were a private carrier, would not be) a taxable supply. (iii) The supply by Plantiflor to the customer of an arrangement service for which Plantiflor charged £1.63 per parcel. Whatever else was included in the supply, it was not the service of actual delivery. That was supplied by Parcelforce. What the customer received for his money was the benefit of the arrangements, which Plantiflor had made with Parcelforce to deliver its customers' goods to his order without charging him in the normal way. Since Plantiflor made this supply for consideration, it was a taxable supply."

39. In the cases before me it was submitted that the taxpayer, although it was not the actual insurer, made supplies of insurance, alternatively made arrangements for the supply of insurance, in either case for consideration and that, accordingly, as such supplies were exempt from VAT (under article 13B(a) and/or what is now schedule 9 to the VAT Act 1994), part of the price paid to it, in the case of direct sales by the end-users, and in the case of indirect sales by the independent dealer, was for an exempt supply. The submission, as developed in argument by Mr Cordara, was as follows.

i) The insurance exemption extends not simply to the actual insurer, whether or not authorised by law to insure, but also to any transaction, whether or not by the actual insurer, whereby a promise of insurance cover is made. See Card Protection [1999] STC 270 at paragraphs 20-22. Moreover, given the wide wording of article 13B(a), in particular the words appearing after 'insurance and reinsurance transactions' and the reference in the domestic law enactment of the exemption (as it existed at the relevant time) extending the exemption to 'the making of arrangements for the provision of any insurance or reinsurance...' it extends to persons who, while not themselves undertaking to insure, make arrangements for a contract of insurance to come into existence. Nor is there any requirement as to the identity of the recipient of the supply. The exemption therefore extends to the case where for consideration A warrants to B that C will provide cover and also to the case where for consideration A warrants to D that C will provide cover to B. In the first case there is an exempt insurance supply by A to B; in the second by A to D.

ii) The findings of the Tribunal (set out in paragraphs 19, 74 and 76 of the decision) amount to findings as to the existence of the following insurance-related supplies made in the course of the car sales by Peugeot (assuming the end-user was eligible):

a) by Orion to Peugeot, namely the promise to provide the end-user with insurance in return for the appropriate premium (see paragraph 32);

b) by Peugeot to the end-user, namely '... a collateral contract between PMC and the customer under which in return for the customer buying the car, PMC undertook to pay the premium ...' (see paragraph 76);

c) by Peugeot to the independent dealers, namely '... a contract between PMC and the dealer under which, in return for the dealer marketing the car and administering the offer, PMC undertook to pay the premium for free insurance taken up ...' (see paragraph 76);

d) by the dealer to the end-user, namely '... they [the dealers] warranted to the customer that the insurance would be provided so long as the purchaser was eligible ...' (see paragraph 74);

e) by the insurer to the end-user, namely the actual insurance cover following completion of an appropriate proposal and payment by Peugeot of the premium (see paragraph 75).

iii) The Tribunal also made a finding that the position with regard to the sale of Citroen cars was the same: see paragraph 78.

iv) The supplies described in (ii)(a) to (c) are, for VAT purposes, exempt supplies as being within the scope of the insurance exemption described in (i) above. See the reasoning of the ECJ in Card Protection and the decisions of the House of Lords in Redrow and Plantiflor. So also is the supply described in (ii)(d) above. This follows from the nature of the supplies which are all insurance-related, the fact that consideration for each supply was given by the person to whom the supply was made and the breadth of the insurance exemption. It is questionable, but irrelevant to the argument, whether the supply described in (ii)(e) is, for VAT purposes, a supply (exempt or otherwise) since the end-user does not have a liability to the insurance company to pay the premium: the premium has come from a separate source, namely Peugeot/Citroen. See Plantiflor at paragraph 67(ii).

v) The Tribunal fell into error, in the case of indirect sales, in failing to accord the correct VAT status to the various supplies described in (ii) above. Thus, at paragraph 122 of its decision, the Tribunal said this:

"122. It is clear that in Card Protection the ECJ proceeded on the basis that Card Protection was supplying insurance services to its customers. In my view it does not follow that the Appellants themselves made supplies of insurance in the present case. Although the Appellants were liable to pay for the insurance, the proposal forms were signed by the customers who were bound by the terms of the policies. In my judgment they received the supplies direct from the insurers".

As paragraph 21 of the judgment in Card Protection shows, the mere fact that there was a direct contractual relationship between customer and insurer did not preclude the taxpayer from making supplies of insurance in the wide sense allowed by the exemption. Moreover, it is irrelevant whether, for VAT purposes, there was an insurance supply by the insurers to the customer, ie the end-user. In tripartite situations (ie where A pays B to make a supply to C) the VAT supply is by B to the party who is the paymaster, ie A, not to C. See Redrow and Plantiflor.

vi) The Tribunal also fell into error in paragraph 123 where it stated:

"123. Even if the Appellants did otherwise supply insurance to the final customers, a supply for VAT purposes involves consideration. Except in the case of sales by group dealers to customers direct, the Appellants received no consideration from the customers. The consideration which the Appellants received was from the independent dealers or the finance houses. That consideration was for the supply of cars not insurance services. It could be argued that the supply to the independent dealers included a warranty to procure or arrange the supply of insurance to eligible customers, however, these are not the same as supplying insurance. In my judgment Card Protection does not assist the Appellants in cases where independent dealers or finance houses were involved. In cases of sales by group dealers direct to customers, the Appellants do not need to invoke Card Protection unless Primback is reversed on appeal. Even in such cases the problem remains that the supply of insurance to the customers was by the insurers rather than by the Appellants."

That passage is in error in its assumption that the only relevant insurance supply was that by the insurer to the end-user. It is in error because the Tribunal failed to have regard to the other supplies which it had earlier identified (set out at (ii)(b) to (d) above). For example, it failed to appreciate that the warranty to which it referred in the first sentence of that paragraph is itself an insurance-related supply which, being for a consideration, is exempt. Similarly, in the case of the insurance-related supply by Peugeot direct to the end-user identified in (ii)(c) above. Both were exempt supplies by Peugeot.

vii) On the basis of the foregoing it follows that when Peugeot/Citroen sells a car, whether that sale is direct or indirect, it also supplies an exempt service, namely a promise to secure motor insurance. Nothing in the ECJ's decision in Primback is inconsistent with this analysis.

40. Having reached that point, if he does, Mr Cordara goes on to submit that some part of the consideration paid to Peugeot/Citroen, whether by the end-user in the case of a direct sale or by the independent dealer in the case of an indirect sale, must relate to the insurance supply. The Tribunal, he pointed out, accepted that that was so in the case of a direct sale. (See paragraphs 84 to 87 of the decision.) It should have come to the same conclusion, but did not, in regard to indirect sales.
41. Relevant to this, he submitted, is the basic rule in VAT law that, unless there is some positive reason for thinking to the contrary, all that is paid buys all that is provided in return: see Customs and Excise Commissioners v Telemed Ltd [1992] STC 89 at 96 (Hodgson J), Customs and Excise Commissioners v Professional Footballer's Association (Enterprises) Ltd [1993] STC 86 at 90 (Lord Slynn of Hadley) and Customs and Excise Commissioners v First National Bank of Chicago [1998] STC 8S0 at 872 (para 49) (ECJ). Nor, he said, is it necessary for the purposes of VAT for the taxable person making the supply, or the recipient of the supply, to know (either before or after performance of the supply obligation) or be able to identify what the consideration is for the supply or even to have given any thought to the matter: the enquiry whether or not there is consideration for a supply does not turn on knowledge or separate identification of the consideration. Instead it turns on looking at the entire transaction (as objectively determined having regard to the terms of the contract or contracts) rather than on dissecting the transaction into its separate parts. See Customs and Excise Commissioners v Pippa-Dee Parties Ltd [1981] STC 495 at 501 (Ralph Gibson J) and Customs and Excise Commissioners v Diner's Club Ltd [19891 STC 407 (Court of Appeal). That means, he said, taking into account all of the supplies which go to make up the overall transaction. See also the discussion of the meaning of "consideration" for VAT purposes set out in paragraphs 8 to 23 of the decision in Customs and Excise Commissioners v Littlewoods Organisation plc [2001] STC 1568 at 1576 to 1582 (especially paragraph 14 at 1578).
42. Mr Cordara went on to say that what the amount is of the consideration that relates to the insurance supplies in the instant cases has not even been considered, let alone quantified by the Tribunal - a point emphasised in the later Tribunal decision of March 2003 - and no relevant finding of fact has been made by it to enable the relevant amount (or even the proportion of the consideration received by Peugeot/Citroen for each car) to be stated. One reason at least why that is so, he said, is that the Tribunal did not even accept that the independent dealers (or the finance houses) were receiving an exempt supply of insurance. So it is not surprising that there was no finding on what part (if any) of what they paid to Peugeot/Citroen related to such a supply. Unless the court is persuaded, he said, that on no conceivable view of the facts as found by the Tribunal was any part of the consideration referable to the insurance supply, in which event the insurance supply made by Peugeot/Citroen to the dealers was in effect a gift, the matter must be referred back to the Tribunal for the necessary investigation to be undertaken and all relevant findings of fact made. He reminded me that it is not the function of this court, concerned only with errors of law, to reach findings of fact.

