United Kingdom VAT & Duties Tribunals Decisions

EB Central Services Ltd v Revenue & Customs [2006] UKVAT V19627 (16 June 2006)

19627

VALUE ADDED TAX – Zero-rating – Schedule 8 Group 8 Items 6 and 11 – Left luggage at airport – Not Item 6 – Non EU within Item 11 – Appeal allowed in part

LONDON TRIBUNAL CENTRE LON/2004/0084

EB CENTRAL SERVICES LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: ADRIAN SHIPWRIGHT (Chairman)

SUNIL K DAS

Sitting in public in London on 9 and 10 March 2006

Mario Angelini, Counsel, for the Appellant instructed by Deloitte

Jeremy Hyams, Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

Introduction

1. This case concerns three decisions of the Respondents ("HMRC") as to the proper VAT treatment of the provision of storage services for personal luggage at Heathrow, Gatwick and Manchester. It is a decision in principle only.

Issue

2. The issue in this case is essentially whether the services of a left luggage facility provided by the Appellants at airports are standard rated or are zero-rated under Item 6 or Item 11 of Group 8 Schedule 8 VATA.

The Law

3. The UK provides for certain supplies to be treated as taxed at a nil rate so allowing attributable input tax to be recovered (see section 30 VATA). This is the UK equivalent to exemption with recovery (at least in its financial effect).
4. The supplies which are to be zero-rated are designated in Schedule 8 to VATA. Group 8 of the Schedule is headed "Group 8 — Transport". Insofar as is relevant it provides:

"6 Any services provided for—

(a) the handling of ships or aircraft in a port, customs and excise airport or outside the United Kingdom; or

(b)the handling or storage—

(i) in a port,

(ii) on land adjacent to a port,

(iii)in a customs and excise airport, or

(iv)in a transit shed,

of goods carried in a ship or aircraft.

11 The supply—

 (a) of services consisting of

 (i) the handling or storage of goods at, or their transport to or from, a place at which they are to be exported to or have been imported from a place outside the member States; or

(ii)  the handling or storage of such goods in connection with such transport; or

(b) to a person who receives the supply for the purpose of a business carried on by him and who belongs outside the United Kingdom, of services of a description specified in paragraph (a) of item 6, item 6A, item 9 or paragraph (a) of item 10 of this Group.

NOTES…

(6) "Port", "customs and excise airport" and "transit shed" have the same meanings as in the Management Act.

(7) Except for the purposes of item 11, paragraph (a) of item 6, item 6A, item 9 and paragraph (a) of item 10 only include supplies of services where the ships or aircraft referred to in those paragraphs are qualifying ships or, as the case may be, aircraft…"

It was common ground that the airports in question were "customs and excise airports".

5. The EU "Sixth Council Directive of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes—common system of value added tax: uniform basis of assessment" is the main single source of European Law on VAT. Insofar as is relevant it deals with the matters under consideration here in Article 14.1, 15 and 28. Insofar as is relevant these provide as follows:

"Article 14 Exemptions on importation

1 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 correct and straightforward application of such exemption and of preventing any possible evasion, avoidance or abuse:

 (a) final importation of goods of which the supply by a  taxable person would in all circumstances be exempted within the country;…

(d) final importation of goods qualifying for exemption from customs duties other than as provided for in the Common Customs Tariff... However, Member States shall have the option of not granting exemption where this would be liable to have a serious effect on conditions of competition...;

(e) reimportation by the person who exported them of goods in the state in which they were exported, where they qualify for exemption from customs duties or would qualify therefore if they were imported from a third country;

(g) importations of goods

(h) importation into ports by sea fishing undertakings of their catches, unprocessed or after undergoing preservation for marketing but before being supplied;

(i) the supply of services, in connection with the importation of goods where the value of such services is included in the taxable amount in accordance with Article 11B(3)(b); …

Article 15

Exemption of exports from the Community and like transactions and international transport

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 correct and straightforward application of such exemptions and of preventing any evasion, avoidance or abuse:

1 the supply of goods dispatched or transported to a destination outside the Community by or on behalf of the vendor;

2 the supply of goods dispatched or transported to a destination outside the Community by or on behalf of a purchaser not established within the territory of the country, with the exception of goods transported by the purchaser himself for the equipping, fuelling and provisioning of pleasure boats and private aircraft or any other means of transport for private use;

In the case of the supply of goods to be carried in the personal luggage of travellers, this exemption shall apply on condition that:

—the traveller is not established within the Community,

—the goods are transported to a destination outside the Community before the end of the third month following that in which the supply is effected,

—the total value of the supply, including value added tax, is more than the equivalent in national currency of ECU 175, fixed in accordance with Article 7(2) of Directive 69/169/EEC; however, Member States may exempt a supply with a total value of less than that amount.

