HM Revenue & Customs v EB Central Services Ltd & Anor [2007] EWHC 201 (Ch)

[2007] EWHC 201 (Ch)Case No CH/2006/APP/0588
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 9 February 2007
Before
THE CHANCELLOR OF THE HIGH COURT
Between
HER MAJESTY'S REVENUE AND CUSTOMSAppellants(1) EB CENTRAL SERVICES LIMITEDRespondents(2) EXCESS BAGGAGE AIRPORTS LIMITED
Mr Jeremy Hyam (instructed by HM Revenue & Customs) for AppellantsMr Mario Angiolini (instructed by Deloitte & Touche) for RespondentsHearing Hearing dates: 30 th January 2007
JudgmentThe Chancellor :Introduction
[1]EB Central Services Ltd and its subsidiary Excess Baggage Airports Ltd, to which I shall refer collectively as “the Taxpayers”, provide storage facilities for the personal luggage of passengers at Heathrow, Gatwick and Manchester Airports. They have accounted for VAT on the charges made for those services at the standard rate. In October 2003 the Taxpayers claimed that their charges should have been zero-rated. Then and thereafter they claimed substantial refunds of VAT overpaid. They contend that their services fall within items 6 and 11(a) of Group 8 in Schedule 8 to the VAT Act 1994 and should therefore be zero-rated in accordance with s.30 VAT Act 1994.[2]Those items are, so far as material, in the following terms:
“6 Any services provided for— (a) the handling of ships or aircraft in a port, customs and excise airport or outside the United Kingdom; or (b)the handling or storage— (i) in a port, (ii) on land adjacent to a port, (iii)in a customs and excise airport, or (iv)in a transit shed, of goods carried in a ship or aircraft. 11 The supply— (a) of services consisting of (i) the handling or storage of goods at, or their transport to or from, a place at which they are to be exported to or have been imported from a place outside the member States; or (ii) the handling or storage of such goods in connection with such transport;”
In respect of item 6 the Taxpayers claim that their services are properly to be regarded as “..services..for...the storage...in a customs and excise airport...of goods carried in a[n]...aircraft”. In the case of Item 11 they submit that their services are to be recognised as “...services consisting of..the...storage of goods, at...a place at which they are to be exported to or have been imported from a place outside the member states” or “the storage of such goods in connection with such transport”. (i) in a port, (ii) on land adjacent to a port, (iii)in a customs and excise airport, or (iv)in a transit shed, (i) the handling or storage of goods at, or their transport to or from, a place at which they are to be exported to or have been imported from a place outside the member States; or (ii) the handling or storage of such goods in connection with such transport;”[3]HMRC did not accept any of these contentions and, ultimately, the Taxpayers appealed to the VAT and Duties Tribunal from three specific decisions. The evidence adduced by them at the hearing in March 2006 included the results of a survey conducted on behalf of the Taxpayers in order to identify certain categories of passenger. That survey concluded that 95% of the luggage left in storage was carried on aircraft by passengers but only 76% of the luggage so left was carried to or from a place outside the EU. By their decision released on 16th June 2006 the VAT and Duties Tribunal upheld the Taxpayers’ claim in respect of Item 11(a) but rejected it in respect of Item 6. Consequently they determined that 76% of the supplies should be zero-rated. HMRC and the Taxpayers now appeal from the Tribunal’s conclusions in respect of item 11(a) and item 6 respectively.

