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Cite as: [2007] UKVAT V20149

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John Grieve v Revenue & Customs [2007] UKVAT V20149 (16 May 2007)

20149

VALUE ADDED TAX – zero-rating – transport - qualifying ship – replica Dutch barge with no cargo hold and with interior arranged for residential use – whether "neither designed nor adapted for use for recreation or pleasure" – no – appeal dismissed – VATA 1994 s30; Sch 8 Grp 8 Item 1 and Note A1(a); Sixth Council Directive (77/388/EEC) Arts 15.5 and 17.3

LONDON TRIBUNAL CENTRE

JOHN GRIEVE

Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS

Respondents

Tribunal: DR NUALA BRICE (Chairman)

MS H FOLORUNSO

Sitting in London on 24 April 2007

Adrian Stott, Consultant, for the Appellant

Matthew Barnes of Counsel, instructed by the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The appeal

John Grieve (the Appellant) appeals against a decision of the Commissioners for Her Majesty's Revenue and Customs (the Respondents) dated 22 June 2006. The decision was that the supply of a replica Dutch barge, the "HILDE", built without a hold area for cargo and with the interior arranged for residential use, was standard-rated and not zero-rated. The decision was give to AC Marine, the supplier of the barge but it was not disputed that the Appellant, as the person to whom the supply was made, had a sufficient interest in the appeal.

The legislation

Section 30(2) of the Value Added Tax Act 1994 (the 1994 Act) provides that a supply of goods is zero-rated if the goods are of a description for the time being specified in Schedule 8. Group 8 of Schedule 8 is headed "Transport". Item 1 of Group 8 specifies:

"1 The supply repair or maintenance of a qualifying ship or the modification or conversion of any such ship provided that when so modified or converted it will remain a qualifying ship."

Note A1(a) to Group 8 defines a qualifying ship and provides:

"A1 In this Group-

(a) a "qualifying ship" is any ship of a gross tonnage of not less than 15 tons which is neither designed nor adapted for use for recreation or pleasure … ."

The issue

It was agreed that the "HILDE" was of a gross tonnage of more than 15 tons. Thus what we had to decide is whether the "HILDE" was "neither designed nor adapted for use for recreation or pleasure" within the meaning of Note A1(a) of Group 8 of Schedule 8 of the 1994 Act.

The evidence

5 . A bundle of documents was produced on behalf of the Appellant and another bundle was produced by the Respondents. We heard no oral evidence.

The facts

From the evidence before us we find the following facts.

We saw one photograph of the "HILDE" which is still in the course of construction and one drawing of the interior with a side view. Externally the vessel looks like a steel barge of a design which was traditional for Dutch motor barges from 1920 onwards. Internally, there is no hold for cargo. Instead the interior has been fitted out for residential use with one larger and one smaller bedroom; a bathroom and a second washroom; a living area with a kitchen and dining room; and storage areas.

The "HILDE" has an engine and so has the means of self-propulsion. It will not be permanently moored but will move around. It will not be connected to any mains water, electricity or telephone lines. Water will be carried in a large capacity tank of about 4,000 litres. Electricity will be provided by a battery and generator. There will be oil-fired central heating with radiators. It would be possible for the "HILDE" to go to sea.

We were informed that the Appellant and his wife were approaching retirement and intended to move from their flat and use the "HILDE" as their primary home in due course.

The arguments

It was the case for the Appellant that the "HILDE" was a qualifying ship within the meaning of Item 1 of Group 8 of Schedule 8 of the 1994 Act and so the supply was zero-rated; the Appellant argued that the ship was designed as a home and so was not designed for use for recreation or pleasure. It was the case for the Respondents that the "HILDE" was not a qualifying ship and so the supply should be standard-rated; they argued that the ship was designed for use for recreation or pleasure as it was designed for cruising as well as being designed for residential purposes.

Reasons for decision

In considering the arguments of the parties we begin with the framework of the legislation. Here we first consider the Sixth Directive and then consider the relevance of the Sixth Directive. We go on to consider our national legislation beginning with the context within which Group 8 of Schedule 8 appears and then we consider the arguments of the parties about our national legislation. Finally, we refer to the other Tribunal decisions mentioned by the parties before reaching our conclusion.

The Sixth Directive

Article 15 of the EC Sixth Directive (77/388/EEC) provides that member states shall exempt the supplies described in the Article and Article 15.5 describes:

"5 the supply, modification, repair, maintenance, chartering and hiring of the sea-going vessels referred to in paragraph 4(a) and (b) …"

Paragraph 4 of Article 15 describes the supply of goods for the fuelling and provisioning of vessels and sub-paragraphs 4(a) and (b) describe the following vessels:

"(a) used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities ;

(b) used for rescue or assistance at sea, or for inshore fishing, with the exception, for the latter, of ships' provisions."