6 the supply, modification, repair, maintenance, chartering and hiring of aircraft used by airlines operating for reward chiefly on international routes, and the supply, hiring, repair and maintenance of equipment incorporated or used therein;

9 the supply of services other than those referred to in paragraph 6, to meet the direct needs of aircraft referred to in that paragraph or of their cargoes;"

The transitional provisions are set out in Article 28. So far as is relevant this provides:

"2 Notwithstanding Article 12(3), the following provisions shall apply during the transitional period referred to in Article 281.

(a) Exemptions with refund of the tax paid at the preceding stage and reduced rates lower than the minimum rate laid down in Article 12(3) in respect of the reduced rates, which were in force on 1 January 1991 and which are in accordance with Community law, and satisfy the conditions stated in the last indent of Article 17 of the second Council Directive of 11 April 1967, may be maintained.

Member States shall adopt the measures necessary to ensure the determination of own resources relating to these operations.

(b) Member States which, at 1 January 1991 in accordance with Community law, applied exemptions with refund of tax paid at the preceding stage, or reduced rates lower than the minimum laid down in Article 12(3) in respect of the reduced rates, to goods and services other than those specified in Annex H, may apply the reduced rate or one of the two reduced rates provided for in Article 12(3) to any such supplies…

3 During the transitional period referred to in paragraph 4 Member States may:

(a) continue to subject to tax the transactions exempt under Article 13 or 15 set out in Annex E to this Directive;

(b) continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned;

(c) grant to taxable persons the option for taxation of exempt transactions under the conditions set out in Annex G;

(d) continue to apply provisions derogating from the principle of immediate deduction laid down in the first paragraph of Article 18(2);

(e) continue to apply measures derogating from the provisions of Articles 5(4)(c)5, 6(4) and 11A(3)(c);

4 The transitional period shall last initially for five years as from 1 January 1978. At the latest six months before the end of this period, and subsequently as necessary, the Council shall review the situation with regard to the derogations set out in paragraph 3 on the basis of a report from the Commission and shall unanimously determine on a proposal from the Commission, whether any or all of these derogations shall be abolished.

5 At the end of the transitional period passenger transport shall be taxed in the country of departure for that part of the journey taking place within the Community according to the detailed rules of procedure to be laid down by the Council acting unanimously on a proposal from the Commission."

The Authorities

We were provided a joint bundle of authorities. This contained copies of the following documents:

Case C -168/84 Berkholz v Finanzamt Hamburg-Mitte-Altstadt [1985] ERC 2251

Case C - 348/87 Stichting Uitvoering Financiële Acties v Staatssecretaris van Financien [1989] ECR 1737

Case C – 106/89 Marleasing Scheme Accommodation v La Comercial Internacionale de Alimentation Scheme Accommodation [1990] ECR I 4135

Case C – 2/95 Sparekassernes Datacenter (STC) v Skatteministeriet [1997] STC 932

Société Internationale de Télécommunications Aéronautiques SC (SITA) v Customs and Excise Commissioners [2004] STC 950

Case C – 382/02 Cimber Air A/S v Skattenministeriet [2005] STC 547

HM Customs and Excise Notices

Notice 744A – Passenger Transport

Notice 744B – Freight transport and associated services

The Evidence

A joint hearing bundle was produced. No objections were raised to any of the documents and they were all admitted in evidence.

A witness statement was produced for John Coward. This was accepted by Mr Hyams on behalf of HMRC as good evidence. Mr Coward did not give oral evidence. Mr Hyams confirmed on behalf of HMRC that he did not wish to cross examine this witness and was content for the witness statement to stand as evidence.

Common Ground

Mr Angelini confirmed that, subject to one point, the matters noted at paragraph 12 of HMRC's Skeleton Argument were common ground. These matters were as follows: "

i) The service is provided wholly for passengers

ii) Only passengers' luggage and personal effects are handled [ie no commercial goods.]

iii) The airline is not involved in any of these processes

iv) All facilities are landside

v) The reasons why luggage are left by passengers appear to be limited to:-

(a) passengers arriving early for flights

(b) passengers in transit

(c) passengers whose flights have been delayed

(d) passengers whose baggage has exceeded the excess limits

(e) passenger's collecting ski-equipment

vi) According to the Appellants, 95% of luggage left at EB facilities is carried on aircraft by passengers.

vii) The terms and conditions of the left luggage service are that:

(a) the baggage is the personal property of the individual property of the individual depositing it;

(b) the baggage does not contain items belonging to anyone else;

(c) the baggage has been in the owner's possession since it was packed;

(d) the baggage does not contain hazardous items, firearms, jewellery, explosives, food, live animals, animals or fish/products, or fresh produce;

(e) the baggage must be suitably packed for deposit in sealed containers, suitcases, bags, cartons or the like.

