Doctor Beynon and Partners v Commissioners of Customs & Excise [2002] EWCA Civ 1870

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MR JUSTICE LAWRENCE COLLINS
[2002] EWCA Civ 1870Case No Case No: A3/2002/0843Venue Royal Courts of Justice, Strand,, London, WC2A 2LL
Between
Doctor Beynon and PartnersAppellantCommissioners of Customs & ExciseRespondent
Before
Lord Justice AldousLord Justice ChadwickMr Justice MunbyDavid Ewart (instructed by Hempsons) for Doctor Beynon & Partners (Appellants)Melanie Hall QC (instructed by Solicitor for the Commissioners of Customs & Excise) (Respondents)Date 20 December 2002

Lord Justice Aldous:

With

[1]leave of this Court, Dr Beynon and Partners (the Partners) appeal against the decision of Lawrence Collins J of 27th March 2002 which dismissed their appeal against the decision of the Manchester VAT Tribunal dated 5th June 2001.[2]The appeal is concerned with the VAT treatment of drugs personally administered by doctors (sometimes nurses) to patients, referred to as 'Regulation 20 patients'. In general terms, such patients are those that live one mile from a pharmacy and therefore have difficulty in reaching a pharmacy. The consequence is that doctors need to provide pharmacy services. It is the Commissioners' contention, and the judge and the Tribunal so found, that "all administered vaccines, injections and like treatments" to Regulation 20 patients are exempt for VAT purposes as they are the provision of medical care. They accept that drugs and the like dispensed to such patients are zero rated for VAT purposes. The Partners contend that the administration of drugs to Regulation 20 patients includes, for VAT purposes, a supply of goods which is zero rated.[3]The commercial importance arises because the Health Service refuses to give an allowance to doctors, such as the Partners, to cover VAT on the cost of drugs (and goods) supplied to Regulation 20 patients. The medical care provided by such doctors is exempt from VAT, but they have to pay VAT on drugs required by the practice. If the Commissioners are right, the Partners have to pay VAT on the drugs to be administered by them, but are not entitled to credit that as an input as their supply is exempt. If the Partners are right, they do not have to charge VAT on the drugs that they supply during administration as they are zero rated, but would be entitled to credit the input tax incurred on purchase.[4]The VAT Legislation – The Value Added Tax Act 1994 (VATA) provides in section 1 that VAT "shall be charged in accordance with the provisions of this Act" on inter alia the supply of goods and services in the United Kingdom. Section 2 sets the rate of VAT. Section 4 requires VAT to be charged on any supply of goods or services, where it is a taxable supply made by a taxable person. A taxable supply "is a supply of goods or services made in the United Kingdom other than an exempt supply". Supply is defined, but for the purposes of this case it is sufficient to note that a supply includes all forms of supply. Schedule 4 contains "Matters To Be Treated As Supply Of Goods Or Services". Paragraph 1, in so far as relevant, is as follows:
"(1) Any transfer of the whole property in goods is a supply of goods; but, subject to sub-paragraph (2) below, the transfer-- (a) of any undivided share of the property, or (b) of the possession of goods, is a supply of services. …"
[5]Article 1 of the Sixth Directive requires Member States to modify their VAT system in accordance with the Articles of the Directive. Article 13A(1) requires Member States to exempt from VAT hospital and medical care and closely related activities and also "the provision of medical care in the exercise of medical and paramedical professions …". Such exemptions have been incorporated into United Kingdom law. Section 31 of VATA states that a supply of goods or services is an exempt supply if it is of a description specified in Schedule 9. Item 1 of group 7 of schedule 9 specifies the following as exempt:
"The supply of services by a person registered or enrolled in any of the following: (a) the register of medical practitioners or the register of medical practitioners with limited registration; … (d) the register of qualified nurses. …."
[6]Zero rating is dealt with by section 30. No VAT is charged, but in all other respects the supply is treated as a taxable supply with a zero rate. The relevant supplies are those specified in Schedule 8. For this case the relevant paragraphs of that Schedule are:
"1 The supply of any qualifying goods dispensed to an individual for his personal use where the dispensing is by a person registered in the register of pharmaceutical chemists kept under the Pharmacy Act 1954 or the Pharmacy (Northern Ireland) Order 1976, on the prescription of a person registered in the register of medical practitioners, the register of medical practitioners with limited registration or the dentists' register. 1A The supply of any qualifying goods in accordance with a requirement or authorisation under – (a) Regulation 20 of the National Health Service (Pharmaceutical Services) Regulations 1992; …… by a person registered in the register of medical practitioners or the register of medical practitioners with limited registration."
Qualifying goods are "any goods designed or adapted for use in connection with any medical or surgical treatment except (a) hearing aids; (b) dentures; and (c) spectacles and contact lenses."[7]The Medical Legislation - The relevant medical legislation was set out by the judge. It is sufficient for the purposes of this appeal to record that sales or equivalent supplies of medicinal products are confined by section 52 of the Medicines Act 1968 to registered pharmacies. Doctors are excepted. They can both administer and supply medicinal products.[8]The legislation also requires that the public should have pharmacies readily available to them. Thus section 41 of the National Health Act 1977 places an obligation upon the area health authority to make arrangements for the supply of:
"… proper and sufficient drugs and medicines and listed appliances which are ordered … by a medical practitioner in pursuance of his functions in the health service …"
[9]Section 43 prevents, (except as may be provided by regulations) the Health Authority from using doctors to provide pharmaceutical services. Sections 41 and 43 are the legislatory basis for the National Health Service (Pharmaceutical Services) Regulations 1992 (1992 SI No. 662). The relevant parts of those regulations are as follows:
"19. A doctor- (a) shall provide to a patient any appliance or drug [which includes medicines: Regulation 2(1)], not being a Scheduled drug, where such provision is needed for the immediate treatment of that patient before a provision can otherwise be obtained: and (b) may provide to a patient any appliance or drug, not being a Scheduled drug, which he personally administers or applies to that patient. 20.—(1) Where a patient- (a) satisfies an FHSA that he would have serious difficulty in obtaining any necessary drugs or appliances from a pharmacy by reason of distance or inadequacy of means of communication; or (b) is resident in a controlled locality, at a distance of more than one mile from any pharmacy, and one of the conditions specified .... is satisfied in his case he may at any time request in writing the doctor on whose list he is included to provide him with pharmaceutical services. .... (3) If a doctor so requested by a patient under paragraph (1)- (a) applies to provide pharmaceutical services to the patient, and sends with his application the patient's request in writing, the FHSA shall make arrangements with him for the provision of such services by him; or (b) does not so apply within 30 days, the FHSA may ….. require him to undertake such provision and shall give him notice in writing to that effect. (4) An arrangement made by an FHSA under paragraph (3)(a) shall- (a) have effect from the date of the patient's request in writing: and (b) enable that doctor, any partner of his or any doctor who subsequently joins his practice to provide pharmaceutical services for the patient so long as the arrangement remains in effect."