Article 17(2) of the Sixth Directive provides that a taxable person is entitled to deduct input tax on goods or services used for the purposes of his taxable transactions. Article 17.3 provides:

"17.3. Member states shall also grant every taxable person the right to the deduction or refund of the value added tax referred to in paragraph 2 in so far as the goods and services are used for the purposes of: …

transactions which are exempt pursuant to Article …. 15 … ."

Thus the Sixth Directive provides that the supply of certain vessels (mainly sea-going vessels used for commercial purposes) are exempt with the right to deduct input tax, that is zero-rated.

The relevance of the Sixth Directive

For the Appellant Mr Stott argued that he wished to rely upon the United Kingdom national legislation to the exclusion of the European legislation and he cited Gemeente Emmen v Belastingdienst Grote Ondermeningen (Case C-468-93) [1996] STC 496 at paragraph 31 of the Opinion of the Advocate General. He pointed out that Group 8 of Schedule 8 was not confined to sea-going ships and he relied upon QED Marine v The Commissioners of Customs and Excise (2001) Tribunal Decision No. 17336 at paragraph 24 for the principle that a qualifying ship did not have to go to sea. For the Respondents Mr Barnes argued that the Sixth Directive could be considered in the interpretation of the United Kingdom national law and went on to point out that the exemption in Article 15.5 was for ships used for commercial purposes. It was the Respondent's argument that Article 15.5 had been implemented by Item 1 with Note A1(a) of Group 8 of Schedule 8 by the exclusion from the definition of a qualifying ship of a ship which was designed for recreation or pleasure.

In considering the relevance of the Sixth Directive the legal principles are: (1) that the provisions of a directive may be relied upon by an individual against the state where the directive is unconditional and sufficiently precise and the state has not implemented the directive (Becker v Finanzampt Münster-Innenstadt (Case 8/81) [1982] ECR 53); (2) that a directive is binding on the member state to which it is addressed and does not of itself impose obligations on an individual; it follows that a national authority may not rely upon a provision of a directive – whether or not implemented by the member state – in proceedings against an individual before a national court (Marshall v Southampton and South West Hampshire Area Health Authority (Case 152/84) [1986] QB 401); and (3) that national courts are required to interpret their national law in the light of the wording and purpose of a directive in order to achieve the result required by the directive to be given effect in national legislation (Marleasing SA v La Comercial Internacional di Alimentacion SA (Case C-106/89) [1990] ECR I-4135).

Principle (1) was referred to in paragraph 31 of the opinion of the Advocate General in Gemeente Emmen cited by Mr Stott. Principle 3 was established by the Court of Justice in Marleasing where paragraphs 6 to 8 of the judgment stated:

"6 With regard to the question whether an individual may rely on the directive against a national law, it should be observed that, as the Court has consistently held, a directive may not of itself impose obligations on an individual and, consequently, a provision of a directive may not be relied upon as such against such a person ( judgment in Case 152/84 Marshall v Southampton and South-West Hampshire Area Health Authority [1986] ECR 723 ).

7 However, it is apparent from the documents before the Court that the national court seeks in substance to ascertain whether a national court hearing a case which falls within the scope of Directive 68/151 is required to interpret its national law in the light of the wording and the purpose of that directive …

8 In order to reply to that question, it should be observed that, as the Court pointed out in its judgment in Case 14/83 Von Colson and Kamann v Land Nordrhein-Westfalen [1984] ECR 1891, paragraph 26, the Member States' obligation arising from a directive to achieve the result envisaged by the directive and their duty under Article 5 of the Treaty to take all appropriate measures, whether general or particular, to ensure the fulfilment of that obligation, is binding on all the authorities of Member States including, for matters within their jurisdiction, the courts. It follows that, in applying national law, whether the provisions in question were adopted before or after the directive, the national court called upon to interpret it is required to do so, as far as possible, in the light of the wording and the purpose of the directive in order to achieve the result pursued by the latter and thereby comply with the third paragraph of Article 189 of the Treaty."

