“20. The Appellants’ case depends on our accepting that, even with an exclusive licence to occupy a room, a masseuse could realistically be regarded as carrying on her business within that room. In our judgment, she could not reasonably be so regarded. Mrs Kane’s evidence made it plain to us that a masseuse does not carry on a business solely with the room allocated to her. For instance, the licence makes no provision for a masseuse or her customers to gain access to her room from the street, but, even it if did, or it were to be implied, it is clear that she carries out only a small part of her business within the room. And whilst it might be possible for her to dispense with the Appellants’ security services and cash handling facilities, for safety reasons they, too are essential. We accept that use of lockers, and the day room may not be absolutely necessary, but they are ancillary matters that form part of the total package.”
“[26] In the Court of Appeal ([2003] STC 169 ), Aldous LJ said that the classification of the transaction as a supply of services or of goods and services was a question of law. He cited in support the decision of this House in Customs and Excise Comrs v British Telecommunications plc[1999] STC 758 at 763,[1999] 1 WLR 1376 at 1381 in which Lord Slynn of Hadley said that the ‘characterisation of the supply as provided for here in the contractual documents is a matter of law’. Aldous LJ pointed out that the facts found by the tribunal were not in dispute. The issue was as to their legal consequences. [27] In my opinion the weight of authority supports the view of the Court of Appeal on this point. The courts have not treated VAT classification in the same way as some questions of classification (for example, whether a contract is of service or for services) which, notwithstanding that there are no facts in dispute, are deemed to be questions of fact so as to exclude on appeal on a question of law: see the discussion in Moyna v Secretary of State for Work and Pensions[2003] UKHL 44 at [22]–[25],[2003] 1 WLR 1929 at [22]–[25]. On the other hand, as Lord Hope of Craighead said in the British Telecommunications case ([1999] STC 758 at 768,[1999] 1 WLR 1376 at 1386) the question is one of fact and degree, taking account of all the circumstances. In such cases it is customary for an appellate court to show some circumspection before interfering with the decision of the tribunal merely because it would have put the case on the other side of the line.”
“[30] Aldous LJ acknowledged that ‘at a particular level of generality’ it could be said that there was one transaction. But he said that when a doctor administered a drug to a patient he was ‘in reality dispensing the drug to the patient and then administering it’. Chadwick LJ likewise divided the transaction into three elements: first, the consultation and diagnosis, secondly the supply of the drug for the purposes of treatment and thirdly its administration. The first stage, he said, was ‘dissociable’ from the second and third and constituted a separate supply. Although there might be some medical skill involved at the third stage, the dominant element was the supply of the drug and it was therefore to be classified as a supply of goods. [31] Besides raising the question of what authority a doctor would have to dispense drugs to patients who were not reg 20 patients, this approach seems to me to involve the kind of artificial dissection of the transaction which the Court of Justice warned against in its judgment in the Card Protection case para 29. In my opinion the level of generality which corresponds with social and economic reality is to regard the transaction as the patient’s visit to the doctor for treatment and not to split it into smaller units. If one takes this view, then in my opinion the correct classification is that which the NHS has always taken of the personal administration of drugs to non-reg 20 patients, namely that there is a single supply of services.”
“[30] In the course of this appeal there has been much discussion of para 30 of the ECJ’s judgment. In my opinion it is clear that this paragraph (which uses the introductory words ‘in particular’) is dealing with a particular case exemplified by Madgett and Baldwin. It is not asserting that every distinct element of a supply must be a separate supply for VAT purposes unless it is ‘ancillary’. ‘Ancillary’ means (as Ward LJ rightly observed ([2004] STC 1471 at [39]) subservient, subordinate and ministering to something else. It was an entirely apposite term in the discussion in British Telecommunications (where the delivery of the car was subordinate to its sale) and in Card Protection Plan itself (where some peripheral parts of a package of services, and some goods of trivial value such as labels, key tabs and a medical card, were subordinate to the main package of insurance services). But there are other cases (including Faaborg, Beynon and the present case) in which it is inappropriate to analyse the transaction in terms of what is ‘principal’ and ‘ancillary’, and it is unhelpful to strain the natural meaning of ‘ancillary’ in an attempt to do so. Food is not ancillary to restaurant services; it is of central and indispensable importance to them; nevertheless there is a single supply of services (Faaborg). Pharmaceuticals are not ancillary to medical care which requires the use of medication; again, they are of central and indispensable importance; nevertheless there is a single supply of services (Beynon).”
“53. I should with diffidence like to make one or two observations about this learning. I am sure with very great respect that Millett LJ did not intend, in the first four sentences of the passage I have just cited, to indicate that in every case where multiple supplies properly fall to be treated as a single supply for fiscal purposes there is always a single or unitary dominant supply to which all the other supplies in question are then regarded as ancillary. That, certainly, is one case; but there may be others where the single supply that is arrived at for VAT purposes consists, not in one supply to which others are ancillary, but in a bundle of supplies none of which predominates over the others; the single supply may, as it were, be an apex or a table-top. There is thus a difference between what is ‘ancillary’ and what is ‘integral’: several supplies may be ‘integral’ to one another, with none predominating….The services of a hotelier (compare the facts of the Madgett case) are perhaps an example……”
“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.”