[10]Regulation 20 when read with paragraph 11 of Schedule 1 to the Regulations has the effect of ensuring that Regulation 20 patients are supplied with drugs by their doctor.[11]The statement of fees and allowances payable to doctors under Regulation 34 is of interest. Paragraph 44 provides for payment to doctors for the supply of drugs and appliances only when they have been supplied and personally administered under Regulation 19 of the 1992 Regulations or when supplied by dispensing practitioners under regulation 20. The payment includes the basic cost of the drug, an on-cost allowance of 10.5%, a container allowance, a dispensing fee and certain exemption expenses. A VAT allowance is paid under Regulation 44.4 and 44.5 to those not registered for VAT both for dispensed drugs and administered drugs when treating Regulation 19 patients.[12]Before coming to the details of the case, it is appropriate to remember that VAT is chargeable upon all supplies of goods and services unless exempt. The exemption for medical care is required by the Sixth Directive and incorporated into United Kingdom law by Section 31 of VATA and Schedule 9. Thus there is no dispute, but that medical care is VAT exempt. There is also no dispute that the dispensing of drugs to Regulation 20 patients is a supply of goods for VAT purposes and that it is zero rated pursuant to section 30 VATA and Schedule 8. The case concerns drugs which are administered by the Partners, not those dispensed to patients by or on behalf of the Partners.[13]The Facts – Mrs Hall QC who appeared for the Commissioners placed considerable emphasis upon the findings of fact made by the Tribunal. It is therefore appropriate to set them out in full."26. Generally, patients self-administer medicines including tablets, liquid medicines and creams prescribed for their treatment. But the administration, and application and fitting, of some medications, dressings and appliances requires the employment of the medical expertise of a doctor or nurse. Injections, such as vaccines, are the most common example of this, but there are others such as the fitting of certain contraceptive devices. In those cases, the GP is expected to provide in-house stock to administer to his patient, his provision and administration in that behalf being authorised by regulation 19(b).27. In those circumstances, the NHS considers the supply of drugs, dressings or appliances to be part of the provision of treatment whereby the doctor's skills and knowledge is applied in rendering all necessary and appropriate personal medical services of the type usually provided by general medical practitioners, as required by Paragraph 12(1) of Schedule 2 to the GMS Regulations.28. The importance and appropriateness of the supply of drugs and appliances administered by a GP varies with the medical condition of, and other circumstances particular to, the patient. Immunisations provide a good example. Childhood immunisations and some others, such as tetanus, are centrally supplied free of charge to the GP practice to be held in stock. The practice will purchase other vaccines and claim reimbursement where the NHS has undertaken to fund such provision (e.g. hepatitis A vaccine). Some vaccines are supplied and administered under private arrangements (e.g. hepatitis B vaccine). As all vaccines require storage at controlled temperatures (cool but not frozen), and the cold chain must be unbroken until administration to avoid loss of potency, it militates against patients obtaining vaccines by prescription and dispensary, and then taking them to a surgery for administration. It requires professional expertise to decide whether a patient is in a group which will benefit from immunisation. Questions to be considered include: Are there any relevant contra-indications? (e.g. hypersensitivity to egg is a contra-indication to influenza vaccine); Does the immunisation need to be postponed? (e.g. if the patient is acutely ill)29. The doctor then needs to decide which vaccine to use (e.g. oral or by injection), its strength, the number of doses required and at what intervals, whether it should be given intradermally, subcutaneously or intramuscularly, with what length of needle it must be injected and in what part of the body. If more than one disease is to be immunised against, consideration must also be given to whether different immunisations can be given at the same time and/or need to be given in different parts of the body. Where a patient has a cut or other skin wound, parallel considerations are also needed. The GP must decide whether the injury is one requiring skin closure, whether closure is required without delay, what type of skin closure should be used, and whether it is appropriate for the GP to carry out the closure procedure himself. If so, he must choose an appropriate product or products (e.g. the type of suture material and needle). In those cases, the GP is expected to supply the required products and to carry out the procedures.30. The provision of immediate treatment and the administration of drugs are regarded by the Department of Health as an integral part of a GP's obligation to provide medical services to patients. The requirement is included in the PS regulations only to the extent that such treatment involves the GP in the personal provision of drugs, medicines or appliances.31. The long-standing general policy of the National Health Service underlined in the GMS and other regulations is that doctors diagnose and supply drugs and appliances, and pharmacists dispense them; patients then gain the advantage of the skills and expertise of two professional persons. However, in order to comply with the duties of the 1977 Act for the provision of pharmaceutical services, the regulations also have to make provision for those circumstances when the policy objective cannot be achieved, e.g. in sparsely populated areas where a pharmacy may not be commercially viable. In those circumstances, GPs may be allowed to dispense drugs and appliances prescribed to certain of their patients under regulation 20.32. Regulation 19 covers the services provided by all doctors. A patient who is dispensed a drug or appliance by his doctor under regulation 20 is liable to pay a prescription charge in the same way as if a prescription form had been presented to a chemist. If a regulation 20 patient wishes, he may obtain a prescription from the GP and take it to a pharmacist for him to dispense the drug or appliance.33. A pharmacist cannot make supplies of services under regulation 19.34. Turning from the general to the specific, we next deal with the operation of the Appellants' practice. In relation to it, we find the following further facts to have been established.35. As we have already mentioned, the Appellants are a partnership of GPs who practice in Humberside, their main surgery being in Beverley. (Although the appeal is brought in the name of Dr Beynon and Partners, the partnership would now appear to consist of Doctors Harley, Thornton and Palumbo, and to operate under the style of Watergate Surgery). They registered for VAT with effect on 1 April 1995. They are registered in the Register of Medical Practitioners and provide pharmaceutical services under the PS Regulations to those of their patients who qualify for services under regulation 20.36. The Appellants dispense "takeaway" items, i.e. those ordinarily prescribed under regulation 20 and not personally administered to their patients, in the following way. Following a consultation with the patient, usually personally in a consulting room in the surgery but sometimes by telephone, a doctor prescribes a certain drug and records it in the patient's notes. The doctor then inputs the prescription into his computer, prints off a prescription form and signs it, before handing it to the patient. The patient then takes the prescription form to the dispensary window, the dispensary being a separate room in the surgery. Before handing the prescription form to the person dispensing drugs, who will be one of the doctors in the practice or one of two trained dispensers, the patient is required to sign it and to tick a box on the reverse of the form to indicate either that he qualifies for a free prescription or is required to pay for it. The person dispensing the drugs then takes them off the shelf, checks that they match those prescribed, and if necessary measures them or, in the case of pills or capsules, counts them, before inserting them into a box or other