Returning to the three principles outlined in paragraph 17 above, principle (1) does not apply in this appeal because the Appellant does not seek to rely upon the provisions of the Sixth Directive. Principle (2) means that the Respondents may not rely upon the provisions of Article 15.5 of the Sixth Directive in this appeal but must rely only on Item 1 and Note A1(a) of Group 8 of Schedule 8 of the 1994 Act. Principle (3) means that we must interpret Item 1 and Note A1(a) of Group 8 of Schedule 8 of the 1994 Act in the light of the wording and purpose of Article 15.5 of the Sixth Directive in order to achieve the result required by the Directive. It is within that context that the meaning of Item 1 of Group 8 of Schedule 8 has to be considered.

It is clear from Article 15.5 that the result required by the Directive was to zero-rate sea-going vessels used for commercial, industrial or fishing activities and so we are required if possible to interpret Item 1 and Note A1(a) of Group 8 of Schedule 8 of the 1994 Act in order to achieve that result. (We note that it was probably the intention of Item 1 and Note A1(a) to exclude non sea-going vessels by the exclusion of ships of a gross tonnage of less than 15 tons but that is not a matter in issue in this appeal and we express no view on it.)

The context of the national legislation

In our view Group 8 of Schedule 8 has also to be considered within the context of the national legislation within which it appears and here two matters are relevant. The first is that Group 8 is headed "Transport" and so one can deduce that the intention of Group 8 is to zero-rate certain means of transport. The second relevant matter is that Group 9 of Schedule 8 is headed "Caravans and Houseboats" and Item 2 of Group 9 zero-rates:

"2. Houseboats being boats or other floating decked structures designed or adapted for use solely as places of permanent habitation and not having means of, or capable of being readily adapted for, self-propulsion."

Thus Group 9 zero-rates boats designed solely as places of permanent habitation so long as they do not have the means of self-propulsion. The Appellant accepted that the "HILDE" was not zero-rated under Item 2 of Group 9 because it had an engine and was capable of self-propulsion.

However, we find Item 2 of Group 9 to be relevant because, if it had been the intention of the legislation to zero-rate all ships designed or adapted for use as places of permanent habitation then this could have been done simply by omitting the words "solely" and "and not having means of, or capable of being readily adapted for, self-propulsion" which appear in Item 2 of Group 9. The fact that those words do appear in Group 9 indicate that it was not the intention of the legislation to zero-rate ships designed or adapted for use as places of permanent habitation if they had the means of self-propulsion (as the "HILDE" has). Thus the national legislation does not, in that respect, show an intention to zero-rate ships used for residential purposes if they also have a means of self-propulsion.

The meaning of "for recreation or pleasure"

The arguments in this appeal centred round the meaning of the phrase "neither designed nor adapted for use for recreation or pleasure". The Appellant's argument was that the "HILDE" was designed for use as a home and that was not recreation or pleasure. The Respondents' argument was that a ship designed for residential use could also be designed for use for recreation or pleasure; the words "recreation or pleasure" in Note A1(a) should be interpreted broadly and Mr Barnes cited Piddington v Co-operative Insurance Society Limited [1934] 2 KB 236 at 238 for the principle that the word "pleasure" could be used in contradistinction to the word "business".

Piddington concerned a claim under a policy of motor insurance which excluded liability when the car was "being used for other than private pleasure". The insured killed a man while he was driving the car with two laths fastened to the roof with which he intended to repair his garden trellises. Lawrence J considered that, in the policy, the word "pleasure" was used in contradistinction to "business". It followed that the insured's garden was his pleasure and not his business and that the insurers were liable under the policy. From that authority we derive the principle that the word "pleasure" has to be interpreted within the context in which appears and that one possible interpretation of the word is as the opposite of business or commercial. As that interpretation would enable us to achieve the result required by Article 15.5 of the Sixth Directive we must prefer it.

The Appellant's argument proceeded on the basis that a ship designed for use as a home could not be designed for recreation or pleasure. We do not agree. In our view, the presence of accommodation is not conclusive as a commercial vessel, such as a fishing boat, would also have living accommodation. Further, many holiday homes, especially in attractive resorts with many leisure activities, are, in our view, designed for use for recreation or pleasure, although it may be that main homes are not so designed. In any event, the "HILDE" was designed for at least two uses; one for movement in water and the other for accommodation. Movement in water is frequently the subject of recreation or pleasure.

The other Tribunal decisions

For the Appellant Mr Stott relied upon the Tribunal decision in Everett v The Commissioners of Customs and Excise (1994) Tribunal Decision No. 11736 for the principle that residence was a necessity but that recreation and pleasure was optional; he argued that the man on the Clapham omnibus would not view his home as a facility for recreation or pleasure; he would see it as a necessity. Mr Stott distinguished Brian Richard Callinson v The Commissioners of Customs and Excise (1979) EDN/1978/34 which was decided before the decision in Everett.