The taxpayers' contentions: the Elida Gibbs point

43. This alternative ground o-f appeal is not dependent on establishing an exempt supply by the taxpayers but on a contention that if this had been a so-called cash-back arrangement, whereby the taxpayers promised the end-users a cheque in compensation for whatever insurance premium they themselves had had to pay, it would have been clear that the taxpayers could have reduced their turnover by that margin on the principles set out by the ECJ in Elida Gibbs and that it ought not to make any difference that the matter was structured in the way that it was, namely with Peugeot/Citroen paying the sum direct to Orion/Direct Line.
44. In Elida Gibbs the taxpayer was a manufacturer of toiletries, 70% of which were sold to retailers and the remainder to wholesalers or cash-and-carry traders for resale to retailers. To promote the retail sales of its products it operated two coupon schemes. The first offered consumers a price reduction at the point of sale on the production of money-off coupons which had been circulated in magazines or newspapers. The price reduction so allowed was reimbursed by the company to the retailer. Under the second scheme the consumer could obtain a cash refund from the company by returning cash-back coupons which were printed on the label of the products. Whether the buyer of the company's products was a wholesaler or a retailer, the company charged the supply at a specific price which was inclusive of VAT. The amount invoiced for the supply was determined irrespective of any present or future promotion scheme so that the wholesaler or retailer might not know, when purchasing goods from the company, that those goods were or were to be the subject of a money-off coupon or promotion scheme. Sales by wholesalers to retailers took place at the wholesaler's prices which were likewise unaffected by any promotion campaign. The company requested repayment of output tax on the basis that the money refunded on the coupons constituted a retrospective discount reducing the price of its goods. There was a reference to the ECJ for a preliminary ruling to determine the taxable amount of the supplies of goods under the sales promotion schemes.
45. The ECJ referred, in the course of its judgment, to certain general considerations. At paragraph 19, it stated that:

"The basic principle of the VAT system is that it is intended to tax only the final consumer. Consequently the taxable amount serving as a basis for the VAT to be collected by the tax authorities cannot exceed the consideration actually paid by the final consumer which is the basis for calculating the VAT ultimately borne by him."

And at paragraph 20 that:

"... one of the principles on which the VAT system was based was neutrality, in the sense that within each country similar goods should bear the same tax burden whatever the length of the production and distribution chain."

At paragraph 22 the court pointed out that:

"It is not, in fact, the taxable persons who themselves bear the burden of VAT. The sole requirement imposed on them, when they take part in the production and distribution process prior to the stage of final taxation, regardless of the number of transactions involved, is that, at each stage of the process they collect the tax on behalf of the tax authorities and account for it to them."

The court went on, in paragraphs 23 and 24, to explain by reference to earlier authority that:

"23. ... a basic feature of the VAT system is that VAT is chargeable on each transaction only after deduction of the amount of VAT borne directly by the cost of the various price components of the goods and services. The procedure for deduction is so arranged that only taxable persons are authorised to deduct from the VAT for which they are liable, the VAT which the goods and services have already borne.

24. It follows that, having regard in each case to the machinery of the VAT system, its operation and the role of the intermediaries, the tax authorities may not in any circumstances charge an amount exceeding the tax paid by the final consumer."

46. The court then proceeded to consider the preliminary question.

"26. By virtue of article 11A(1)(a) of the Sixth Directive, the taxable amount for supplies of goods and services within the territory of a state comprises all sums which make up the consideration which has been or is to be obtained by the supply from the purchaser.

27. According to the court's settled case law, that consideration is the 'subjective value', that is to say, the value actually received in each specific case, and not a value estimated according to objective criteria …"

It then referred to authority and continued:

"28. In circumstances such as those in the main proceedings, the manufacturer, who has refunded the value of the money-off coupon to the retailer or the value of the cash-back coupon to the final consumer, receives, on completion of the transaction, a sum corresponding to the sale price paid by the wholesalers or retailers for his goods, less the value of the coupons. It would not therefore be in conformity with the directive for the taxable amount used to calculate the VAT chargeable to the manufacturer as a taxable person, to exceed the sum finally received by him. Were that the case, the principle of neutrality of VAT vis-à-vis taxable persons, whom the manufacturer is one, would not be complied with.

29. Consequently, the taxable amount attributable to the manufacturer as a taxable person must be the amount corresponding to the price at which he sold the goods to the wholesalers or retailers, less the value of those coupons.

30. That interpretation is borne out by article 11C(1) of the Sixth Directive which, in order to ensure the neutrality of the taxable person's position, provides that, in the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount is to be reduced accordingly under conditions to be determined by the member states.

31. It is true that that provision refers to the normal case of contractual relations entered into directly between two contracting parties, which are modified subsequently. The fact remains, however, that the provision is an expression of the principle, emphasised above, that the position of taxable persons must be neutral. It follows, therefore, from that provision that, in order to ensure observance of the principle of neutrality, account should be taken, when calculating the taxable amount of VAT, of situations where a taxable person who, having no contractual relationship with the final consumer, but being the first link in a chain of transactions which ends with the final consumer, grants the consumer a reduction through retailers or by direct repayment of the value of the coupons. Otherwise, the tax authorities would receive by way of VAT a sum greater than that actually paid by the final consumer, at the expense of the taxable person."

47. Having referred to that authority, Mr Cordara pointed to paragraph 105 of the Tribunal's decision, dealing with the Elida Gibbs point, in which the following was stated:

"In my judgment the whole reasoning in Elida Gibbs was based on a single chain of supply. It is not in my view legitimate for this Tribunal to extend that decision so as to cover supplies by a third party where intermediaries are involved."

and to paragraph 108 in which the Tribunal stated:

"Once no intermediary is involved in the primary supply to the consumer, it seems to me that different considerations apply. Both parties are not only aware of the third party supply but are directly involved: the consumer is the recipient of the third party supply and the primary supplier pays the consideration thererfor. It is in effect a tripartite transaction. It is true that in the present case there were VAT groups and the contractual sellers of the cars were different companies from those paying for the insurance, however, section 43(1)(b) [of the VAT Act 1994] requires any supply by or to a member of the group to be treated as being by or to the representative member. When arriving at the subjective consideration obtained by the supplier from the consumer, there is nothing inherently illogical in taking account of an amount which the supplier is obliged to pay to a third party in return for a supply by that third party to the consumer. It seems to me that Elida Gibbs was concerned with the problem of whether an adjustment should be made by reason of transactions between persons in the same chain of supply but separated by intermediaries. It was not directed at direct supplies with no chain and no intermediaries, albeit a third party involvement."

48. Against that background of authority and the Tribunal's reasons for holding that Elida Gibbs was not in point, Mr Cordara made the following submissions.

i) The main proposition to be derived from Elida Gibbs is that, where there is a chain of supply involving intermediaries, a transaction between the original supplier (at the head of the supply chain) and the end-user (at the end of the supply chain) can alter the VAT consequences of the initial supply between the original supplier and the person to whom that supplier made its supply.

ii) The Tribunal's view of the chain in the instant cases was fundamental to its reasons for holding that the principle to be derived from Elida Gibbs was irrelevant to the case of a supply by a third party to the end-user where intermediaries are involved (that is to say, in the instant cases, by Orion/Direct Line to the end-users). This is because of its view that the insurance supply by Orion/Direct Line to the end-user was by a different or parallel chain from that by which the car was supplied.

iii) But, by reason of the decisions in Redrow and Plantiflor, there is no parallel chain in relation to the insurance supply. There is in truth only one chain: the supplies both of the car and of (exempt) insurance move along the same chain. The Tribunal was in error in supposing that there were different chains.

iv) The significance of the principle to be derived from Elida Gibbs is that it enables Peugeot/Citroen to point to the promises made by them to the end-users that insurance cover would be provided in return for the car purchase as reducing the value of the supply made by Peugeot/Citroen to their immediate purchasers in indirect sales, namely to the independent dealers.

v) The insurance supply by Peugeot/Citroen direct to the end-user has that effect because its economic and commercial effect is the same as if, instead of itself arranging and paying the premium to Orion/Direct Line, thereby providing the end-user with insurance cover, it had provided, say, a voucher which the independent dealer, on the car sale, handed to the end-user enabling that purchaser to recover his cost of himself insuring with Orion/Direct Line.

vi) The fact that it was Peugeot/Citroen which procured and paid for the insurance, rather than the end-user who then has a right to recover the cost from Peugeot/Citroen, should make no difference to the VAT consequences of the transaction: had it taken that form, Elida Gibbs would have operated to reduce the consideration for the supply from Peugeot/Citroen to the independent dealer. It cannot matter that the transaction was differently structured - in the way that in fact occurred - if in economic terms the net result is exactly the same.

vii) In Goldsmith Jewellers Ltd v Customs and Excise Commissioners [1997] STC 1073 the ECJ held (in paragraph 23 of the judgment) that, for the purpose of article 11A(1)(a) there was no distinction between consideration in money and consideration in kind (in that case jewels) provided the consideration is capable of being expressed in money since "the two situations are economically and commercially identical".

viii) Moreover, the Tribunal itself (in paragraph 79) accepted that 'the commercial and economic effect of the free insurance schemes [operated by Peugeot and Citroen] may have been little different from the cash-back schemes."