The Facts

[4]It is not disputed that this appeal lies in respect of a point of law only. The relevant facts are set out in paragraphs 9 to 12 of the decision. In paragraph 9 the Tribunal set out a number of matters which were common ground. They were:(1) The service is provided wholly for passengers;(2) Only passengers’ luggage and personal effects are handled;(3) The airline is not involved in any of these processes:(4) All facilities are landside;(5) The reasons why luggage are left by passengers appear to be limited to:- (a) passengers arriving early for flights, (b) passengers in transit, (c) passengers whose flights have been delayed, (d) passengers whose baggage has exceeded the excess limits, (e) passenger’s collecting ski-equipment;(6) The terms and conditions of the left luggage service are that: (a) the baggage is the personal property of the individual depositing it; (b) the baggage does not contain items belonging to anyone else; (c) the baggage has been in the owner’s possession since it was packed; (d) the baggage does not contain hazardous items, firearms, jewellery, explosives, food, live animals, animals or fish/products, or fresh produce; (e) the baggage must be suitably packed for deposit in sealed containers, suitcases, bags, cartons or the like, (f) the maximum liability per item of the Taxpayers is £200.(7) The baggage is deposited by the passenger at the Appellant’s excess baggage point, and it is returned to them at the same place and in the same condition after payment. ie the Appellants do not transport the baggage, or carry out any acts preparatory to such transportation. (a) passengers arriving early for flights, (b) passengers in transit, (c) passengers whose flights have been delayed, (d) passengers whose baggage has exceeded the excess limits, (e) passenger’s collecting ski-equipment; (a) the baggage is the personal property of the individual depositing it; (b) the baggage does not contain items belonging to anyone else; (c) the baggage has been in the owner’s possession since it was packed; (d) the baggage does not contain hazardous items, firearms, jewellery, explosives, food, live animals, animals or fish/products, or fresh produce; (e) the baggage must be suitably packed for deposit in sealed containers, suitcases, bags, cartons or the like, (f) the maximum liability per item of the Taxpayers is £200.[5]The Tribunal found as facts that, as the Taxpayers claimed, the Taxpayers did not accept for storage any commercial goods and that 95% of luggage left with them was or had been carried on aircraft by passengers. In addition they concluded that 76% “of the supplies were for non-EU travel”. I understand that to be a conclusion that 76% of the luggage stored had accompanied a passenger who had come from or was going to a place outside the European Union. In addition the Tribunal found as a fact that none of the luggage had a sufficient business connection “to make it cargo”. Other general matters, including the details of the Taxpayers survey, are set out in paragraph 12.

The legislative history

[6]Much of the argument before me focussed on the legislative background, in both Europe and United Kingdom, to the items with which I am directly concerned. Accordingly it is convenient to refer to them at this stage. The background starts with Finance Act 1972 by which VAT was first introduced. Schedule 4 set out descriptions of the goods or services to be zero-rated. Group 10 dealt with Transport. Item 4 covered the transport of passengers in certain limited categories. Item 5 covered the Transport of passengers and of freight to or from a place outside the United Kingdom. Item 6 provided for zero-rating of services for the handling of ships or aircraft or of goods carried in a ship or aircraft in a port or customs airport or in respect of such goods on land adjacent to a port.[7]The provisions dealing with VAT were re-enacted with amendments in the Finance Act 1983. The goods or services to be zero-rated were set out in Schedule 5 in which Group 10 dealt with Transport. They were similar to but not the same as those previously found in Group 10, Schedule 4 to Finance Act 1972. Item 5 was limited to freight. Item 6 continued to deal with the handling of ships or aircraft and the goods carried in them. Item 11 specified the supply of services outside the UK ancillary to the transport of goods. Item 12 covered supplies to “a person in his business capacity...who in that capacity belongs in a country other than the UK....of services consisting of...the storage of goods....at the place at which they are to be exported or have been imported...or of storage of such goods in connection with such transport”.[8]By the combined operation of s.16(4) Value Added Tax Act 1983 and Value Added Tax (Transport) Order 1990 SI 1990 No 752 item 6 was amended so as to include for the first time in sub-paragraph (b) “any services provided for...the...storage in a...customs and excise airport...of goods carried in a ship or aircraft”. Counsel for HMRC seeks to rely on the Explanatory Notes attached to this order, an Explanatory Memorandum and to statements made in the House of Commons by the Economic Secretary to the Treasury when introducing the order. In each case the phrase “goods carried in a ship or aircraft” has been summarised as “cargo”.[9]So far as the authorities put before me show, this was the state of UK domestic law at the time the relevant provisions of the Sixth Council Directive of 17 May 1977 on the Harmonisation of the laws of the Member relating to turnover taxes (“the Sixth Directive”) came into effect. As is well known the Sixth Directive introduced a common system of value added tax and a uniform basis of assessment. Article 28(2)(a) in the Title dealing with transitional arrangements provides that during the transitional period, which still continues:
“Exemptions with refund of the tax paid at the preceding stage and reduced rates lower than the minimum rate laid down in Article 12(3) in respect of the reduced rates, which were in force on 1 January 1991 and which are in accordance with Community law, and satisfy the conditions stated in the last indent of Article 17 of the second Council Directive of 11 April 1967, may be maintained. Member States shall adopt the measures necessary to ensure the determination of own resources relating to these operations.”
The last indent of Article 17 of the Second Directive requires such exemptions or reduced rates to be conferred by measures taken only for “clearly defined social reasons and for the benefit of the final consumer”.[10]The earlier titles deal with territorial application, taxable persons, taxable transactions, chargeability, taxable amount, rates, exemptions, deductions and obligations. The title dealing with exemptions contains Articles 14 and 15. They require that Member States shall exempt the supplies thereafter described under conditions for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any evasion, avoidance or abuse. For present purposes the relevant descriptions are those contained in Article 14(1)(i) and Article 15(6),(9) and (13). It is common ground that each of them is of direct effect. So far as material they are in the following terms:
“the supply of services, in connection with the importation of goods where the value of such services is included in the taxable amount in accordance with Article 11B(3)(b); [14(1)(i)]” “the supply, modification, repair, maintenance, chartering and hiring of aircraft used by airlines operating for reward chiefly on international routes, and the supply, hiring, repair and maintenance of equipment incorporated or used therein; [ 15(6)]” “the supply of services other than those referred to in paragraph 6, to meet the direct needs of aircraft referred to in that paragraph or of their cargoes; [15(9)]” “the supply of services including transport and ancillary transactions but excluding the supply of services exempted under Article 13, when these are directly connected with the export of goods or imports of goods covered by Article 7(3) or Article 16(1) Title A. [15(13)]”
[11]I have set out in paragraph 2 above the terms of Items 6 and 11(a) VAT Act 1994 Schedule 8 group 8 as amended and in force at the times material to these appeals. By then the addition of the transit shed in item 6 and the reordering of the other places had been effected by Value Added Tax (Transport) Order 2002 SI No 1173 and the word “freight” appearing in item 5 in both Schedule 4 Group 10 to the Finance Act 1972 and Schedule 5 Group 10 to the Finance Act 1983 had been changed to “goods”. I should also briefly refer to ss.11, 15, 27 and 30 VAT Act 1994. Each of them relates to “goods” quite generally. S.11 deals with the acquisition of goods from another member state. S.15 contains general provisions relating to imported goods. S.27 is concerned with goods imported for private purposes and s.30 provides for zero-rating of goods or services as described in Schedule 8.

