UKPC 4
Privy Council Appeal No 0012 of 2012
Director General, Mauritius Revenue Authority (Appellant) v Central Water Authority (Respondent)
From the Supreme Court of Mauritius
JUDGMENT DELIVERED BY
7 February 2013
Heard on 22 November 2012
Philip Baker QC
(Instructed by Carrington & Associates)
Rishi Pursem SC
(Instructed by Simons Muirhead & Burton)
The VAT Act 1998
" 'exempt supply' means a supply of such goods or services exempted from the payment of VAT as are specified in the First Schedule;
"input tax", in relation to a taxable person, means-
(a) VAT charged on the supply to him of any goods or services; and
(b) VAT paid by him on the importation of any goods,
being goods or services used or to be used in the course or furtherance of his business;
"output tax", in relation to a taxable person, means VAT on the taxable supplies he makes in the course or furtherance of his business;
"taxable supply" means a supply of goods in Mauritius, or a supply of services performed or utilised in Mauritius; and
(a) includes a supply which is zero-rated; but
(b) does not include an exempt supply, made by a taxable person in the course or furtherance of his business; "
"(1) Subject to the other provisions of this Act, "supply" means
(a) in the case of goods, the transfer for a consideration of the right to dispose of the goods as the owner; or
(b) in the case of services, the performance of services for a
(2) Without prejudice to the provisions of the Third Schedule and to any regulations made under subsection (4)-
(a) "supply" in this Act includes all forms of supply, but not
anything done otherwise than for a consideration;
(b) anything which is not a supply of goods but is done for a
consideration (including, if so done, the granting, assignment or surrender of any right) is a supply of services.
(3) The Third Schedule shall apply for determining what is, or is to be treated as, a supply of goods or a supply of services.
(4) Without prejudice to section 72(1)(b), the Minister may, by
regulations, amend the Third Schedule to provide, with respect to any transaction, whether-
(a) it is to be treated as a supply of goods and not as a supply
(b) it is to be treated as a supply of services and not as a supply
of goods; or
(c) it is to be treated as neither a supply of goods nor a supply
(5) (a) A supply of goods incidental to the supply of services is part
of the supply of the services.
(b) A supply of services incidental to the importation of goods
is part of the importation of the goods.
(c) A supply of services incidental to the supply of goods is part
of the supply of the goods. "
"(1) Subject to the other provisions of this section, any person may,
if he is a taxable person, take .as a credit against his output tax
in any taxable period, the amount of input tax allowable to him during that period.
(2) No input tax shall be allowed as a credit under this section in
(a) goods or services used or consumed to produce an exempt supply;
(3) Where goods or services are used partly for taxable supplies
and partly for exempt supplies, the credit shall be allowed in such proportion as is specified in the Seventh Schedule."
With effect from 1st September 1999, section 21(2)(a) was amended to read so as to read simply "goods or services used to make an exempt supply", and section 21(3) was replaced by the following:
"(b) ... where goods or services are used to make both taxable supplies and exempt supplies, the credit in respect of those goods or services shall be allowed in the proportion of the value of taxable supplies to total turnover on the basis of-
(i) in the case of a new business, the estimated figures for the current accounting year; or
(ii) in any other case, the actual figures for the previous accounting year."
"(1) The Minister may-
(a) make such regulations as he thinks fit for the purposes of this Act;
(b) by regulations-
(i) prescribe any matter which may or is required to be prescribed under this Act; or
(ii) amend the First Schedule, the Second Schedule and the Third Schedule."
"The first 15 cubic meters of water per month supplied by the Central
Water Authority for domestic purposes."
The Value Added Tax (Amendment of Schedule) Regulations (CN No. 160 of 1998) made by the Minister under section 72 on 22nd September 1998 provided, by regulation 3(k), that there should be added immediately after the words "domestic purposes", the words
"and the renting out of a meter and the carrying out of infrastructure works by the Authority";
The Regulations were expressed to be "deemed to have come into operation on 7 September 1998" (regulation 4). To complete the history, with effect from 2nd October 2000, the VAT Act 1998 was amended by the VAT (Amendment) Act 2000, so as to delete item 29 from the First Schedule and to add into the Fifth Schedule (as a zero-rated supply) an item 7, reading "Water supplied by the Central Water Authority and the renting out of a meter and the carrying out of infrastructure works by the Authority". From that date, therefore, input tax in respect of the acquisition of meters and arranging of infrastructure works, as well as in respect of the supply of all water, became on any view a legitimate credit against output tax.
The parties' cases in more detail
The relevant principles
"having regard to the diversity of commercial operations, it is not possible to give exhaustive guidance on how to approach the problem correctly in all cases."
"29 In this respect, taking into account, first, that it follows from article 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, secondly, 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 consumer, 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..."
"24. The fact that the supply of the caravan and of its contents may be characterised as a single supply does not affect that conclusion. The case law on the taxation of single supplies, relied on by Talacre ., does not relate to the exemptions with refund of the tax paid with which art 28 of the Sixth Directive is concerned. While it follows, admittedly, from that case law that a single supply is, as a rule, subject to a single rate of VAT, the case law does not preclude some elements of that supply from being taxed separately where only such taxation complies with the conditions imposed by art 28(2)(a) of the Sixth Directive on the application of exemptions with refund of the tax paid.
25. In this connection, as the Advocate General rightly pointed out in paras 38 to 40 of her opinion, referring to para 27 of CCP  STC 270,  2 AC 601, there is no set rule for determining the scope of a supply from the VAT point of view and therefore all the circumstances, including the specific legal framework, must be taken into account. In the light of the wording and objective of art 28(2)(a) of the Sixth Directive, recalled above, a national exemption authorised under that article can be applied only if it was in force on 1 January 1991 and was necessary, in the opinion of the member state concerned, for social reasons and for the benefit of the final consumer. In the present case, the United Kingdom has determined that only the supply of the caravans themselves should be subject to the zero-rate. It did not consider that it was justified to apply that rate also to the supply of the contents of those caravans.
26. Lastly, there is nothing to support the conclusion that the application of a separate rate of tax to some elements of the supply of fitted caravans would lead to insurmountable difficulties capable of affecting the proper working of the VAT system "
Detailed analysis of the issues
The vires of the amending Regulations