49. For those reasons, submitted Mr Cordara, even if the primary ground of appeal, based upon the making by Peugeot/Citroen of an exempt insurance supply, does not succeed, the nature of the schemes coupled with the identity of the chain of supply (as between car and insurance supplies) should have led the Tribunal to conclude, on the basis of the same reasoning that led the ECJ to decide Elida Gibbs in the way that it did, that the value of the supply made to the intermediate dealer should be reduced by the cost to Peugeot/Citroen of procuring insurance for the end-user. Indeed, he submitted that, if anything the circumstances of the instant cases were stronger than those in Elida Gibbs because the promise to procure insurance for the end-user which Peugeot and Citroen gave was an integral part of the overall transaction at each stage and known by (and indeed relied upon) by the intermediate independent dealers.

The Crown's contentions

50. Mr Anderson submitted that the effective issue was whether the taxable amount for the supply of the cars should be reduced by the amounts paid by Peugeot/Citroen to Orion/Direct Line. To determine that issue it was not necessary, he said, to address either of the taxpayers' two grounds of appeal. It was not necessary to do so, he said, for two reasons. The first was that no part of the price paid for the car (either by the end-user or, more immediately, by the independent dealer or finance house) was referable to any insurance supply. If therefore there was such a supply, it was a supply for no consideration in that the price paid was for the car alone. The second was that, if there was such a supply and it was for a consideration, the supply was ancillary to the supply of the car and therefore assumed the same treatment as the car, namely standard-rated.
51. Expanding upon the first reason, Mr Anderson emphasised that it was important to appreciate just what findings the Tribunal made. Nowhere did it say that some part of the consideration paid by a customer (whether independent dealer, finance house or end-user) was referable to the insurance cover, much less to any other insurance-related supply. On the contrary, the cars were marketed to customers on the footing that free insurance was available. Moreover, as was made clear in paragraph 17 of the decision: "the price paid by the independent dealer or by the customer or finance house remains the same whether or not a free insurance offer was taken up" and, in paragraph 20, that the agreement between Citroen and Direct Line contained a provision that neither Citroen nor any of its agents or dealers should offer or give anything to purchasers of the cars in lieu of the free insurance proffered under the scheme as an incentive not to take up the free insurance. The position was the same for Peugeot: see paragraph 32 of the decision. In short, there was no discount available to the end-user (if eligible under the schemes) if the free insurance offer was not taken up. This applied whether the sale was direct or indirect.
52. Expanding upon the second reason, it was important, he said, to be clear just what Card Protection, on which the taxpayers placed reliance, decided. It was not in question in that case, Mr Anderson pointed out, that the customers there were buying a service from Card Protection for a consideration. The principal issue was to characterise what it was that Card Protection supplied in return for that consideration. There was no suggestion, as there is in the instant cases in relation to the insurance cover provided to purchasers, that no part of the consideration paid related to some part of the overall package of benefits received by the customer. The court's concern was to analyse the nature of Card Protection's supply to customers who signed up. The court concluded that it included an insurance transaction within the meaning of the first four words of the insurance exemption contained in article 13B(a). See paragraph 22 of the judgment.
53. But it was not the only service which Card Protection provided under the card protection plan. There was also what was described in the case as a card registration service which included assistance in the event of the loss or theft of the customer's credit card. Looked at in isolation from the insurance service this other element constituted, for VAT purposes, a standard-rated supply. This gave rise to the second main issue dealt with in Card Protection which was how the court was to approach a supply for tax purposes where a package of services is provided, some being standard-rated, others exempt. Should one split it up into the taxed and the exempt or should one block them altogether and treat them as either wholly exempt or wholly standard-rated? That issue was addressed by the ECJ in Card Protection in the following passage:

"26 By its first two questions, which should be taken together, the national court essentially asks with reference to a plan such as that offered by CPP to its customers, what the appropriate criteria are for deciding, for VAT purposes, whether a transaction which comprises several elements is to be regarded as a single supply or as two or more distinct supplies to be assessed separately.

…

28. Where the transaction in question comprises a bundle of features and acts, regard must first be had to all the circumstances in which that transaction takes place.

29. In this respect, taking into account, first, that it flows from article 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, second, that a supply which comprises a single service from an economic point of view, should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical customer, with several distinct principal services or with a single service.

30. There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied …

31. In those circumstances, the fact that a single price is charged is not decisive. Admittedly, if the service provided to customers consists of several elements for a single price, the single price may suggest that there is a single service. However, notwithstanding the single price, if circumstances... indicated that the customers intended to purchase two distinct services, namely an insurance supply and a card registration service, then it would be necessary to identify the part of the single price which related to the insurance supply, which would remain exempt in any event.