The Decision of the Tribunal

[12]In their decision the Tribunal set out the relevant provisions of VAT Act 1994 and the Sixth Directive and the facts which were common ground or found by them. In paragraphs 13 to 18 they summarised the submissions of counsel for the parties. The argument for the Taxpayers was to the effect that Article 28(2)(a) provided for a permissive regime so that both items 6 and 11(a) should be interpreted without reference to Articles 14 or 15. So interpreted the word “goods” was an ordinary word meaning tangible property or chattels with no requirement of a commercial element in either item 6 or 11(a). The argument of counsel for HMRC was that both items should be interpreted by reference to Articles 14 and/or 15 and, so far as possible, to be compatible with those articles. So interpreted the word “goods” was to be equated to the word “cargo” which was to be interpreted as commercial freight. So read neither item covered the services supplied by the Taxpayers.[13]The Tribunal distilled these arguments into four issues, namely:(a) Is Group 8 to be interpreted by reference to the Directive?(b) If so, how should Items 6 and 11 be interpreted?(c) Does the supply on the facts fall within Item 6?(d) Does the supply on the facts fall within Item 11? They answered issues (a) and (d) in the affirmative and issue (c) in the negative. Their conclusion on issue (b) is subsumed in their answers to issues (c) and (d). HMRC submit that the Tribunal was wrong on issue (d). The Taxpayers contend that the Tribunal was wrong on issues (a) and (c). Accordingly I must deal with each of them. I will do so in the same order as the Tribunal adopted.

Is Group 8 to be interpreted by reference to the Directive?