Callinson (1979) concerned a sea-going yacht, the "VALDORA" which was completely equipped for any type of cruising with light and modern accommodation with comfortable berths for six and a fully equipped galley. There was no indication in the design that the vessel had any work function; there was no cargo hold; no commercial fishing equipment; and no capability to carry a large number of passengers. The Tribunal held that the vessel was designed for recreation or pleasure. Mr Stott for the Appellant relied upon the following passage in the Tribunal's Decision:

"The question for our decision, however, is not the use to which the Valdora was at any time put, but whether she was "designed for use for recreation or pleasure". Nor does it seem to us relevant to consider the intention of the designer or of the owner who commissioned the construction of the vessel. One must, in our opinion, look at the actual design and answer the question accordingly."

Mr Stott went on to argue that use or intended use was not relevant to whether a ship was a qualifying ship; what was relevant was what the ship was designed for but he argued that design for one purpose could accidentally mean that the ship could be used for another purpose without that purpose being part of the design; for example a building could be designed for use as a stately home but in fact used as a hotel. The "HILDE" was designed as a home and the fact that it could be used for cruising could not be helped. He relied upon the definition of design in the Oxford English Dictionary of (as a noun) "an underlying purpose or planning" or (as a verb) "intended for a purpose".

We adopt the principle in Callinson which we have set out in paragraph 28 above and therefore do not consider the use to which the "HILDE" will be put. Nor do we consider the intention of the designer of the ship or the intention of the Appellant. We have ignored the possibility that the Appellant might decide to use the ship as his home or might decide not to sell his flat but to retain the "HILDE" and to use it for cruising purposes only. We have looked at the actual design and have asked ourselves whether the ship was "designed for use for recreation or pleasure".

Everett (1994) was heard at the same time as another appeal and concerned work done on the repair and refurbishment of two Dutch flat bottomed barges. The works converted what had been working barges into homes or places of permanent habitation. As the working barges had had engines they were retained after the conversion but the evidence was that the engines were only used when the barges was moved for their insurance survey inspections every five years. Both barges occupied permanent moorings with mains electricity, water, telephone and sewage disposal systems. In the penultimate paragraph of the Decision the Tribunal said;

"The point that troubles me about Customs' contention is that but for the means of self-propulsion both [barges] would have been zero-rated [as houseboats]. Because they have retained their engines they are according to Customs excluded from being zero-rated under [what was then Item 1 of Group 8 of Schedule 8] – the very group of zero-rating which is headed Transport. To my mind it stretches the ordinary meaning of the words recreation and pleasure well beyond their natural meaning to say that this encompasses a home or place of permanent habitation such as [the two barges ] have now become. I am satisfied that they are not ships designed or adapted for use for recreation or pleasure."

Although a reference had been made in correspondence to Article 15 of the Sixth Directive, it does not appear that, at the hearing in Everett, the Respondents relied upon Article 15 as an aid to the interpretation of the national legislation. We distinguish Everett on that ground and also on the ground that it had different facts. We are mindful of the guidance given by the Court of Appeal in Customs and Excise Commissioners v Ferrero UK Ltd [1997] STC 881 at 884 b and 888d that we should avoid the error of allowing ourselves to be persuaded to treat as binding in law decisions which are in truth no more than the application of established principles to their own particular facts.

We were also referred to VAT Notice 744C and to VAT Business Brief BB 35/04; However, we have based our Decision primarily on our national legislation, interpreted in the light of the wording and purpose of the Sixth Directive.

Conclusion

We conclude that we have to interpret Item 1 of Group 8 of Schedule 8 in the light of the wording and purpose of Article 15.5 of the Sixth Directive. The result required by Article 15.5 is to zero-rate vessels used for commercial, industrial or fishing activities. The word "pleasure" in Item 1 of Group 8 has to be interpreted within the context in which it appears and one possible interpretation is as the opposite of business or commercial. That interpretation enables us to achieve the result required by Article 15.5. We therefore find that the "HILDE" was not "neither designed nor adapted for use for recreation or pleasure" within the meaning of Note A1(a) of Group 8 of Schedule 8 of the 1994 Act.

Decision

Our decision on the issue for determination in the appeal is that the "HILDE" was designed for use for recreation or pleasure within the meaning of Note A1(a) of Group 8 of Schedule 8 of the 1994 Act.

That means that the appeal must be dismissed.

There will be no order as to costs.

DR A N BRICE

CHAIRMAN

RELEASE DATE: 16 May 2007

LON/2006/0860

05.07