54. In the House of Lords in Card Protection (to when the case returned following the ECJ's judgment) Lord Slynn (at [2001] STC174 paragraph 25) posed the test as one of determining "the essential feature of the scheme or its dominant purpose, perhaps why objectively people are likely to want to join it".
55. Applying that test to the transaction in the instant cases between the dealer and the end-user (in the case of indirect sales) or between Peugeot/Citroen and the end-user (in the case of direct sales) and inquiring why purchasers are entering into the transaction and what its essential feature or dominant purpose is, the answer, said Mr Anderson, can only sensibly be: to buy a car. It is not to obtain insurance. Applying the test outlined in the ECJ's judgment, it cannot realistically be suggested, he submitted, that the acquisition of free insurance was, for end-users, an aim in itself. Rather, it was no more than a means of enjoying the principal service, namely the supply of a new car.
56. In any event, submitted Mr Anderson, the analysis underlying each of the grounds of appeal was incorrect in law. As regards the first ground of appeal, Plantiflor was not authority for the proposition - insofar as the taxpayers rely on it - that where A pays B to make a supply to C, there can be no taxable supply by B to C. Whether in Plantiflor, Parcelforce made, or but for the fact that it was a public postal carrier, would have made a taxable supply was not the question in issue: rather it was whether Plantiflor acted merely as an agent for the passing of the customer's money to Parcelforce for the service of delivering the plants which he had purchased from Plantiflor or whether Plantiflor was itself making a supply. Lord Millett's conclusion, at paragraph 67(ii), that there was not, and even if Parcelforce had been a private carrier there would not have been, a taxable supply, was therefore strictly obiter. In any event, unlike Plantiflor, where the customer was never in any contractual relationship with Parcelforce, here the end-users were in a contractual relationship with Orion/Direct Line by virtue of the insurance policies entered into when the end-users took up the offer of free insurance. Whatever insurance-related service Peugeot/Citroen may have provided (whether directly to the end-user or, in the case of indirect sales, to the independent dealers or finance houses as well) it was clearly not the insurance cover itself provided on payment of the premiums by Orion/Direct Line and issued to the end-users. That was the primary exempt insurance supply for which the premiums were consideration.
57. It was also important to appreciate, he said, that the Tribunal's findings on the contractual position (set out in paragraphs 73-79 of the decision) did not themselves determine the supply position for VAT purposes. See Customs and Excise Commissioners v Reed Personnel [1995) STC 588 at 595 (Laws 3). The Tribunal recognised that the cost to Peugeot/Citroen of the insurance was part of the cost to them of the car sale but equally recognised that that fact did not mean that the provision of the insurance was an identifiable element of the price paid, not least when the insurance had been marketed to customers as free.
58. As regards the second ground of appeal, based upon Elida Gibbs, the governing principle, in order to secure observance of the principle neutrality, is that the taxpayer should account for no more tax than it receives. For that purpose it is necessary, where there is a chain of supply, to look at the position between the original supplier and the end-user: the intermediate purchasers/suppliers do no more than to account to the tax authority for VAT on any mark-up in price; the mark-ups and therefore the VAT on them are unaffected by any adjustment of price for the supply as between original supplier and end-user. See paragraph 33 of the judgment of the ECJ in Elida Gibbs. It is the comparison between the cost of the original and ultimate supplies in the chain that counts, the principle being that the original supplier should not seek to set off more by way of output tax than the end-user has in fact paid for the supply. It assumes that the supply by the original supplier is the same as the supply made to the end-user at the end of the chain. The fallacy, in the taxpayers' reliance on the principle in Elida Gibbs is, he submitted, three-fold.
59. First, there is not a single chain from Peugeot/Citroen to the end-user in relation to the insurance supply. At each stage in the supply chain the nature of the insurance supply differs (even assuming that there is an insurance-related chain of supply passing through Peugeot/Citroen down to the end-user). Thus, as between Orion and Peugeot, Orion undertakes to Peugeot that on payment of the premium, satisfactory completion of a proposal form by an eligible car purchaser and payment by Peugeot of the premium it will insure the car purchaser. At the next stage in the chain Peugeot warrants to the independent dealer that it will procure that Orion will provide cover for the ultimate car purchaser (if eligible). That is a different service from that provided by Orion to Peugeot at the first stage and therefore a different supply. As between dealer and end-user (the last stage in the chain), the service and therefore the supply is different yet again: it is that the dealer warrants to the end-user that Orion will supply him with insurance cover. What is more, the Commissioners do not accept and, said Mr Anderson, the Tribunal did not in terms find that at each of the stages in the chain there was, for VAT purposes, an insurance supply for a consideration. It was important, he said, to differentiate between the contractual position (as set out in paragraphs 72 to 79 of the Tribunal's decision) and taxable supplies. The only such supply in the chain was at the first stage, between Orion/Direct Line and Peugeot/Citroen. It was for this reason, he submitted, that the Tribunal at paragraphs 104 to 106 of its decision correctly rejected any argument founded upon by Elida Gibbs.
60. The second reason why Elida Gibbs was of no assistance, he submitted, is that its rationale is the avoidance of a mismatch between the price that the end-user pays for the supply to him (ignoring any intermediate mark-ups) and the price that the original supplier has received for the supply. In the instant cases, Peugeot/Citroen have not borne an amount of VAT which exceeds that which the end-users have borne. The end-users have paid VAT on the full price invoiced to them.
61. The third reason is that, having structured the transaction in the way that it was (with Peugeot/Citroen procuring and paying for the insurance supply), it is not open to the taxpayer to argue that the transaction could have been structured in a manner which would have yielded in economic terms the same result in order to argue for a different tax consequence. See Lex Services Plc v Customs and Excise Commissioners [2001] STC 1568 at 1601 (paragraphs 83 to 86) (Chadwick LJ delivering the judgment of the Court of Appeal).
62. Mr Anderson summarised the position by saying this: either the line of the insurance supply was, as Mr Cordara submitted, by Peugeot/Citroen to the end-user, in other words Peugeot/Citroen was supplying to the purchaser either an insurance transaction or was making arrangements for procuring such a service, in which case that service was clearly ancillary to the supply of the car. Alternatively, if the supply of the insurance came through a discrete route, for example, by Orion/Direct Line direct to the end-user, it necessarily followed, he submitted, that such service could not be part of the price of the car. That was the reasoning of the Tribunal. He submitted therefore that even if the court accepted that the Tribunal erred in its analysis of the line of insurance supply, the error makes no difference.
63. Mr Anderson submitted that in any event the case of Primback was, so far as material, factually and legally indistinguishable from the instant cases, that the Tribunal was correct so to find in relation to direct sales and that the reasoning of the ECJ in that case applies with all the more force to indirect sales. Moreover, the taxpayers, he pointed out, had themselves argued that Primback was factually indistinguishable and applied to both direct and indirect sales; they had been right so to argue. An application of the reasoning of the ECJ in Primback to the facts of the instant cases leads irresistibly, said Mr Anderson, to the conclusion that, whether in relation to direct or to indirect sales, the taxable amount of the consideration paid by the end-user did not fall to be reduced by the amount of the premium paid by Orion/Direct Line.
64. At paragraph 14 above I have set out the facts in Primback and the conclusions of the Court of Appeal. The case was appealed to the House of Lords which stayed the proceedings and referred to the ECJ for a preliminary ruling on the proper construction of article 11A(i )(a) as applied to the facts of the case.
65. In paragraphs 21 and 22 of its judgment, the ECJ formulated the questions submitted to it for preliminary rulings as follows:

"21 By its questions, which it is appropriate to examine together, the national court is essentially asking whether on a proper construction of article 11A(1)(a) of the Sixth Directive, where a supply of goods for consideration has the following features: (i) a retail trader sells goods in return for payment of the advertised price which he invoices to the purchaser and which does not vary according to whether the customer pays in cash or by way of credit; (ii) should the purchaser so request, the acquisition of the goods is financed by the provision to him of interest-free credit by a finance company distinct from the seller; (iii) the finance company gives an undertaking to the purchaser that it will pay to the seller on the purchaser's behalf the sales price advertised and invoiced by the seller; (iv) the finance company in fact pays to the seller, pursuant to agreements concluded with the seller, but of which the purchaser is unaware, a sum less than the price advertised and invoiced; and (v) the purchaser repays to the finance company a sum equal to the price advertised and invoiced, the taxable amount for the purposes of calculating the VAT payable on the sale of the goods consists only of the amount actually received by the seller, or whether on the contrary, the taxable amount consists of the full amount payable by the purchaser.

22. In order to reply to the questions thus reformulated, it must be noted at the outset that, although the situation in issue in the main proceedings involves several transactions, of which one, namely the supply of credit by a finance company, is in principle exempt from VAT pursuant to article 13B(d)(1) of the Sixth Directive, and another, namely that by which a retail trader supplies goods to a final consumer for a price which includes an option for a customer to receive free credit supplied by a third party, is in contrast, subject to VAT, the questions submitted by the national court seek solely to determine the taxable amount for the purposes of calculating the VAT payable by a taxable person such as Primback in respect of the second of those transactions."

66. The court's conclusion was that the taxable amount for the purpose of calculating the VAT payable on the sale was the full amount payable by the purchaser. After referring to article 11A(1)(a) and observing that the consideration was what the parties agreed that it should be, on a proper analysis of the terms of their agreement, rather than by reference to market value, the court stated that:

"26. In the case in the main proceedings, the parties to the contract of sale agreed that the consideration for the goods would be their price as advertised, known in advance by the customer and invoiced to him by Primback, there being, moreover, no variation in their price according to whether the customer pays in cash or makes use of the credit offered by the retailer and provided by a finance house."

67. The court then went on to consider its own earlier decision in Bally. That was a case in which the claimant, which sold shoes, accepted payment from its customers either in cash or by cheque or credit card. When a customer paid by credit card, the credit card company paid Bally the sum which the customer had paid less a commission. Following Bally's assessment to VAT on the basis that the taxable amount of its shoe sales included the commission, a preliminary ruling from the ECJ was sought on whether that was correct. It held that it was. Having pointed out in paragraph 9 of its judgment that there were two transactions (one the sale of the goods to the customer by Baily at a price inclusive of VAT, and the other the service performed for Bally by the credit card organisation of, inter alia, guaranteeing payment for the goods purchased by means of the credit card) the court pointed out (in paragraph 16) that the fact that the purchaser did not pay the price agreed direct to the supplier (ie Bally) but through the organisation issuing the credit card, which retained a percentage calculated on the price, could not change the taxable amount. It said that the deduction made by the credit card organisation represented the consideration for the service rendered by the organisation to the supplier which was a transaction in respect of which the purchaser was a third party. The court added, in paragraph 17, that "the method of payment used in the relations between the purchaser and the supplier cannot alter the taxable amount".
68. After referring to its decision in Bally, the ECJ in Primback went on to say:

"27. Further, as the court has already held, article 11(A)(1)(a) of the Sixth Directive must be interpreted as meaning that where, in the context of a transaction of sale, the price of the goods is met by the purchaser by means of a credit card and paid to the supplier by the organisation issuing the card, after deduction of a percentage as commission in payment for the service rendered by the latter to the supplier of the goods, the sum so deducted must be included in the taxable amount on which the supplier, as the taxable person, must pay tax to the revenue authorities (see .... Bally . . .para 18).

28. In para 14 of Bally ... the court held that the harmonisation sought by article 11A(1)(a) of the Sixth Directive could not be achieved if the taxable amount varied according to whether the calculation was for the VAT to be borne by the final consumer or for determining the sum to be paid to the revenue authorities by the taxable person.