(f) The maximum liability per item of the Appellant is £200.

viii) The baggage is deposited by the passenger at the Appellant's excess baggage point, and it is returned to them at the same place and in the same condition after payment. ie the Appellants do not transport the baggage, or carry out any acts preparatory to such transportation."

The point which was not common ground was the words in square brackets in item ii), ie "no commercial goods". It was also accepted that 76% of the supplies were for non-EU travel. We find this as a fact.

Findings of Fact

From the documents, evidence and common ground we make the following findings of fact. First, we find as a fact those matters set out in paragraph 9 other than the matter set out in paragraph 10. We treat those matters as if, in effect, they were common ground. This case is only concerned with individuals other than in a business capacity.

We further find:

General matters

(1) Insofar as relevant, the Appellants offer storage services to passengers at a number of UK airports, also referred to as left luggage facilities. Those storage services are currently only offered landside.

(2) The First Appellant provided some or all of the services up to March 2004. The Second Appellant took over provision of the services at Heathrow Airport with effect from October 2003 and Gatwick Airport with effect from April 1004. The Second Appellant also commenced providing storage service at Manchester Airport from February 2004. For the purpose of the disputed issues in this appeal, nothing turns on the date from which services have been transferred from the First to the Second Appellant nor on the identity of the provider of such services, save insofar as any repayments found to be due will have to be made to the correct entity, as set out in the voluntary disclosures.

(3) The three airports from which the Appellants currently operate, and operated at the relevant times, Heathrow, Gatwick and Manchester are and were all designated "customs and excise airports" for the purpose of the VATA.

(4) The Appellants, in providing their storage services at customs and excise airports, are required to adhere to all relevant rules and regulations and are ultimately governed by the Aviation and Maritime Security Act 1990. They are answerable to the Department of Transport and the Transport Security Directorate ("TRANSEC"), who are responsible for ensuring that security measures at airports are being implemented properly. The Appellants' airport facilities are often subject to visits and controlled checks by TRANSEC.

(5) The facilities and luggage storage services provided by the Appellants are considered part of the airport community and they assist airport security. Under the Airport Bylaws it is forbidden to leave any luggage unattended within the Airport. Accordingly, it is highly desirable that luggage storage services and facilities are offered at airports. As is evident from the agreement governing the provisions of services at Heathrow Airport, the Appellant is subject to stringent security requirements dictated by the airport authority.

Survey

(6) During a two week period between 1 September and 15 September 2004, the Appellants undertook a survey of all customers depositing or collecting luggage in order to establish that the luggage had been carried on a plane immediately prior to storage or was due to be carried on a plane immediately following storage. This survey included, whenever possible, checking of the customer's flight ticket or boarding pass and noting of the flight number on documentation retained by the Appellants.

(7) Analysis of the survey evidence showed that for customers depositing (or depositing and later collecting) luggage, approximately 95 per cent either provided a flight number or indicated that the luggage had been deposited in the course of a journey by air. The remaining five per cent either did not provide this information or the information provided was otherwise inconclusive. In relation to those customers for which only collection details were available, approximately 86% provided flight details.

(8) Out of the survey exercise, five specific supplies of storage services, the Sample Transactions, were identified as representative of wider classes of supplies made by the Appellants. A full evidential audit trail in relation to these Sample Transactions was before the Tribunal. Specific rulings were sought and obtained in relation to these five specific supplies.

(9) The five specific supplies of services can be summarised as follows:

(a) Transaction Number P32863 ("Sample Transaction A") – here the customer arrived early for a departing flight, deposited two items of luggage for approximately nine hours. Upon collection of the luggage, the customer confirmed that they intended to take flight E1183 to Dublin;

(b) Transaction Number P33100 ("Sample Transaction B") – here a New Zealand national had a period of time between an arriving and departing flight. The customer had arrived on a flight from Sydney and deposited on one piece of luggage for approximately four hours. Upon collection of the luggage, the customer confirmed that she intended to take flight BD 467 to Venice;

(c) Transaction Number P31933 ("Sample Transaction C") – here a Russian national arrived early for a departing flight, deposited three pieces of luggage for approximately three hours. Upon collection of the luggage, the customer confirmed that he intended to take flight BA 874 to Russia;

(d) Transaction Number P32000 ("Sample Transaction D") – here a South African national had a period of time between an arriving and departing flight. The customer had arrived on a flight from Nice and deposited one piece of luggage for just over a day. Upon collection of the luggage, the customer confirmed that he intended to take flight SA 221 to Cape Town;

(e) Transaction Number ("Sample Transaction E") – here a South African national had a period of time between an arriving and departing flight. The customer had arrived on flight TK4127 from Istanbul and deposited two pieces of luggage for approximately six hours. Upon collection of the luggage, the customer confirmed that he intended to take flight SA 221 to South Africa.

(10) We also find that as a matter of fact the luggage does not have sufficient business connection to make it cargo.