container. The dispenser attaches to the container a computer generated printed label containing the patient's name, the drug prescribed and the appropriate dosage. If the patient is liable to a prescription charge the dispenser collects it and places it in the till. The dispenser hands the drugs or appliance to the patient to complete the transaction.37. Where a doctor in the appellant practice intends personally to administer a drug to a regulation 20 patient, he prescribes it and it is dispensed identically to a takeaway item, except that it is the doctor who goes to the dispensary and obtains it. He then takes it back to the consulting room and administers it. Rarely the prescription form will be prepared and signed later. (It was not made clear to us whether this is invariably the Appellants' practice, or in some instances they supply the drug administered from in-house stock without preparing a prescription form. We anticipate that some supplies are made from such stock, but need make no finding of fact on the matter).38. We infer from Dr Thornton's evidence as a whole and find that where a doctor in the appellant practice personally administers a drug to a non-regulation 20 patient he supplies it from in-house stock. He does not prepare a prescription as there is nothing to be dispensed, but merely administers the drug.39. On occasion, where a doctor in the appellant practice knows in advance that his regulation 20 patient will be attending for a particular treatment, it having been prescribed at an earlier consultation, he will have printed out the prescription form, signed it, and obtained the appropriate drug from the dispensary before the patient arrives. The same situation prevails where a "take-away" drug recommended by a consultant or another GP has been prescribed and instructions on its use must be given, e.g. an asthma inhaler.40. To obtain payment for their dispensing services to regulation 20 patients, the Appellants remit total prescription receipts from patients to the Local Health Authority monthly, together with all the prescription forms with which they have dealt. The Health Authority pays the Appellants monthly in arrears for the drugs and appliances they have dispensed, payment being calculated according to the Drugs Tariff and the Statement of Fees and Allowances. The Authority also provides them with a statement of the amount paid. Payment for personally administered drugs is made by the Health Authority in exactly the same way as for take-away drugs.41. Most of the drugs personally administered by a doctor in the Appellant practice are vaccines administered by injection. The quantity of each vaccine injected varies between ½ ml. and 3 mls. The injection process involves the use of minor items such as disposable syringes, cotton wool, sticking plaster, etc.42. Dr Thornton explained, and we find, that the injection of a drug requires consideration by the administering doctor before, during and after injection: before, to satisfy himself that the patient is of the right age and size for the vaccine, that his state of health permits it, that he is not allergic to it, and that the treatment proposed is appropriate to his illness or injury; during, in that the right muscle is selected for injection; and after, where, e.g. he advises no physical exercise, or no intake of alcohol.43. He accepted, and we again find, that a drug that can only be introduced into the body by injection is of no use to the patient until injected. Dr Thornton agreed in cross-examination that he only very rarely permits a drug requiring injection to be taken away from the surgery for administration, and gave as an example a vaccine prescribed for backpacker going to a remote and high-risk area of the world. He also said that there are only two circumstances in which he will personally administer drugs (including vaccines): 1) if they are incapable of self-administration; and 2) where he has decided that a drug should not be self-administered, even though it can be.44. Dr Thornton described, and yet again we find, that the aim of a doctor administering a drug is to ensure that it is administered in such a way as to minimise any jeopardy to the patient's health and to maximise the benefits to him; as he said "administering drugs is an essential part of the care package that a doctor chooses with his patient.""[14]Paragraph 38 of the Tribunal's decision contains an error which may have led them to the wrong result. The parties agree that the doctor will provide a prescription every time a drug is provided for a patient, whether or not the drug is dispensed or is administered by the doctor to a Regulation 20 patient or any other patient. That was the finding of fact made by the London VAT Tribunal in the case of Dr Wooding and others v The Commissioners of Customs & Excise of 13th July 1999. The Tribunal in that case found in favour of the doctors. They concluded that it was artificial to distinguish between those drugs which are provided to a patient under Regulation 20 and those which are subsequently administered by a doctor.[15]The Tribunal Decision – The Tribunal rightly concluded that it should apply the guidance given by the ECJ in Card Protection Plan Ltd v Customs & Excise Commissioners Case C-349/96 [1999] STC 270 . Their conclusion was as follows:
"74. Applying the principles laid down by the ECJ in the Card Protection case to the facts of the instant case, we hold: 1) that, having regard to all the circumstances in which drugs and appliances are personally administered and applied by the Appellants to their regulation 20 patients, the supplies which they make are those of medical services: in so finding we look to the commercial reality of the transactions in question and distinguish them from transactions in which the Appellants simply sell by retail takeaway drugs and appliances dispensed for their regulation 20 patients; 2) that there is a single supply from an economic point of view: the commercial reality is that the Appellants in personally administering or applying drugs and appliances to their regulation 20 patients provide a single package of medical services of the type usually provided by GPs i.e. as required by para. 12(1) of Schedule 2 to the GMS Regulations; 3) that it is artificial to regard supplies of drugs and appliances personally administered or applied to regulation 20 patients as independent and distinct supplies: they are supplied as part of a single package of medical services, i.e. as part of a care package described by Dr Thornton as being chosen with his patient; 4) that the essential feature of the supply of a drug or appliance personally administered to a regulation 20 patient is that of medical services appropriate and proportionate to the condition of the patient at the time of administration: the supply is not an aim in itself, having no free standing utility to the patient, but merely a means of his obtaining the benefit of medical services provided by the Appellants; 5) that as no prescription charge is made for drugs and appliances personally administered or applied to any patient, whether a regulation 20 patient or not (a fact which we find indicative of the NHS expecting the drug or appliance to be supplied by the doctor from in-house stock), there is no separate price that might point to the supply being separate from that of medical services; 6) that it is irrelevant that the drugs and appliances personally administered or applied by a doctor may be available to a regulation 20 patient of the Appellants on prescription in circumstances other than those in which they are so administered or applied and then constitute supplies of pharmaceutical services; and 7) that, however described, drugs and appliances personally administered or applied by the Appellants to their regulation 20 patients cannot be regarded as being separate from the supply of medical services for one element is entirely dependent on the other so that there is true indissociability: again, the supply of drugs and appliances is part of the provision of treatment whereby the doctor's skills and knowledge are applied in rendering all necessary and appropriate personal medical services of the type usually provided by GPs. 75. We are entirely satisfied and hold that the dominant purpose of the provision and personal administration of drugs by the Appellants to their regulation 20 patients is as part of a single supply of medical services. Thus we answer the second question before us."