29. In paras 9, 10 and 16 of Bally ... the court also held that retention by the organisation issuing the credit card of a percentage calculated on the percentage price agreed between the supplier and the purchasers represents the consideration for a service rendered to the supplier by the card-issuing organisation, consisting in particular in the guarantee of payment for the goods, this service being the subject of a VAT - exempt transaction which is distinct and independent and in respect of which the purchaser is a third party, and which is not capable of affecting the taxable amount of the sales transaction between the supplier and the purchaser,

30. Finally, the court added, in paragraph 17 of Bally ... that the method of payment used in the relations between the purchaser and the supplier cannot alter that taxable amount.

31. ... the reasoning in Bally can also be applied in a situation such as that in point in the present case, since, for the purposes of charging VAT, payments made by credit card and payments made by way of interest-free credit offered by the seller and provided by a third party should be treated as equivalent. A feature common to Bally and the present case pending before the House of Lords is the fact that the customer in each case concluded a contract with a third party, a finance house, which, after deducting commission, paid directly to the seller the price of the goods purchased, thereby guaranteeing to the seller payment for those goods. Moreover, a customer who pays by credit card, like a customer who purchases goods on credit, does not have to pay for his purchase in cash at the time of sale since he benefits from a credit line opened by a specialised body.

32. This must a fortiori be the position in the present case, where, as the national court has found, the purchaser was unaware of the existence of, and the arrangements under, the agreement concluded orally between the seller and a third-party finance company."

69. The court then drew together its conclusions:

"33. It follows from all of the foregoing that, in a situation such as that in point in the main proceedings, the taxable amount of the taxable action consisting of the sale of goods concluded between the retail trader and the final consumer is the full amount advertised by the seller, invoiced to and payable by the purchaser.

70. Mr Anderson pointed to the following factual similarities between Primback and the instant cases: (1) goods are supplied to customers (in Primback sofas, in the instant cases cars); (2) at the same time, the supplier of the goods promises to provide an additional service at no extra cost to the customer (in Primback interest-free credit, in the instant cases free insurance); (3) the additional service is 'physically' (and possibly also 'contractually') provided by a third party (finance house or insurance company); (4) there is a direct relationship between the third party and the customer (in Primback a loan agreement, in the instant cases insurance cover); (5) the supplier of the goods pays the suppliers of the service; (6) there is an agreement between the supplier of the goods and the provider of the service (in Primback between it and the finance house, in the instant cases between Peugeot/Citroen and Orion/Direct Line) to which the customer is not a party and the terms of which he does not know; (7) the price of the goods does not alter if the free offer is not taken up; (8) invoices, where issued, state the full amount, not a reduced amount; (9) the additional service is described and marketed as free; and (10) the additional service is a marketing tool which is designed to increase the suppliers' overall sales.
71. Given those factual similarities, Mr Anderson submitted that the ECJ's decision in Primback was authority for the following propositions applicable to the facts of the instant cases. (1) The proposition contained in paragraph 33 of the judgment (that the taxable amount of a transaction consisting of the sale of goods concluded between a supplier and a consumer is the full amount advertised by the seller invoiced to and payable by the purchaser) applies equally to the facts of the instant cases where the price "advertised", invoiced and paid by all categories of car purchaser was the full price not a lesser price reflecting the insurance premiums paid by Peugeot/Citroen. (2) The proposition contained in paragraph 28 of the judgment (that the aims of the Sixth Directive could not be achieved if the taxable amount on the supply of goods varied according to whether the calculation was for the VAT to be borne by the final consumer or for determining the sum paid to the revenue authorities by the taxable person) applies equally in the instant cases to the VAT borne by the end-user, which was the invoiced amount, yet Peugeot/Citroen were seeking to account for a lesser amount. (3) The proposition contained in paragraph 29 of the judgment (that where the supplier of goods provides consideration for an exempt service provided by a third party which is distinct from and independent of the sales transaction between supplier and purchaser the service provided by the third party is not capable of affecting the taxable amount of the sales transaction) applies equally in the instant cases to the consideration paid to the insurers by Peugeot/Citroen. That consideration was paid pursuant to an independent and distinct contract between them and the insurers, to which the end-user was a stranger. Moreover, it was one where the "level of independence" was the same since in both Primback and the instant cases there was a relationship between the customer and the third party (in Primback a credit agreement, in the instant cases the insurance policies). He submitted that the reasoning in the last point applies a fortiori to the case where the purchaser is unaware of the arrangements between the supplier and the third party (see paragraph 32 of the judgment in Primback). That was the position in the instant cases where (as pointed out in Paragraph 19 of the decision) end-users were unaware of the arrangements between Peugeot/Citroen and Orion/Direct Line. All the more must that be so in the case of independent dealers and finance houses. He stressed that it was of significance in Primback (as pointed out in paragraph 26 of the judgment) just as it was in the instant cases (as pointed out in paragraphs 17 and 73 of the decision) that there was (and it was a feature of the schemes that there would be) no variation in price according to whether the end-user availed himself of the "service" made available to him (free credit in the case of Primback, free insurance in the instant cases).
72. Mr Anderson next referred to paragraphs 34 to 48 of the judgment in Primback in which the ECJ went on to consider various arguments advanced by Primback in opposition to the conclusion reached in paragraph 33.

"34. Primback, however, argues that, if the taxable amount for the purpose of calculating VAT were in this case to include the full price invoiced by the retail trader to the customer, without deduction of the commission retained by the finance company at the seller's expense, not only would the basis of assessment correspond to an amount greater than that actually received by the seller but, in particular, VAT would also be charged on the value of the credit included in the price advertised and invoiced to the purchaser, with the result that the tax would be charged on the provision of credit, contrary to the exemption of the latter under article 13B(d)(1) of the Sixth Directive.

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, a 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 article 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."

73. These contentions, submitted Mr Anderson, mirrored submissions advanced by the taxpayer, paragraph 36 being a variation of their Elida Gibbs point. The court, as he pointed out, went on to reject them:

"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 purpose 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 between seller and purchaser, Primback cannot validly claim, that, for the purposes of determining the basis of assessment for VAT, one must break down the single price advertised and invoiced to the customer, 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 by 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 the 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 …

43. It follows that, from the point of view of the final consumer, the transaction which, in this case, he concludes with Primback, is to be seen as a single transaction consisting in the sale of goods, by reason of the fact that the retailer supplies goods to his customers in return for payment of a single price advertised by the seller, invoiced to the purchaser and payable by him, but also offers at the same time, the possibility of credit described as credit free of interest or other costs to the consumer. That being so, the credit which Primback claims to have afforded the customer cannot be regarded as a transaction effected for consideration within the meaning of article 2 of the Sixth Directive."

74. All of those observations, said Mr Anderson, would apply equally, by analogy, where the additional service (free credit in Primback) was, as in the instant cases, free insurance. Thus: (i) the relationship between seller and purchaser and between seller and provider of the service (credit or insurance) must be distinguished with the result that it is irrelevant to the basis of assessment to VAT on the transaction between seller and purchaser that the supply of services by the finance house or the insurance company is in principle exempt; (2) it is not valid for the purpose of determining the basis of assessment for VAT to break down the single price, distinguishing between the portion relating to the value of the goods and the portion relating to the cost of the additional service (insurance or credit) ultimately borne by the supplier; (3) where the price is the same irrespective of whether the end-user elects to take the benefit of free credit (or, by analogy, insurance) it is not open to the supplier to argue that the price contains a component representing the value of the credit (or, by analogy, the insurance); (4) where a supplier supplies goods to customers in return for payment of a single price (as advertised by the seller and invoiced to the purchaser) but also offers at the same time the possibility of an additional service described as free, the transaction for the sale of the goods is to be regarded as a single transaction and the provision of the credit (or, by analogy, the insurance) cannot be regarded as a transaction effected for consideration with the result that in the instant cases, as in Primback, the supplier cannot claim to have made an exempt supply for consideration.
75. The court in Primback then went on to consider what the position would be even if it were possible to distinguish the supply of credit (as a supply of services) from the supply of the goods:

"44. With regard to the transaction concluded between Primback and the final consumer, which alone is relevant in the main proceedings, it should be added that even if it were possible to distinguish the supply of services allegedly consisting in the supply of credit, from the supply of goods, the former supply would, in circumstances such as those in issue, in the main proceedings, have to be construed as being in any event ancillary to the principal transaction consisting of the sale of goods.

45. Indeed, it follows from the court's case law that, where a transaction consists of several elements, there is a single supply, particularly where one element is to be regarded as constituting the principal service, whilst another is to be regarded as an ancillary service sharing the tax treatment of the principal service; and a service is to be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied (see. . .Card Protection ... para 30)."

76. Mr Anderson submitted that there was no material distinction between what was said in those passages and the circumstances of the instant cases.
77. The court finally went on to consider whether its analysis offended against anything it had previously said in Elida Gibbs:

"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 customer (see Elida Gibbs ... at ... paras 24 and 31). 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, the portion of the advertised price of the goods sold to the customer would not be subject to tax, with the result that the principle of fiscal neutrality would be infringed."

