De Montfort University Students Union v Customs & Excise [2003] UKVAT V18434 (08 December 2003)

VALUE ADDED TAX —sandwich bought with crisps and drink at discounted aggregate price — whether single or composite supply — Card Protection Plan — whether crisps and drink ancillary to sandwich — no — appeal dismissed

MANCHESTER TRIBUNAL CENTRE
 	
DE MONTFORT UNIVERSITY STUDENTS’ UNION
Appellant
- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE
Respondents

		Tribunal:	Colin Bishopp (Chairman)
				Mrs E M MacLeod

Sitting in public in Birmingham on 13 November 2003

Noel Tyler, VAT Consultant, for the appellant 
Nigel Bird of counsel, instructed by their solicitor’s office, for the respondents

© CROWN COPYRIGHT 2003

DECISION
1	As its name indicates, the appellant is the students’ union of De Montfort University. Among other activities, it supplies food to students of the university. The particular supply with which we are concerned in this appeal (and which, we were told, is no longer made) was known as the “Big 3 Meal Deal”. It consisted of a sandwich, a packet of crisps and a soft drink. Ordinarily, a sandwich is zero-rated for VAT purposes, while the crisps and the drink are standard-rated. The Commissioners maintain that the items included in the “Big 3 Meal Deal” must be treated separately for tax purposes, even though they are supplied together. The appellant contends that it makes a single supply of a sandwich, to which the crisps and drink are merely ancillary, and that the whole supply must receive the same, zero-rated, treatment as the sandwich.
2	Formally, the appeal is against an assessment notified on 12 August 2002 in the sum of £197 though that is, of course, only a representative assessment. It was preceded by some correspondence between the appellant and its advisers and the respondents, culminating in a ruling, set out in a letter of 21 May 2002 in which the Commissioners made plain their view of the matter.
3	We heard no formal evidence but it was explained to us by Noel Tyler, the VAT consultant who represented the appellant, that the student members of the Union could, if they wished, buy the three items separately for an aggregate price (depending on the precise make-up of the combination) of about £2.90. If, however, they bought a “Big 3 Meal Deal” the price was only £2.50. There was, we understood, some choice about the components—the student could choose any one of several different sandwiches, for example—but the essential components of sandwich, drink and crisps were obligatory if the student wished to take advantage of the reduced price. After making his choices, the student placed the items in a specially marked paper bag and proceeded to the till, where a single transaction was rung through; the items were not separately entered before the aggregate price was discounted. Of the total price, the sandwich accounted for about 67 per cent, the drink 20 per cent and the crisps 13 per cent. Nigel Bird of counsel, who represented the Commissioners, did not dispute any of the foregoing.
4	Mr Tyler based his argument that the entire supply of a “Big 3 Meal Deal” should be zero-rated upon the proposition that what the student purchaser really wanted was a sandwich, which was the principal component, by cost and by bulk, of what he bought; the drink and the crisps were incidental, or ancillary, to that supply. There was, he said, clearly a single supply—if the student wanted to take advantage of a “Big 3 Meal Deal” he was required to buy the components in a single transaction, which was treated by the appellant too as a single transaction. This arrangement was to be distinguished, he said, from one in which the three components each were rung through at their normal price before a discount was applied; the sale was of a specified combination which had its own price.
5	He relied, as one would expect, on the decision of the Court of Justice in Card Protection Plan Ltd v Customs & Excise Commissioners [1999] STC 270. Before turning to that case, however, it is worth mentioning what was said by Advocate-General Léger in the slightly earlier case of Customs & Excise Commissioners v Madgett and Baldwin (Joined cases C-308/96 and C-94/97) [1998] STC 1189 at 1197, paragraph 36:
“I consider that a service is ancillary if, first, it contributes to the proper performance of the principal service and, second, it takes up a marginal proportion of the package price compared to the principal service. It does not constitute an object for customers or a service sought for its own sake, but a means of better enjoying the principal service.”
6	The Court of Justice accepted that passage as a correct statement of the law when it came to decide Card Protection Plan. At paragraphs 26 to 32 of its judgment ([1999] STC 270 at 293) the court said:
“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. 
“27. 	It must be borne in mind that the question of the extent of a transaction is of particular importance, for VAT purposes, both for identifying the place where the services are provided and for applying the rate of tax or, as in the present case, the exemption provisions in the Sixth Directive. In addition, 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. 
“28. 	However, as the court held in Faaborg-Gelting Linien A/S v Finanzamt Flensburg (Case C-231/94) [1996] STC 774 at 783, [1996] ECR I-2395 at 2411–2412, paras 12 to 14, concerning the classification of restaurant transactions, 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 follows from art 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 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 (see Customs and Excise Comrs v Madgett and Baldwin (trading as Howden Court Hotel) [1998] STC 1189 at 1206, para 24). 