[16]It should be noted that the error in paragraph 38 of the Tribunal's findings of fact (see paragraph 14 above) was carried through into paragraph 74(5) of the decision and probably also into paragraph 74(3).[17]The Judgment - The judge first considered whether administration of the drug to a regulation 20 patient was a supply "of any qualifying goods in accordance with a requirement or authorisation under regulation 20 …" (see item 1A of Group 12 of Schedule 8 of the 1994 Act). Having set out the submissions of the parties he concluded:
"41. The purpose of Regulation 20 is to enable doctors to step into the shoes of pharmacists in areas where rural patients have difficulty in obtaining access to a pharmacist. Pharmacists have no power personally to administer drugs. Regulation 19(a) obliges a doctor to provide to a patient any appliance or drug not being a Scheduled drug, where such provision is needed for the immediate treatment of that patient before a provision can otherwise be obtained. Regulation 19(b) gives to a doctor the discretion to provide to a patient any appliance or drug, not being a scheduled drug, which he personally administers or applies to that patient. Under Regulation 19, there is no obligation or discretion simply to provide appliances or drugs to a patient. The provision of drugs must be accompanied either by treatment of the patient under Regulation 19(a), or personal administration or application to the patient by the doctor of the drug or appliance in question under Regulation 19(b). 42. In my judgment the Tribunal came to the right conclusion. The obvious intention of the zero-rating provision in Sched. 8, Group 12, Item 1A is that it applies to supplies of drugs by doctors when they are acting as pharmacists in relation to Regulation 20 patients. That is what, in my judgment, the words "in accordance with a requirement or authorisation under"
Regulation 20 connote. When the doctor supplies or dispenses take away drugs the doctor is acting as a pharmacist, which is the whole purpose of Regulation 20. But when the doctor personally administers the drugs, whether it is needed for immediate treatment under Regulation 19(a) or is administered under the authority of Regulation 19(b), the doctor is not acting "in accordance with a requirement or authorisation" under Regulation 20. The doctor is simply not performing the function of a pharmacist. I also find it difficult (although I do not rest my conclusion on this ground) to characterise the injection of a drug as the supply of goods within the meaning of 1994 Act, Sched. 4, para. 1, and the Sixth Directive, Art. 5(1)."[18]The judge then came to consider whether if there was a supply under regulation 20, the supply of the drug or appliance was a separate supply or was part of a supply of the doctor's medical services which was exempt under item 1A of Group 7 of Schedule 9 of the 1994 Act. The judge concluded that the dispute on this was to be treated as one of fact. That being so, the court should only interfere if the Tribunal could not reasonably have come to the conclusion it did. That did not happen in this case and therefore the appeal should fail on that basis. However he went on to consider the appeal on its merits and concluded:
"74. I am satisfied that on Issue 2 the Tribunal came to the right conclusion, and that it so irrespective of whether the matter is a question of law on which I must come to my own view or whether I should approach the question on the basis of whether the Tribunal could reasonably have come to the conclusion it did. 75. In my judgment the Tribunal adopted the right approach. If I am right in my primary view that it was faced with a task of appreciation of the facts in accordance with the Card Protection Plan criteria, then there is no basis for interfering with its decision. The Tribunal had regard to the circumstances, and decided that there was a single supply from an economic point of view, and that it would be artificial to split the supply. It found that the essential feature of the supply was that of medical services. Although it may have been wrong to suppose that there is no separate price for the drugs (payable by the NHS), the European Court held that the fact that there was a separate price was not conclusive, and I do not consider that this error vitiates, or requires reconsideration of, the decision. If the question should be approached as if it were a matter of law, I would have reached the same conclusion as the Tribunal. The economic and commercial reality (and also the practical and social reality) is that the doctor is supplying a single package of medical services."
[19]The Appeal – I cannot accept the judge's conclusion that the issue raised in the second question that was decided by him was one of fact. In cases such as this, the facts were found by the Tribunal. They were not in dispute before the judge. What was in dispute was whether there was a supply which was zero rated. That required the court to decide what was the legal effect of the transaction. That is a question of law. That was the conclusion of this Court in British Railways Board v Commissioners of Customs & Excise [1977] STC 221 and in British Airways Plc v Commissioners of Customs & Excise [1990] STC 643. The reasoning in the speeches of the House of Lords in Commissioners of Customs & Excise v British Telecommunications Plc [1999] STC 758 is only consistent with such a conclusion.[20]I accept that proper regard should be given to the conclusion reached by the Tribunal, but in this case the parties agree that the Tribunal misunderstood the evidence upon an important issue. They carried that error through to their conclusion in paragraph 74(5). In my view that error required the judge to reconsider the case on its merits.[21]The important issue in this case concerns the way that the steps of the administration of drugs by the Partners are to be classified. For example, is there only one supply which is medical care or is there more than one supply? If there is more than one supply, are the supplies separate and, if so, is one a supply of goods?[22]Mr Ewart, who appeared for the Partners, submitted that guidance on classification should be obtained from E.C. Commission v United Kingdom Case 353/85 [1988] STC 25 and from the judgments of this Court in Customs & Excise Commissioners v Wellington Hospital Ltd [1997] STC 445. I disagree.[23]In the E.C. Commission case, the Commission contended that the United Kingdom's exemption from VAT of "the supply of services and in connection with it, the supply of goods" by a registered medical practitioner was not consistent with Article 13A of the Sixth Directive which confined exemption to the supply of services and did not extend to the supply of goods unless such goods were supplied as an integral part thereof and included in the price of the service. The court decided that Article 13A (1) only covered the provision of medical care and excluded the supply of goods "without prejudice to provisions of goods which are indissociable from the service provided." No attempt was made to provide guidance as to what were the circumstances where the provision of goods would be considered as indissociable. It was not an issue as it is in this case.[24]In the Wellington case, a dispute arose as to whether, amongst other things, drugs supplied during hospital treatment were exempt or zero rated. By a majority the court concluded that they were zero rated. Millett LJ gave the leading judgment. He did not have the advantage of the judgment of the ECJ in the Card Protection Plan case. The result was that the passage in Millett LJ's judgment at page 464 g to h does not match paragraph 31 of the judgment of the ECJ in the Card Protection Plan case. Millett LJ did look at "the reality" of the case and therefore approached the dispute along the lines adopted by the ECJ. Even so, it is not helpful or appropriate to seek to analyse the issues and judgments in the Wellington case to see whether they are consistent with the guidance of the ECJ in Card Protection Plan . That was the first case in which the ECJ was asked to decide what were the appropriate criteria for deciding whether a transaction which comprised several elements is to be regarded as a single supply for VAT purposes or as two or more supplies to be assessed separately. It is therefore best practice to start with that case and look forward to the way that it has been applied. I therefore turn to that case.[25]In the Card Protection Plan case, Card Protection Plan Ltd (CPP) offered holders of credit cards a credit card protection plan. The plan included protection against financial loss utilising a block insurance policy and other services to avoid inconvenience to the credit card holder. The Commissioners contended that the service supplied was chargeable to VAT on the grounds that the services were a 'package' and taxable as such. CPP contended that the services should be wholly or partially exempt as they involved the making of arrangements for insurance.[26]The House of Lords sought guidance as to what were the appropriate criteria 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. The ECJ gave this guidance:
"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 Case C-231/94 Faaborg-Gelting Linien v Finanzamt Flensburg [1996] ECR I-2395 , paragraphs 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 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 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 (Joined Cases C-308/96 and C-94/97 Commissioners of Customs and Excise v Madgett and Baldwin [1998] ECR I-6229 , paragraph 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 in paragraphs 7 to 10 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. The simplest possible method of calculation or assessment should be used for this (see, to that effect, Madgett and Baldwin , paragraphs 45 and 46). 32. The answer to the first two questions must therefore be that it is for the national court to determine, in the light of the above criteria, whether transactions such as those performed by 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."