Parties Submissions

Appellant Submissions in outline

In essence, Mr Angelini for the Appellant submitted that the services should be zero-rated and the overpaid input tax on those supplies repaid. This was because Item 6 of Group 8 of Schedule 8 should be interpreted without reference to Article 15 of the Sixth Directive. It was a matter for the Member State and a matter for National Law. It was clear that the services fall within the natural meaning of the words in Item 6. The conditions of Item 6 were fulfilled. Article 28(2)(a) provided for a permissive regime.

The same argument applied for Item 11 of Group 8. Again it was part of the permissive regime. The words of Item 11 were fulfilled.

The word "Goods" was an ordinary word meaning tangible property or chattels. There was no requirement for goods to be commercial in either Item 6 or 11.

HMRC's interpretation by reference to Article 15 was unsustainable because it was contrary to the clear wording of the Sixth Directive.

HMRC Submissions in outline

In essence, Mr Hyams, on behalf of HMRC submitted that Items 6 and 11 should be interpreted by reference to the Sixth Directive, which meant that a commercial requirement was needed in both cases.

He submitted that "Cargo" means commercial freight in the context of the Directive and the legislation should be interpreted on that basis. Item 6 and 11's source is in the Sixth Directive and therefore Marleasing applies which requires a compatible construction if possible.

Discussion

Introductory

The Submissions of the parties raise a number of issues including the following:

(a) Is Group 8 to be interpreted by reference to the Directive?

(b) If so, how should Items 6 and 11 be interpreted?

(c) Does the supply on the facts fall within Item 6?

(d) Does the supply on the facts fall within Item 11?

Interpretation by Reference to the Directive

The European Vires for the provisions of the VATA is derived mainly from the Sixth Directive. Marleasing requires an interpretation of VATA compatible with the directive to be made if possible.

We consider that prima facie the provisions of Items 6 and 11 must be construed to accord with the Directive if possible. The question then arises if there is anything to restrict this. It was argued that Article 28 (2)(a) did so. However, this still required the measures to be in accordance with Community Law. In deciding what the measure covers it has to be construed and in doing so one must seek to make it accord with Community Law. In the case of this provision it is stronger still as there is a requirement for the measure to be in accordance with Community Law.

How should Items 6 and 11 be interpreted?

On the basis that Items 6 and 11 have to be interpreted in accordance with Community Law for the reasons given above, we will consider each item in turn.

Item 6 deals with "goods carried in a ship or aircraft". Here the goods either have been or are to be carried in an aircraft and so may not fall within the wording because of the tense used. Assuming this hurdle is overcome they must still be "goods carried in a ship or aircraft".

HMRC argued that "goods carried in a ship or aircraft" was akin to cargo and that there was a business flavour to this. We note that Article 15.9 refers to supplies "to meet the direct needs of aircraft… or of their cargoes". We consider that Item 6 has to be considered in the context of Article 15.9 and on doing so we consider that the words "goods carried in a ship or aircraft" must be construed in this context as akin to cargo, ie as having a commercial requirement.

Item 11 refers to "goods" not to "goods carried in a ship or aircraft". Accordingly, we consider that the word can and does bear a different meaning from the phrase in Item 6 as it is not so restricted. Here the word "goods" in our view is not akin to cargo but more akin to chattels or tangible moveables. This accords with Article 15.13 dealing with the export and import of goods with no reference to cargoes. Construed on that basis the word "goods" in Item 11 has a wider meaning than that in Item 6. HMRC cannot object to this on the grounds of their own State's mis-implementation of the Directive.

Does the supply here fall under Item 6?

We conclude that it does not. We have already found that the baggage does not constitute cargo. On that basis it is not "goods carried in a ship or aircraft" and so not within Item 6.

Does the supply fall under Item 11?

We have already decided that the word "goods" in Item 11 is not as restricted as the phrase "goods carried in a ship or aircraft" in Item 6. We consider that the baggage here does fall within the meaning of goods in Item 11 as tangible property on chattels.

Accordingly, the supply will be within Item 11 to the extent that they are to be exported to or have been imported from a place outside the Member States.

We were told and it was unchallenged by HMRC that 76 per cent of the baggage fell within the Non-EU Category. On that basis we hold that in principle 76 per cent of the supplies should be zero-rated.

Conclusion

For the reasons given above we hold that in principle:

(a) the phrase "goods carried in a ship or aircraft" are akin to cargo and require a commercial flavour lacking here. Consequently, the supplies do not fall within Item 6;

(b) the words "goods" in Item 11 is not so restricted and is akin to chattels. Consequently to the extent that the baggage is to be exported to or has been imported from a place outside the EU the supplies are zero-rated.

We therefore allow the appeal in part in principle and make no order as to costs.

ADRIAN SHIPWRIGHT

CHAIRMAN

RELEASE DATE: 16 June 2006

LON/2004/0084