“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 such as those described … above 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 ….
“32.	… it is for the national court to determine, in the light of the above criteria, whether transactions such as those performed bt CPP are to be regarded for VAT purposes as comprising two independent supplies, namely an exempt insurance supply and a taxable card registration service, or whether one of those two supplies is the principal supply to which the other is ancillary, so that it receives the same tax treatment as the principal supply”
7	Mr Tyler referred us also to the Faaborg-Gelting case mentioned by the court, and to three tribunal decisions: Southport Visionplus Ltd (2001, Decision 17502); Domino’s Pizza Group Ltd (2003, Decision 18010); and Leez Priory (2003, Decision 18185). Although they are of illustrative value, each turns on its own facts and is of little real assistance to us, although collectively they serve to bear out the comment of the Court of Justice (see paragraph 32 of the judgment in Card Protection Plan) that, ultimately, it is a question of fact whether there are two or more supplies, each with its own tax treatment, or a single supply whose treatment is governed by that of the principal element, all others being regarded as ancillary.
8	Mr Bird’s argument was that the appeal could succeed only if the purchaser of a “Big 3 Meal Deal” would properly consider that he was buying a sandwich rather than a meal. If the latter, the crisps and the drink were merely parts of the meal, and were not ancillary to the sandwich; thus the tax treatment of the sandwich could not dictate their treatment. But even if the purchaser were to go to the union shop with the intention of buying only a sandwich, and decided when there that he would take advantage of a “Big 3 Meal Deal”, it was difficult to see how a packet of crisps and a drink were (to borrow the words of the Advocate-General in Madgett and Baldwin) “a means of better enjoying” the sandwich—they were merely additional items to eat and drink.
9	In our view Mr Bird’s point is correct. The appellant’s argument is, we are satisfied, no more than an attempt to use what was said by the Court of Justice in Card Protection Plan in a way which was not intended, for which it is not apposite and which, had it been put to the court at the time as a possibility, we are quite sure it would have indicated was not within its contemplation. We take the view that, if one item is to be regarded as ancillary to another so as to adopt its tax treatment, it must be largely if not wholly dependent on it for its existence or utility. That was the case in Card Protection Plan itself where the card registration service, although theoretically capable of standing on its own feet, was in reality no more than the means of making good the insurance supply.
10	In  Madgett and Baldwin, by contrast, the question was whether a supply of travel to a hotel could be regarded as part of the supply of accommodation in the hotel. The court concluded that it could not. One—in our view significant—factor was the ability of customers to choose whether or not they took, and paid for, the travel supply. The position here is much the same; customers can choose to buy three separate items, or any one or more of them, or they can buy all three at a reduced aggregate price. It is quite artificial to say that the purchaser is buying a sandwich with ancillary crisps and drink. Even if—which we doubt—it could properly be said (in the sense intended by the Court of Justice) that a drink is a means of “better enjoying” a sandwich, perhaps by making it easier to swallow, the same cannot possibly be said of a packet of crisps. Sandwiches and crisps are no more than items some people like to eat at the same time, but neither is in any way dependent on the other for its existence or utility. They can be, and commonly are, eaten separately. The “Big 3 Meal Deal” represents, in our view, no more than the opportunity to buy three discrete items at a discounted price. The fact that only a single transaction is keyed through the appellant’s till is, we think, of no significance.
11	In reaching that conclusion we have not overlooked the terms of the Commissioners’ Public Notice 701/14, which does not have statutory force but is nevertheless a document on which traders should be able to place some reliance. At what is now section 6 it is indicated that a minor standard-rated item can be treated as part of a single supply of a zero-rated item if it is not charged at a separate price, costs no more than 20 per cent of the total cost to the trader of the supply and itself costs no more than £1 net of tax. The first and third of those conditions are satisfied, even if the crisps and drink are considered together, and the second is satisfied if they are considered separately. However, the Notice emphasises that the standard-rated item must be “minor”, a word which we do not think apt to describe a packet of crisps or a drink, in comparison with a sandwich; and the relevant passage follows the examples of food hampers, promotional packs and the like. We are not persuaded that this guidance is of any relevance to a case in which, as we have concluded, the appellant makes supplies of three items which, because they are purchased together, attract a reduced price but in every other respect are quite separate, and in no way dependent, one upon another.
12	The appeal is dismissed.

COLIN BISHOPP
Chairman
Release date:
MAN/2002/0523