78. Likewise here said Mr Anderson. The principle of fiscal neutrality would be infringed if Peugeot/Citroen were able to charge VAT on only a fraction of the price invoiced to and payable by its customers, because the recipient of the supply, having been charged and paid VAT calculated on the full price of the goods, would be paying more in VAT than the amount accounted for by Peugeot/Citroen as the (original) supplier.
79. Mr Anderson went on to submit that it was not a material distinction in the instant cases that the relevant service was free insurance rather than, as in Primback, free credit. He submitted that the ECJ's reasoning in Primback applies equally to both supplies and that there was no reason for, as he put it, 'sidelining' Primback as a mere 'method of payment' case and, as such, in the same line of authority as Bally and with no wider significance. It is true, he said, that in paragraphs 28 to 31, the ECJ discussed and applied the reasoning in Bally but the reasoning that led to the court's conclusions in paragraph 33 has, as its observations in the subsequent paragraphs of the judgment show, a wider relevance and application.

Conclusions

80. It is surprising that so simple a transaction should give rise to so much argument - and reference to so much authority - over its correct treatment for VAT purposes.

(1) The insurance supply point

81. At the root of the Tribunal's approach to the issue which it had to decide (essentially whether Peugeot/Citroen's turnover fell to be reduced by the amount of the premiums paid by them to Orion/Direct Line in order to provide car insurance to eligible end-users) was its view that the only material insurance supply in play was the supply of insurance cover by Orion/Direct Line to the end-users. See paragraph 122 of the decision. So viewed this supply was necessarily from a different source to the supply of the car which was made by Peugeot/Citroen, either directly to the end-user or indirectly to him via an independent dealer and/or a finance house. In particular, the Tribunal found, in the case of indirect sales, that no insurance supply was made by Peugeot/Citroen to the independent dealer (see paragraph 97) or to the finance house (see paragraph 110) and evidently regarded as irrelevant the possibility, mentioned in paragraph 123 of its decision, that Peugeot/Citroen might be making an insurance-related supply to the independent dealers as a result of the warranty to them to procure or arrange the supply of insurance to eligible end-users. In the case of direct sales, the Tribunal regarded the instant cases as indistinguishable on the facts from Primback and therefore considered that it was bound to come to the same conclusion (that the value of what Peugeot/Citroen supplied should not include the value of Orion/Direct Line's insurance supply) as had been reached by the Court of Appeal.
82. I accept as accurate Mr Cordara's analysis, so far as it goes, summarised in paragraph 39 above. I accordingly accept that when selling cars to independent dealers, Peugeot/Citroen also supplied a service, namely a promise to secure motor insurance for the end-user, which, if made for consideration, was exempt. In accepting that analysis I am not to be taken as agreeing with the proposition, which in any event was unnecessary to the success of this ground of appeal, that Orion/Direct Line, although providing the end-user with insurance cover and notwithstanding the contract of insurance between insurance company and end-user, did not also make for VAT purposes a supply because the end-user had no liability to the relevant insurance company to pay the premium. It is also unnecessary to decide whether the nature of the insurance-related supply made by Peugeot/Citroen is itself an insurance transaction or is no more than the making of arrangements for a contract of insurance to come into being. Of the two, I prefer the latter.
83. That leaves for decision whether the insurance supply was free and, even if it was not, whether it was ancillary to the supply of the car and, more generally, whether, to quote Mr Anderson, the instant cases and Primback 'cannot be distinguished in any material way, factually, conceptually, logically, analytically or legally' and, accordingly, that the ECJ's decision in that case 'provides a complete answer to the Appellants' contentions.'

(2) The free supply point

84. I deal first with the 'free supply' point. This is whether no part of the price paid by the end-user or, in the case of indirect sales, by the independent dealer (or finance house) was referable to the insurance supply. The issue arises for decision both as regards direct sales (on the cross-appeal) and as regards indirect sales (on the appeal).
85. Although the matter was raised in written argument be-fore the Tribunal, it does not appear to have featured in the decision itself. In the case of indirect sales, this is perhaps not surprising because of the Tribunal's view that there never was any insurance supply by Peugeot/Citroen to the independent dealers/finance houses. In the case of direct sales, however, the Tribunal seems implicitly to have accepted that the price paid by the end-user was consideration both for the car and for the insurance (see paragraphs 84 to 87) but that, in view of the decision of the Court of Appeal in Primback, the cost of the insurance fell to be deducted from the price paid by the end-user when computing the taxable amount of Peugeot/Citroen' s supply.
86. The test for deciding whether a disposal is free of charge was discussed by the ECJ in Kuwait Petroleum (GB) Ltd v Customs and Excise Commissioners [1999] STC 488 ('Kuwait'). In that case, Kuwait Petroleum operated a sales promotion scheme whereby customers buying fuel at service stations were offered vouchers which they were entitled to exchange for goods listed in a catalogue, referred to in the judgment as 'the redemption goods'. The price of fuel was the same whether or not the customer accepted the vouchers. Kuwait Petroleum, which had deducted input VAT on the redemption goods purchased by it, was assessed to output VAT on all redemption goods supplied to customers where the cost of the item exceeded £10. The assessment was made on the ground that the redemption goods had been supplied otherwise than for a consideration and were therefore chargeable to VAT by virtue of paragraph 5 of schedule 4 to the VAT Act 1994. Paragraph 5 reflected the first sentence of article 5(6) of Council Directive 77/388 under which the disposal by a taxable person of goods forming part of his business free of charge or, more generally, their application for purposes other than those of his business, where the VAT on goods was wholly or partly deductible, were to be treated as supplies made for consideration, and the second sentence which provided, inter alia, that gifts of small value made for the purposes of a taxable person's business were not to be so treated. Kuwait Petroleum appealed to the VAT Tribunal which stayed the proceedings and referred to the ECJ for preliminary rulings on, inter alia, the proper construction of article 5(6). The effective issue (so far as material) was whether, when the customer purchased his petrol, he was receiving his vouchers for free or whether the value of the vouchers was included in the price of the petrol.
87. In its judgment, the ECJ said this:

"26. Goods are supplied 'for consideration' within the meaning of article 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...

27. It is for the national court to enquire whether, at the time of purchasing the fuel, the customers and Kuwait...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 or the redemption goods. There is nothing, however, in the documents before the court to suggest that there was in fact any such reciprocal performance by the parties concerned."

88. The case went back to the VAT Tribunal to rule whether, in fact, no part of the price paid for the petrol was referable to the vouchers. The Tribunal held that no part was so referable. Kuwait Petroleum appealed. In dismissing the appeal ([2001] STC 62) Laddie J, after referring to the test for determining whether a disposal is 'free of charge' as set out in the judgment of the ECJ in Kuwait, stated (at 71) as follows:

"23... 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 article 5(6) does not apply. However, here there was no such express and acknowledged view of the contracting parties. Both Mr Walters and Miss Whiple agree that in those circumstances the enquiry 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."

89. Laddie J went on, a little later in his judgment, to consider the particular facts of that case. He said this (at 74, paras 33 to 34):

"33. .... it must be borne in mind that the tribunal had to determine what both sides of the Kuwait Petroleum/retail customer transaction thought they were agreeing to. Thus, if the customers were led to believe, and reasonably did believe, that they were being given free vouchers and gifts, it is irrelevant that, as a matter of accounting, it can be shown that they were really paying for them. Were this not so, for all practical purposes there would never be circumstances where article 5(6) applied to commercial transactions because, like lunches, nothing is ever 'free'. One way or another, all the costs of running Kuwait Petroleum's business are funded in whole or in major part out of the money it realises from the sale of fuel. Thus, even if it be true that the promotion scheme 'caused' an increase in prices at the pump and 'supported' those prices, that does not address the question of what the customers thought they were agreeing to.

34. The invoices supplied by 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. As far as the customer was concerned, he would pay the same price for his fuel whether or not he accepted the vouchers and whether or not he collected sufficient of them over a period of time to redeem them for any one or more of the redemption goods. He paid the same for his fuel if there was nothing in the Kuwait Petroleum catalogue which he wanted to acquire... 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 he 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 Mr Walters' 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. In such circumstances, if one asks the question posed by the ECJ in Kuwait, one receives the answer that the parties to the transaction did not believe they were agreeing to a disposal free of charge. That cynicism does not apply here. It is not, and cannot be, suggested that in this case the value of the redemption vouchers and redemption goods was so high relative to the amount of fuel purchased that reasonable customers would instinctively disbelieve the assertion that they were being given away free."