[27]That guidance was applied by the House of Lords in Customs & Excise Commissioners v British Telecommunications Plc [1999] STC 758. In that case BT purchased new cars from the manufacturers. A deduction of input tax on the purchase was prohibited, but BT claimed as inputs the VAT upon the delivery charge. The House of Lords held that for VAT purposes the delivery was incidental to the purchase. Looking at the transaction as a matter of reality, there was one contract for delivered cars and one supply for VAT purposes.[28]Lord Slynn reviewed the authorities and concluded at page 765H:
"On the authorities it is clear that the fact that one "package price" is charged without separate charge for individual supplies being specified does not prevent there being two separate supplies for VAT purposes. In my opinion the fact that separate charges are identified in a contract or on an invoice does not on a consideration of all the circumstances necessarily prevent the various supplies from constituting one composite transaction nor does it prevent one supply from being ancillary to another supply which for VAT purposes is the dominant supply. Even though it may be desirable to approach each supply as if it were a separate supply and even though each supply in a composite transaction may be an independent separate supply the essential features of a transaction may show that one supply is ancillary to another and that it is the latter that for VAT purposes is to be treated as the supply. … In my view here if the transaction is looked at as a matter of commercial reality there was one contract for a delivered car: it is artificial to split the various parts of the transaction into different supplies for VAT purposes. What B.T. wanted was a delivered car; the delivery was incidental or ancillary to the supply of the car and it was only on or after delivery that property in the car passed. The fact that delivery could have been arranged differently under a separate contract between B.T. and the transporter or by B.T. collecting the car itself does not mean that when there is a contract for a delivered car the two supplies must be kept separate. Of course B.T. had the option to make other arrangements as is argued but the fact is that B.T. did it this way as part of one contract and in my view as part of one supply. The fact that individuals buying a car or small companies buying a few cars cannot have the same arrangement which B.T. has and may have to buy from a dealer does not make the arrangement with B.T. so different that the supply must, like the provision of long distance pickup in the Madgett and Baldwin case [1998] STC 1189 be regarded as not ancillary but as a distinct supply. One result of this approach is that B.T. is in the same position in regard to VAT as companies buying a small number of cars from a dealer. They could not recover the input tax because of the provisions of the Order of 1992. If B.T.'s argument is right B.T. would have a considerable tax advantage over such other traders. That discrimination of this kind would be avoided may not be a reason for arriving at the conclusion which I have reached but the fact that such a result is not discriminatory may be some indication that it is right."
[29]It is right that I should cite a substantial part of the opinion of Lord Hope as any attempt to cite small extracts would, I believe, damage the logic. Lord Hope said at page 767:
"As regard must be had to all the circumstances, no single factor will provide the sole test as to whether the supply in question is a distinct and independent supply or is incidental or ancillary to another principal supply. The fact that price for the supply in question has been or can be separately identified as having been charged for additionally, as the tribunal held after considering the sample transactions in this case, is not the test. Nor is the fact that the supply in question is an optional one which the taxable person could have provided for himself, and so did not need not take when as a matter of convenience he took the other supply to which it is said to have been ancillary. The Court of Appeal attached considerable importance to this point, as also did the tribunal and Dyson J.: [1998] S.T.C. 544, 547F. But in my opinion it is just one of the factors to be taken into account in the examination of all the circumstances. Nor is the question to be resolved by asking, as the respondents contend, whether the two supplies are "physically and economically dissociable"
. That phrase is taken from the decision of the European Court of Justice in Commission of the European Communities v. United Kingdom (Case 353/85) [1988] S.T.C. 251, paragraph 33. In Customs and Excise Commissioners v. Wellington Private Hospital Ltd [1997] S.T.C. 445, 462F-G Millett L.J. suggested that it expressed the same concept as that which is contained in the words "integral," "incidental" and "ancillary." But the facts and the questions to be decided in those two cases were different from those in the present case. In Commission of the European Communities v. United Kingdom the problem related to the interpretation of the term "medical care" in the context of article 13 A(1) of the Sixth Directive, and in particular as to whether the exemption covered goods such as corrective spectacles supplied to patients in connection with the provision by the doctor or other authorised person of medical care. As Millett L.J. recognised in the Wellington Private Hospital case at p. 459C-E, the Court was not laying down a general rule of classification for use in all cases where the question is raised as to whether a particular supply is or is not incidental or ancillary to another supply. It may be said that before the supply can be regarded as a separate and distinct supply it must, at least to some degree, be physically and economically dissociable from the other supply. But it would not be right to take this factor as the sole criterion as to whether the supply was separate and distinct from the other supply or was merely incidental or ancillary to it. If that were so, it would mean that in every case where it was possible to dissociate the two economically and physically (for example, because one supply was of goods and the other supply was of services and the price for each supply could be separately identified) the two supplies would have to be treated as separate supplies for VAT purposes. That would not be consistent with the guidance which the Court gave in Card Protection Plan Ltd v. Commissioners of Customs and Excise , paragraph 29 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. According to this guidance, the question is one of fact and degree, taking account of all the circumstances. Cases can be envisaged, such as the tours provided in connection with the hotel accommodation in Customs and Excise Commissioners v. Madgett and Baldwin [1998] STC 1189 , where the relationship between the two supplies would be so disproportionate as not to enable the transaction to be regarded as comprising one supply. Another example, where the supply was of transport and delivery services, would be where the goods were transported by special arrangement with the purchaser by unusual methods or over unusually long distances. The facts of this case do not fit into that category. … In the present case the essential feature which can be seen in each of the sample transactions is the purchase by B.T. from the manufacturer of a delivered motor car. Property and risk were to remain with the manufacturer until the point of delivery. B.T. could have gone to the factory to take delivery of the motor car, but it was more convenient to get the manufacturer to deliver the car to B.T. This seems to me to be a good example of the kind of case, in the context of a transaction which involves the supply of both goods and services, which the Court had in mind when it referred in Card Protection Plan v. Customs and Excise Commissioners , paragraph 30 to a service which did not constitute for customers "an aim in itself, but a means of better enjoying the principal service supplied." In this case, because of the volume of their purchasing power, B.T. were able to deal directly with the manufacturer instead of, as others do who buy cars for their businesses, purchasing their cars through dealers in motor cars. The sole purpose of obtaining and paying for the transport and delivery services was to enable B.T. to complete the purchase transaction by taking physical delivery of the cars at a place of their own choosing which was more convenient for them than the factory. The commercial reality was that they were, by this means, obtaining the equivalent of what they would have got had they purchased the cars from an authorised dealer who had obtained the cars from the manufacturer and made them available for sale on its premises. The dealer would have recovered from them the cost of transporting and delivering the cars to its premises from the factory, together with the price paid to the manufacturer, all as part of the cost of the supply of the motor cars to the customer. In that case there would plainly have been only one transaction, not two. The substance and reality of the matter is that that also is true of the transactions which were entered into between B.T. and the manufacturers. There is one other factor which, in my opinion, supports the view that the supply of the transport and delivery services were incidental or ancillary to the purchase of the motor cars and are not to be regarded as a separate and distinct supply for VAT purposes. As a matter of general principle comparable transactions should for VAT purposes, so far as possible, be treated equally. Taxable persons who purchase motor cars for business use from authorised dealers are precluded by the Blocking Order from recovering as input tax the VAT paid on the price charged by the dealer for the supply. This includes the cost of transporting and delivering the cars to the dealer's premises from the factory, which the dealer recovers from the customer. If B.T. were able to recover as input tax the VAT charged by the manufacturers on the service of transporting and delivering the cars to their premises from the factory, they would be obtaining more favourable treatment than that available to others in the market for the purchase and delivery from authorised dealers of the same motor cars."[30]Mrs Hall also took us to the judgment of Laws LJ in Customs & Excise Commissioners v FDR Ltd [2000] STC 672 . At page 693 he said:
"54. While I hope these observations are helpful I think there is some danger of over-elaboration and needless complexity in this field. We are not here concerned with deep legal principle, but with the articulation of a fair and reasonable approach to those cases where there is a question how should the consideration given by a supplier for his reward be categorised for the purposes of VAT, when there are multiple acts of supply involved The simpler it is the better, so long as it is kept consistent with the doing of justice. With respect I apprehend (but I by no means propose to lay down any rule) that where this sort of issue arises, the first question to be asked may be couched as Lord Nolan put it: what is the true and substantial nature of the consideration given for the payment. That will identify the apex or the table-top. The second question will be whether there are other supplies which are ancillary to the core. 55. But there is, I think, one further complication. Where the core supply is on the table-top model--a congeries of supplies which are integral to each other or indissociable--it may not be self-evident from the description of the core supply at which the court or tribunal arrives what its tax treatment should be. In that case, it will be necessary to look again at the elements which comprise the core, and arrive at a decision on the facts whether, numerically if nothing else, the taxable or exempt elements predominate. Necessarily no such difficulty arises where the core supply is on the apex model."
[31]Lord Hope said "comparable transactions should for VAT purposes, so far as possible, be treated equally". It is therefore appropriate to consider the effect of the positions the parties adopt. As I have said the Commissioners accept that the dispensing of drugs by the Partners to their Regulation 20 patients is a supply which is zero rated. Thus a Regulation 20 patient who attends surgery and is diagnosed as having a chest infection may be given a prescription for antibiotic tablets which are supplied by the dispenser at the surgery. If so, the supply is for VAT purposes accepted to be a supply of goods which is zero rated. If the doctor writes out a prescription for an injectable form of the antibiotic which is then collected from the dispenser by the patient or the doctor for injection by the doctor, that the Commissioners contend is not a supply of goods. The whole transaction consisting of the examination through to the injection is considered by the Commissioners to be a supply of services and is therefore an exempt supply. Factually, the difference between the two is the administration of the injection. That can be illustrated by considering the case where the doctor prescribes antibiotic tablets which he obtains from the dispensary. He then hands them to the patient together with a glass of water to enable immediate consumption of two tablets. The patient leaves with the rest. The Commissioners accept that in those circumstances there are two supplies, namely an exempt supply of medical care and a zero rated supply of goods. The difference, say the Commissioners, between that and where there is an injection lies in the medical skill applied when carrying out the injection. That makes the event a composite supply of medical care.[32]During argument other transactions relating to Regulation 20 patient were examined. If the doctor prescribes insulin injections, he may demonstrate to the patient how it is done by giving the first injection. He then hands the rest of the prescription to the patient. According to the Commissioners the first syringe used is part of an exempt supply, but the rest is zero rated.[33]Mrs Hall reminded us that this was an appeal confined to points of law and that we should not go outside the facts of the case. However there was evidence that not only the practice nurse employed by the Partners but also Community Nurses, employed by the Area Health Trust would provide injections of certain drugs such as flu vaccines. As I understand the position of the Commissioners, they contend that when the doctor prescribes the drug and it is administered by such nurses, after being dispensed, there is but one taxable supply which is a supply of medical care. The result is that that supply is exempt from VAT whether or not the person administering the drug is employed by the Partners.[34]In the Card Protection Plan case, the ECJ said that all the circumstances of the transaction must be taken into account. In deciding whether there was one composite supply "the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer … with several principal services or with a single service."[35]At the hearing of this appeal Chadwick LJ sought counsels' view as to whether it would be right to conclude that the essential features of the transaction involving administration by the Partners to Regulation 20 patients were three in number. First, the diagnosis or medical consultation followed by the writing of the prescription. Second, the supply of the drug and third the act of injection which transferred the drug into the patient.[36]Mrs Hall submitted that it was highly artificial to divide up the transaction into three features. She referred us to the evidence of Dr Thornton which she submitted supported the view that there was in fact just one transaction.[37]I accept that at a particular level of generality it can be said that there was one transaction. However the Commissioners accept that where there is dispensing, there are two features which constitute two supplies. First, the diagnosis and writing of the prescription which is an exempt supply and second the provision of the drug which is a zero rated supply. Thus the Commissioners accept that for fiscal purposes, there are at least two features to such a transaction. Where there is administration of the drug by the doctor, the first feature is the same and logically it would be an exempt supply. In reality the transaction does comprise that feature which is the first feature suggested by Chadwick LJ.[38]For similar reasons I believe that the second feature is a distinct feature. The second constitutes the acquisition of the drug by prescription which is equivalent to it being dispensed. It may or not be administered by the doctor. The patient may decline the injection or may, in the case of the diabetic, take away most of the drug for self-administration. If the second is a distinct feature, the third may in reality also be, as the injection passes the drug into the patient.[39]As Mrs Hall pointed out, the fact that the transaction may have three distinct features does not mean that any one of them was a separate supply for VAT purposes nor that there was a supply of goods. However it would appear illogical to conclude that there are two supplies when the drug is dispensed and only one when the drug is "supplied" and then administered, particularly as the factual position is essentially the same up to and including the stage when the drug is supplied by the dispensary.[40]Paragraph 30 of the judgment of the ECJ in the Card Protection Plan case makes it clear that there will be a single supply where one or more features are to be regarded as constituting the principal service. That paragraph also points out that a service must be regarded as ancillary, if it does not constitute an aim itself, but a means of better enjoying the principal service.[41]The Commissioners contend that when there is administration, the principal service is the supply of medical care and that the supply of the drug is ancillary to it. That they say was the finding of fact by the Tribunal. In the alternative they submit that what is supplied is medical care for at least the first and third features. They submit that those features constitute the table top referred to by Laws LJ in the FDR case. The second element was not an aim in itself and therefore there is but one principal supply, namely the supply of medical care which is exempt.[42]I cannot accept that analysis of the transaction. A person who wants a flu vaccination goes to the clinic with the aim of being injected with the vaccine. He expects to receive medical care comprising the decision as to whether the injection should be given and what to give and the way it is given, but the aim is to obtain the vaccine. That is an aim in itself. Similarly, when the doctor prescribes tablets, the patient expects the doctor to decide whether or not to supply the drug. That is a distinct supply of medical care which is exempt in such circumstances. The patient also has a distinct aim, namely to have the treatment which constitutes taking the tablets. That the Commissioners accept is a separate zero rated supply. The same must apply to self-administered drugs by injection. The difference between such cases and the case where the doctor administers the drug by injection is the skill of the doctor when he carries out the injection. That is a feature. If however, the third feature of Chadwick LJ's analysis is a feature which is not ancillary to the first, then it appears to me to be ancillary to the second as the patient has the aim of obtaining the drug by injection if that is the chosen route of obtaining the drug.[43]In paragraph 31 of the ECJ judgment in the Card Protection case, the court said that a single price was not decisive, but that it could suggest a single service. In the present case, doctors recover payment for medical care and are also separately paid the list price for drugs that are prescribed. Additional payments are made for most vaccinations. Thus when drugs are administered by the doctor, the doctor receives remuneration for the medical care he provides and also payment for the drug that is prescribed. Although the fact of separate payment cannot be decisive, it does indicate that there are at least two supplies. That is consistent with the view taken by the Commissioners when drugs are dispensed.[44]Lord Hope in the B.T. case said that before a supply can be regarded as a separate and distinct supply, it must, at least to some degree, be physically and economically dissociable from the other. In the present case the first feature is physically and economically dissociable from the other features in the same way as it is dissociable when the doctor prescribes tablets which are then dispensed. The doctor is paid in a different way for the diagnosis to that of the supply of the drugs. Further the acts are separate because the drug will only be supplied once the diagnosis and prescription stages are complete and any injection may be refused or self-administered. I accept, as Lord Hope pointed out, that that cannot be conclusive. However I believe it is another pointer to the conclusion that in this case there are at least two supplies, one being a supply of goods which is zero rated.[45]Lord Hope stated that as a matter of principal, comparable transactions should, for VAT purposes, so far as possible, be treated equally. In the present case doctors who do not treat Regulation 20 patients are compensated by the Health Service for VAT payments. It would be odd that doctors who are under an obligation to treat Regulation 20 patients should be in the position where they do not obtain compensation, nor do they obtain a VAT credit when they administer drugs which they dispense. Further, I believe that the supply of a drug for subsequent injection by the doctor is comparable to the supply of the drug for self-administration. In those circumstances such transactions should for VAT purposes, be treated equally. The diabetic wants the insulin and to know how to inject himself. There is no commercial or fiscal reason why the supply and first injection carried out by the doctor to demonstrate the technique should be treated for VAT reasons differently to the supply to the patient and subsequent injection carried out by him. There is no commercial or fiscal reason why the supply and administration of drugs by injection should be treated differently to the supply and administration of tablets to the patient by the doctor.[46]In my view there are at least two distinct supplies consisting of the first of Chadwick LJ's features and the second and third features. Mrs Hall realised that that might be an appropriate conclusion. But she went on to submit that the second and third features should be treated as a composite supply of medical care. It was the skill of the injection that was important. She submitted that that was the conclusion reached by the Tribunal.[47]If that was the conclusion reached by the Tribunal then they were wrong. The aim of the patient is to obtain the drug. I suspect that the patient would prefer to take tablets than to be injected: but the aim is the same. The injection, to adopt the words of the ECJ in paragraph 30 of the Card Protection Plan judgment, is "a means of better enjoying the principal service supplied". The third feature, if it be a separate feature, is ancillary to the second. There are in my view two separate supplies. The doctor supplies medical care and goods. The first supply is exempt. The second is zero rated by reason of section 30 and Schedule 8 of the VATA.[48]The judge's conclusion that in reality the doctor is supplying a single package of medical services is, as I have said, true at a particular level of generality. A Regulation 20 patient goes to his doctor for medical services which includes diagnosis and any relevant drug. But at another level of generality the patient goes to obtain advice and the appropriate drug. That must be the appropriate level of generality as the Commissioners accept that the supply of drugs for self-administration is a separate supply for VAT purposes to the supply of medical care by the doctor.[49]Mrs Hall also submitted that the contentions of the partners were inconsistent with the purpose of Regulation 20 and Schedule 8 of VATA. The purpose was to place doctors who treated Regulation 20 patients on a similar footing to pharmacists. No doubt that was the purpose, but that does not solve the dispute, as Mr Ewart pointed out? When the doctor administers the drug is he in reality dispensing the drug to the patient and then administering it. I believe so. If so, the purpose is fulfilled by concluding that in reality administration by doctors involves a supply of goods just as much as a supply of goods takes place upon dispensation to the patient.[50]The Commissioners also contended that an injection of drugs was not a supply of goods as defined in Schedule 4 of the VATA or as defined in Article 5 of the Sixth Directive as it could not be classified as a transfer of property. That submission disregards what happens. When the drug is injected property must pass.[51]I would allow the appeal.

Lord Justice Chadwick :

[52]The issue on this appeal is whether the administration of drugs by a medical practitioner to a regulation 20 patient is a taxable supply so as to entitle the practitioner to recover as input tax under section 25 of the Value Added Tax Act 1994 the value added tax ("VAT") charged on the supply to him of those drugs. In that context "a regulation 20 patient" is a patient in respect of whom arrangements have been made under regulation 20 of the National Health Service (Pharmaceutical Services) Regulations 1992 (SI 1992/662) for the provision by the medical practitioner of pharmaceutical services.[53]It is common ground that the provision of drugs dispensed to a regulation 20 patient by a medical practitioner (but not personally administered to that patient) is a taxable supply of those drugs – albeit a supply which is zero rated, see section 30(2) of the 1994 Act and paragraph 1A in group 12 of schedule 8 to that Act. It follows that a medical practitioner who has a dispensing practice may well choose to register for VAT purposes in order to recover input tax on drugs dispensed to regulation 20 patients. But, if he does so, he will not be entitled to a VAT allowance under paragraphs 44.2(v) and 44.4 of the statement of fees and allowances prepared under regulation 34 of the National Health Service (General Medical Services) Regulations 1992 (SI 1992/635).[54]The assumption underlying paragraph 44.4 of the statement of fees and allowances is that a medical practitioner who is registered for VAT purposes will not need a VAT allowance to cover the VAT payable on his purchase of drugs because he will be able to recover that VAT as input tax when he himself makes a taxable supply of those drugs in due course. The assumption is well founded if the drugs are dispensed to a regulation 20 patient. But the effect, if the administration of the drugs by the medical practitioner to the regulation 20 patient is not treated as a taxable supply, is that, in respect of drugs so administered, the medical practitioner must himself bear the VAT payable on his purchase. He is entitled to no VAT allowance under paragraph 44.4 of the statement (because he is VAT registered); and he cannot recover the VAT as input tax (because he does not make a taxable supply). It is that perceived lacuna which has given rise to the present appeal.[55]The issue turns on whether the transaction, in the course of which drugs are administered to the patient by the medical practitioner (usually by way of injection or vaccination), is to be regarded for VAT purposes as a single supply (and, if so, of what) or as a number of distinct supplies (one of which is a supply of the drugs). The correct approach to that question is to be found in the judgment of the Court of Justice on the reference in Card Protection Plan v Customs and Excise Commissioners (Case C-349/96) [1999] STC 270 , at paragraphs 28, 29 and 30 (i bid , 293 d-f ):
"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 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 . . ."