90. What emerges from Laddie J's decision, with which I have no reason to disagree, is that a factual investigation has to be undertaken to determine what both sides of the relevant transaction in which the issue of a disposal free of charge arises thought they were agreeing to. Further, in undertaking the enquiry 'there is a limit to the reasonable gullibility of ordinary members of the public', in that, in some promotions (such as 'buy one, get one free') reasonably-minded members of the public, giving the matter any thought, would not seriously think that half was in fact free, but would know that the price being paid was in reality apportioned over the goods as a whole, whereas, in others, the facts would justify a belief in the purchaser that the goods in question were indeed being given away free.
91. In the instant cases, three matters are relied upon by Mr Anderson in support of the contention that no part of the consideration paid by end-users was referable to the insurance: (1) that it was described as free, (2) that the price of the car did not vary according to whether the end-user wanted the free insurance and (3) that the full price was invoiced. He submitted that those facts, which were not in dispute, would fully justify this court, on a review of the Tribunal's decision, in concluding, even though the Tribunal itself made no finding on the matter, that no part of the consideration paid by end-users was indeed referable to the insurance and therefore that there could be no good reason for directing that this matter go back to the Tribunal for decision.
92. Mr Cordara submitted that it was no part of this court's function, as a court of review, to reach a conclusion on a matter of fact of this kind. He said that, in any event, so far from the facts as presently established justifying the conclusion which Mr Anderson wishes me to draw, the contrary is the case. It would only be in the most extraordinary circumstances, he submitted, that anyone could conclude that the end-user would think that the bargain he was entering into was simply for the car and that the insurance was equivalent to a free petrol voucher or the like.
93. I am not persuaded that the material before the court, in the shape of the witness statements and agreed statements of fact, are sufficient to enable this court to determine the issue and, even if I thought that they were, I consider that it is for the Tribunal, not this court, to assess those matters and come to a view. I should also add that the fact that in some of the 'voucher' cases (for example, Tesco Plc v Customs and Excise Commissioners [2002] STC 1332, Hartwell Plc v Customs and Excise Commissioners [2002] STC 396, and, not least, Kuwait) the conclusion was reached that the vouchers or coupons were indeed given away free in circumstances in which, superficially at any rate, there is a similarity with the instant cases, does not justify me, sitting in this court, from bypassing the fact-finding stage and reaching a conclusion Of the point myself. Unless, which they are not, the facts are materially indistinguishable, it is not helpful, in my view, to argue for a particular factual conclusion from the facts of other cases. Thus, for example, it is material to note that, in Kuwait, as appears from the Tribunal decision in that case, the cash value of each voucher was 0.001p and a TV set costing Kuwait Petroleum £204 would have involved expenditure of £15,797 on fuel if sufficient vouchers were to be accumulated to enable them to be offered in exchange for such an item. Here, by contrast, the evidence before the Tribunal which, so far as I am aware was not disputed was that the insurance component of what the end-user received for the overall price which he paid when acquiring a new car under the schemes ranged in value from £250 to £700 per annum. See paragraph 8 of Mr Soloman's witness statement.
94. This issue arises not simply as between Peugeot/Citroen and end-users, in the case of direct sales. It also arises as between Peugeot/Citroen and independent dealers in the case of indirect sales. For my part, I find it hard to believe, although an investigation of the facts may lead to a contrary view, that, aware of the undertaking given to it by Peugeot/Citroen to pay the premium for free insurance taken up (see para 76 of the decision), the dealer could have thought that the insurance which the end-user would be receiving would be free and, accordingly, that no part of the consideration which it, the independent dealer, was paying to Peugeot/Citroen for the car (in advance of its subsequent sale to the end-user) was referable to the insurance supply to it represented by that undertaking.
95. It therefore follows that the question whether any part of the consideration paid to Peugeot/Citroen was referable, for VAT purposes, to the insurance supply is a matter which falls to be determined by the Tribunal. There is insufficient material before this court to enable that matter to be decided, even if it were otherwise appropriate for this court, as a court of review, to come to a final conclusion on the point.

(3) The ancillary supply point

96. This brings me to the ancillary supply argument. It is to be noted that, although (as mentioned in paragraph 55 of the decision), the point was raised in written submissions, the Tribunal did not reach any conclusion on it.
97. I have earlier set out (at paragraph 53 above) the relevant passage from the judgment of the ECJ in Card Protection explaining what is meant, for VAT purposes, by an ancillary supply. Essentially the question is whether there is a single supply or several supplies. If there are several supplies each supply attracts its own tax treatment independently of the other. There will be a single supply, notwithstanding that it contains a number of elements, if one or more of those elements are to be regarded as constituting the principal service whilst others are to be regarded as merely ancillary to that principal element. The ancillary part will share the same tax treatment as the principal part. It will only be ancillary to the principal service 'if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied."
98. Mr Cordara submitted that, even if something is an ancillary element or supply that does not mean that part is to be disregarded for VAT purposes. It is still necessary, he said, in the instant cases to enquire whether some element of the consideration is applicable to the exempt insurance-related part of the supply. Implicit in the submission was that, if some separable element of the consideration existed, that element could not be ignored - and the benefit of the insurance exemption lost - merely because it happened to be ancillary to some other standard-rated part of the supply.
99. He relied in support of that submission on the decision of the Court of Appeal in Hartwell Plc v Customs and Excise Commissioners [2003] STC 396. In that case Hartwell, which sold both new and used cars, provided its customers as an inducement to purchase a new car and whether or not the customer wanted them, three free MOT vouchers which entitled the customer to a free MOT test. Although the value of the MOT vouchers was indicated on their face, the invoice on the sale of a new car when the customer was supplied with the three vouchers was not included as an addition to the price of the car. The issue was whether the price of the car should be reduced by the value of the vouchers, ie deducted from the taxable amount on the supply of the car. The Court of Appeal, agreeing with the VAT Tribunal but disagreeing with the judge below, held that it should not. In his judgment, Chadwick LJ said this (at 412):

"33. In my view it is clear that the transaction under which the dealer provides to the customer both the replacement car and three MOT vouchers ought to be treated for VAT purposes as a single transaction. That, I think, follows from the guidance given by the ECJ in Card Protection, paras 28-30 and from the decision of the House of Lords in Customs and Excise Commissioners v British Telecommunications Plc [1999] STC 758 ... 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 singly supply is not determinative of the question whether para 5 of Schedule 6 to the 1994 Act has any application. The single supply is plainly a supply of goods; and, if it were necessary to classify 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 if 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 of Sch. 6 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 a 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 the 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 (raised, without objection, by their appellants' notice) 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 attributable to the vouchers. It is, I think, significant, as the tribunal found, that no cost is shown on the order form against the item 'three MOT vouchers total value £96.33' and that the invoice includes the word 'included in the car price are three MOT inspection vouchers with a total value of £96.33'."