[56]Although expressed in terms of the supply of services – which was the context in which the question arose in the Card Protection Plan reference – there is no doubt that the guidance applies equally where the transaction comprises a mixed provision of goods and services – see Customs and Excise Commissioners v British Telecommunications plc [1999] STC 758, 765 g , 767 e-h . In that appeal Lord Hope of Craighead pointed out ( ibid , 767 h ) that, "as regard must be had to all the circumstances, no single factor will provide the sole test as to whether the supply in question is a distinct and independent supply or is incidental or ancillary to another principal supply". He went to explain ( ibid , 768 a ) that the question was not to be resolved by asking only whether the two supplies are 'physically and economically dissociable'. He said this, ( ibid , 768 d-f ):
"It may be said that before the supply can be regarded as a separate and distinct supply it must, at least to some degree, be physically and economically dissociable from the other supply. But it would not be right to take this factor as the sole criterion as to whether the supply was separate and distinct from the other supply or was merely incidental or ancillary to it. If that were so, it would mean that in every case where it was possible to dissociate the two economically and physically (for example, because one supply was of goods and the other supply was of services and the price for each supply could be separately identified) the two supplies would have to be treated as separate supplies for VAT purposes. That would not be consistent with the guidance which the Court of Justice gave in Card Protection Plan Ltd v Customs and Excise Comrs (Case C-349/96) [1999] STC 270 at 293, para 29 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. According to this guidance, the question is one of fact and degree, taking account of all the circumstances. . . . "
[57]The starting point, therefore, is to have regard to all the circumstances in which the relevant transaction takes place; and to ascertain from those circumstances the essential features of the transaction. It is tempting to proceed on the basis that the circumstances in which a medical practitioner administers drugs to a patient in his surgery or consulting room are sufficiently familiar to be treated as a matter of general knowledge; but I accept that, in addressing this appeal, the Court must confine its consideration to the facts found by the tribunal.[58]On the basis of those facts it seems to me that the essential features of the transaction can be identified as(i) the consultation and diagnosis which leads to the medical decision as to treatment – including the decision by the medical practitioner that the appropriate treatment is for him to administer a drug and the related decision to prescribe that drug;(ii) the supply of that drug for the purposes of treatment; and(iii) the administration of the drug by the medical practitioner to the patient (say, by injection of the drug into the patient).[59]The next step is to ask(a) whether any of those features or elements are physically and economically indissociable from any other elements and(b) whether any must be regarded as ancillary because it does not constitute for the patient an aim in itself, but a means of better enjoying the principal supply. The first of those questions is relevant not because dissociability will necessarily lead to the conclusion that the element constitutes a separate and distinct supply, but because (as Lord Hope pointed out in the British Telecommunications appeal) without some degree of dissociability it is impossible to hold that two or more supplies are separate and distinct. The second of those questions is posed directly by the guidance given by the Court of Justice in Card Protection Plan (see paragraph 30 in the judgment of the Court).[60]It is, I think, not open to serious dispute that the elements which I have identified under (ii) and (iii) – the provision of the drug for the purpose of treatment and the administration of the drug by injection into the patient – are not dissociable. Neither can be regarded as independent of the other. Those two elements (at least) must be regarded as comprised in a single supply. The real dispute is whether the first element – the consultation and diagnosis which leads to the medical decision as to treatment - must also be regarded as comprised in that supply. In my view, the answer to that question is "no". It is, I think, impossible to hold that the first element is indissociable from the other two. It is important to bear in mind that the administration of the drug by, say, injection requires the specific consent of the patient. It cannot be said that the medical decision as to treatment will lead, necessarily, to the administration of the drug. The patient may refuse treatment in that form. Nor can it be said that the provision and administration of the drug must be regarded as ancillary to the consultation and diagnosis, in that the injection of the drug does not constitute an aim in itself but a means of better enjoying the services of the medical practitioner. It may well be that the patient's principal aim is to obtain the drug – accepting that it will be administered by injection - and that (in his eyes) the consultation is a means to that end. Attendance at the surgery for the purposes of immunisation is an obvious example of such a case.[61]The correct analysis of the transaction, as it seems to me, is that it comprises two separate and distinct supplies: a supply of medical services constituted by the consultation and diagnosis leading to the medical decision as to treatment and a supply comprising the provision and administration of the drug.[62]If it is correct to regard the provision and administration of the drug as a supply which is separate and distinct from the prior supply of medical services, then it is necessary to determine whether that further supply – which involves the provision of both goods and services - is, itself, a supply of goods or a supply of services. Without seeking to ignore, or diminish the importance of, the input of medical skill required to administer the drug – say, by injection – it seems to me reasonably plain that, in relation to that further supply, the dominant element is the provision of the drug. Although there may be patients who actually enjoy the medical procedure of injection, I suspect that they are rare. For the "typical consumer" (to whom the Court of Justice directs attention at paragraph 29 of its judgment in Card Protection Plan ) the administration of the drug by the medical practitioner is a means of better enjoying the drug which is administered; it is not an aim in itself. Without the drug, the injection would be seen as pointless and unacceptable. It follows that the further supply – although it comprises the provision of medical services as well as the provision of the drug – takes its character for VAT purposes from the dominant element – the provision of the drug – and must be regarded as a supply of goods.[63]For those reasons, as well as for the other reasons which Lord Justice Aldous has set out in his judgment, I agree that this appeal should be allowed. Mr Justice Munby:[64]I agree with my Lords and add only one observation.[65]It is a happy, and as it seems to me important, consequence of my Lords' analysis that not merely are comparable transactions being treated equally for VAT purposes; but that there will in future be no fiscal disincentive to a doctor treating each of his patients in the particular way which in his professional judgment best meets the individual patient's medical, personal and social needs.

Order

Appeal allowed; the order of the judge and the Manchester VAT Tribunal set aside; the respondents to pay the appellant's costs of the appeal and below to be subject to a detailed assessment; permission to appeal to the House of Lords refused. (Order does not form part of the approved judgment)

Cited in 2 later judgments