100. It will be apparent therefore that Chadwick LJ was not concerned to decide whether the provision of the MOT vouchers constituted an ancillary supply but simply whether they were supplied for a consideration. If they were not, then under paragraph 5 of schedule 6 to the VAT Act 1994, there was no occasion for reducing the taxable amount of the transaction and there was no need to consider whether the supply was ancillary to a principal supply. Conversely, if the vouchers were supplied for a consideration, it would be irrelevant whether or not that supply was ancillary to the supply of the car since paragraph 5 of schedule 6 would require, irrespective of whether the supply was or was not ancillary, that the amount of the consideration (up to the face value of the vouchers) be disregarded in calculating the taxable amount On the supply of the car. In short, the characterisation of the various elements of the supply was irrelevant: what mattered, given the requirements of paragraph 5 of schedule 6, was the amount if any, of the consideration for the supply of the MOT vouchers. Ward LJ took the same approach, see paragraph 55.
101. It follows that I do not accept Mr Cordara's interpretation of the decision in Hartwell.
102. I should add that Arden LJ reached the same result but by a different process of reasoning. She approached the matter on the basis of Card Protection, namely whether the supply of the vouchers was ancillary to the supply of the new car. She held (at paragraph 55) that paragraph 5 of schedule 6 had no application and that 'the right to receive the MOT vouchers cannot be said to have been granted for a consideration' with the result, she went on to say, that '...the supply of MOT vouchers is deemed to be part of the principal supply and to be vatable at the same rate as the principal supply'.
103. I was referred by Mr Cordara in support of his submission as to what Hartwell decided to certain comments of the VAT Tribunal (Chairman: Mr Cohn Bishopp) in Talacre Beach Caravan Sales Ltd v Customs and Excise Commissioners (unreported) 12th February 2003 suggesting (at paragraph 28) that Chadwick and Ward LJJ in Hartwell were of the view that, notwithstanding that an element of a supply may be ancillary to the principal element of' that supply, it was nevertheless necessary in all cases to identify whether there was some separable part of the consideration attributable to the ancillary service to ensure that that part was taxed in a manner appropriate to that ancillary element. I am not altogether sure that that was indeed what the Tribunal said in that case but, if it was, I consider that it was in error. Of more relevance was the comment, contained in the succeeding paragraph of that decision and with which I agree, emphasising the need 'to confine the Card Protection Plan principle to those ancillary supplies which, without the principal supply, can have no real independent existence.'
104. So viewed, the question is whether what Peugeot/Citroen supplied to end-users (in the case of direct sales) and to independent dealers and/or finance houses in other cases was a single supply comprising (a) the provision of a new car and (b) the provision of the insurance promise (ie to procure insurance for the end-user) or whether it constituted quite separate supplies and, if the former, whether the insurance element was ancillary to the provision of the new car.
105. Mr Cordara submitted that the question was, in the first instance, for the Tribunal to decide, that it involves a mixed question of fact and law and that it is not enough for the Crown to say that primary facts had been found from which an answer to the issue can be derived. For example, he said, there was no fact-finding directed to the state of mind or expectations of the dealers. He submitted that it was not a straightforward matter to decide whether, from the point of view of the dealer, the supply of the insurance promise was of the same genre as, for example, the inclusion or rubber mats for the car or the supply of a sunroof. He therefore submitted that this issue could only properly be determined by the Tribunal for which purpose, like the issue of free supply, the matter had to be referred back. I do not agree. I do not consider that, given the nature of the insurance supply in question, the question whether the supply was ancillary can turn on the kind of matters which Mr Cordara mentioned. In my view, the necessary factual context has been established and it is unnecessary for the matter to be referred back to the Tribunal for a decision to be reached on the point. That would seem to me to be an unnecessary waste of time and expense.
106. Subject to one matter, there is nothing to suggest that, when Peugeot/Citroen sold cars (whether to end-users direct or to independent dealers and finance houses in other cases), insurance was dealt with as a wholly separate and distinct matter. The insurance 'promise' was clearly part and parcel of the overall sale transaction. In my view it is reasonably obvious, first, that a single supply was involved and, second, that the insurance element of the supply (ie the provision of the promise to procure insurance for the end-user at no further cost to him) was ancillary to the supply of the car. It is wholly unreal to suppose in the context of this transaction that the insurance promise could have a real existence independent of the supply of the car or, to use the words of the ECJ in Card Protection, was 'an aim in itself rather than "a means of better enjoying the principal service supplied", namely the supply of the new car. (I should add that the principle in Card Protection applies as much to the supply of goods as to the supply of services - see Hartwell at paragraph 30 - and, I would add, to a mixed supply of both goods and services.)
107. As a further counter to the ancillary supply point Mr Cordara submitted that there could not be a single supply of the car and the insurance arrangement service because they were supplied by different legal entities, albeit entities within the same VAT group. He pointed to the facts, as found by the Tribunal, that, at any rate in the case of Peugeot, cars were supplied by Wholesale (from within the VAT group) to customers (outside the group) whereas the insurance arrangement service was provided to customers by PMC (from within the group). He submitted that where there are two supplies, it is not possible to fuse them into a single supply; they remain separate supplies and, accordingly, there is no scope for the application of the principle in Card Protection. He referred me to section 43(1) and (1AA) of the VAT Act 1994, and to the decisions of the VAT Tribunal (Chairman Stephen Oliver QC) in Canary Wharf Ltd v Customs and Excise Commissioners (unreported but released on 17 October 1996) and of the Court of Appeal in Customs and Excise Commissioners v Wellington Private Hospital [1997] STC 445.
108. Without going into whether there can be a single supply where there are different elements of what is supplied coming from different legal entities from within the same VAT group, the point was, to my mind, answered by Mr Anderson when he submitted that, if it is right that the insurance service was supplied by PMC but the car by Wholesale, it must follow that no part of the price of the car can relate to the insurance service since the latter was supplied by a different entity, not being one to which either the end-user (in the case of direct sales) or the independent dealer or finance house in the case of other sales, made payment, there being nothing to suggest separate contracts with separate entities. If, on the other hand, the customer, be he end-user, independent dealer or finance house, deals only with a single legal entity within the VAT group it follows that the relevant supplies, whether of car alone or of car and insurance procurement services, must have been made to that customer by a single legal entity within the VAT group (irrespective of the member of the group that pays the premiums to Orion/Direct Line under the separate contract with the insurance company). In that case the objection to the ancillary supply point falls away.
109. It follows that, even if some element of the price paid to Peugeot/Citroen by the end-user (in the case of direct sales) or by independent dealers or finance houses (in other cases) was referable to the provision of an insurance-related service, the sum in question -fell -to be treated for VAT purposes in the same manner as the principal element of the supply (the new car), namely at the standard rate of 17.5%.

(4) The Elida Gibbs point

110. Does the Elida Gibbs point assist the taxpayers?
111. There are two elements to the argument: (1) that, as regards Peugeot/Citroen's insurance supply, there was a single chain of supply passing from Peugeot/Citroen to the independent dealer (or finance house) and thence by the independent dealer to the end-user; and (2) that the economic and commercial effect of the supply would have been the same if, instead of paying the premium to Orion/Direct Line in order to procure the end-user with insurance, Peugeot/Citroen had provided the end-user with a voucher or coupon enabling him to acquire the insurance from Orion/Direct Line himself and, having done so, to recover the cost from Peugeot/Citroen.
112. Assuming that the principle in Elida Gibbs applies to the supply of a service as much as to the supply of goods (it is easy to understand how the principal applies to goods which pass down a chain of supply beginning with the original supplier and ending with the end-user but not so easy in the case of a service), I have difficulty in seeing how it applies to the supply of a service the nature of which, as Mr Anderson submitted, alters at each stage of the chain. But, even if that is wrong and the supply remains essentially the same as it passes down the chain, the rationale for the decision in Elida Gibbs is that the tax authorities should not recover by way of VAT an amount greater than that actually paid by the end-user at the expense of the taxable person or, as Mr Anderson put it, it is to avoid a mismatch between the price that the end-user pays for the supply to him (ignoring any intermediate mark-up) and the price that the original supplier has received for the supply. It is designed to deal with the case where there is a later transaction between the supplier and end-user which has the effect of reducing the price paid and therefore the supplier's overall turnover.
113. But that is not this case. It is not suggested that the end-users have not paid VAT on the full price invoiced to them.
114. It follows therefore that, although for reasons different from those expressed by the Tribunal, the argument does not succeed and accordingly this ground of appeal fails.

Primback

115. What of Primback? There are undoubtedly many similarities between that case and the instant cases. A number (but not all) of the propositions and analogies which Mr Anderson drew between that case and the instant cases (and which I have summarised earlier) are not disputed by Mr Cordara although he questioned their relevance to the matters which I am asked to decide. I agree with Mr Cordara that, at the forefront of the ECJ's decision was the applicability to the assumed facts of the reasoning in Bally, namely the irrelevance to a transaction's taxable amount of' (1) the payment guarantee arrangements - and the taxable status of those arrangements - entered into between supplier and third party and (2) the method of payment used in the relations between purchaser and supplier. The decision equally gave emphasis (in paragraphs 44 and 45) to the principle outlined in Card Protection (explaining the nature of an ancillary supply) and (in paragraph 41) to the principle to be found in Elida Gibbs and is an illustration, on the assumed facts, of a transaction, viewed from the standpoint of the final consumer, which was indivisible in nature and therefore incapable of supporting an argument that the price advertised contained a component referable to a separate element of the supply (paragraphs 40 to 43).
116. But I see nothing in the ECJ's reasoning in Primback which compels any particular result in the instant case. Its value, rather, lies in its reaffirmation of principles already established in ECJ jurisprudence in this area of law.

(6) The exempt financial services point

117. This was the point which Mr Cordara sought permission to raise by way of an additional ground of appeal. It is a point which was very similar to the insurance supply point. It assumes the same structure of supply but relies upon a different exemption, namely that applicable to financial services. Article 13B(d)3 of the Sixth Directive exempts "transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;...". The exemption is reflected domestically in schedule 9, group 5, item 1 of the VAT Act 1994.
118. Mr Cordara's submission was that, insofar as the true characterisation of the promise made by Peugeot/Citroen to customers was simply to pay the premium, that would have been an exempt financial service in its own right if made for a consideration. See, by way of illustration of the exemption, Customs and Excise Commissioners v Diners Club Ltd [1989] STC 407 and the Bally case (at paragraphs 9 and 10).
119. Mr Anderson submitted that this additional way of putting the taxpayers' case added nothing to the insurance supply point and was equally vulnerable to the objection either that no part of the consideration paid (for example by independent dealers) was referable to the supply or, even if it was, that it was part of a single supply and was ancillary to the principal element of the supply. I agree. In the circumstances I propose simply to refuse the taxpayers' application for permission to adduce the point as a further ground of appeal.

Result

120. The appeal fails and the cross-appeal succeeds.