[14]The Tribunal’s conclusion on this issue is succinctly stated in paragraphs 20 and 21 in these terms: “20. The European Vires for the provisions of the VATA is derived mainly from the Sixth Directive. Marleasing requires an interpretation of VATA compatible with the directive to be made if possible.[21]We consider that prima facie the provisions of Items 6 and 11 must be construed to accord with the Directive if possible. The question then arises if there is anything to restrict this. It was argued that Article 28(2)(a) did so. However, this still required the measures to be in accordance with Community Law. In deciding what the measure covers it has to be construed and in doing so one must seek to make it accord with Community Law. In the case of this provision it is stronger still as there is a requirement for the measure to be in accordance with Community Law.”[15]No one doubts that the VAT Act 1994 was, as its predecessors had been, enacted to give effect to the obligations of the UK arising from the EU Treaty and the Sixth Directive. Accordingly a national court hearing a case falling within the scope of the Sixth Directive is required, so far as possible, to interpret its national law in the light of the wording and purpose of that directive in order to achieve the result pursued by the latter. Marleasing Scheme Accommodation v La Commerciale Internacionale de Alimentation Scheme Accomodation Case C-106/89 [1990] ECR I 4135 para 8. The contrary was not suggested before me.[16]The contest arose on the next step foreshadowed in the first sentence of paragraph 21. As will be seen the Tribunal considered that the application of the Marleasing principle required items 6 and 11(a) to be construed in the light of and so as to conform to Article 15 paragraphs 9 and 13 respectively. Counsel for the Taxpayers submits that such an approach is wrong in law. He submits that zero-rating provisions are purely national measures which can and do derogate from the harmonised definitions of standard rated and exempt supplies. They are permitted as “exemptions with refund of tax paid” under Article 28(2)(a) of the Sixth Directive provided that they are(i) in accordance with Community law,(ii) are taken for clearly defined reasons and(iii) are for the benefit of the final consumer. He submits that in context it can be clearly seen that the Community law with which the provision must accord is exclusive of the Community law from which it is entitled to derogate. Were it otherwise the derogation specifically permitted by the express terms of the paragraph would be denied by the general proviso. Accordingly items 6 and 11, in particular, must be interpreted as self-standing derogating national provisions and not as harmonised community exemptions. He submits that the remaining sentences of paragraph 21 of the Tribunal’s Decision are wrong in law.[17]Counsel for the Taxpayers submits that this approach is consistent with and supported by a number of authorities. Thus in Commission v UK [1988] ECR 3127 in which the ECJ considered various provisions relating to zero-rating in the UK it did not find it necessary to refer to any harmonised exemption in the Sixth Directive. The issue was whether the provisions for zero-rating complied with the requirements of the last indent of Article 17 of the Second Directive as imported by Article 28. No reference was made to Articles 14 or 15 or any of their subparagraphs. In Ideal Tourisme v Belgium Case C-36/99 [2000] ECR I-6049 Ideal Tourisme operated an international coach transport business. It contended that it should not have to pay VAT at 6% because air transport undertakings did not. It maintained that the exemption afforded to air transport undertakings give rise to discrimination between them and other transport undertakings and constituted state aid within Article 92 EU Treaty. In paragraph 38 of its judgment ECJ stated:
“...the harmonisation envisaged has not yet been achieved, in so far as the Sixth Directive, by virtue of Article 28(3)(b), unreservedly authorises the Member States to retain certain provisions of their national legislation predating the Sixth Directive which would, without that authorisation, be incompatible with that directive. Consequently, in so far as a Member State retains such provisions, it does not transpose the Sixth Directive...”
To the like effect are paragraphs 34 to 36 of the judgment of ECJ in Urbing-Adam v Administration de L’enregistrement et des domains Case C-267/99 [2001] ECR I-7467[18]The same proposition was stated by Lords Hoffmann and Walker of Gestingthorpe in Marks & Spencer plc v Commissioners of Customs & Excise [2005] UKHL 53 at paras 9 and 52. In Talacre Beach v Commissioners for Customs & Excise Case C-151/05 in which the judgment was released on 6th July 2006 ECJ stated in paragraph 22 that:
“the content of the national legislation in force on 1 January 1991 is decisive in ascertaining the scope of supplies in respect of which the Sixth Directive allows an exemption to be maintained during the transitional period.”
In that case Advocate-General Kokott dealt expressly with the requirement in Article 28(2)(a) that the exemptions with refund must be “in accordance with Community law”. At paragraph 24 she said: “Article 28(2)(a) of the Sixth Directive permits only the maintenance of national exemptions which are in accordance with Community law. This condition, expressly included in the Directive only in 1992, can only be understood as meaning that the national rules must be consistent with the requirements of Community law in other respects, thus inasmuch as Article 28 does not itself permit derogations, as for example in the case of the rate of tax or the right to deduct.” [Original emphasis][19]Counsel for the Taxpayers submits that it is in any event impossible to reconcile either of the items in question on this appeal with Article 15(9) or (13). He relies on a number of detailed comparisons to demonstrate that the relevant Article is in some ways wider and in others narrower than the relevant item. I shall, as necessary, refer to these submissions further when I come to consider the proper construction of each of those items.[20]The response of counsel for HMRC is not to challenge these submissions but to avoid them. He contends that it is not an issue on this appeal whether, to quote the written argument of counsel for the Taxpayers, “UK zero-rating provisions amount to non-harmonised definitions of a purely national nature or if they have to be interpreted by reference to harmonised exempting definitions in the Sixth Directive”.[21]In my view the submissions of counsel for the Taxpayers show that the Tribunal approached the questions of construction relating to items 6 and 11(a) on an erroneous basis. In paragraph 21 of their decision the Tribunal referred to Article 28(2)(a) of the Sixth Directive and the requirement thereby imposed that the permitted exemptions should accord with Community law. They then expressed the view that the measures, which in context must be a reference to items 6 and 11(a), should be construed in accordance with Community law. This is confirmed by paragraphs 22 to 25 where the Tribunal considered those items by reference to Article 15(9) and (13).[22]In these paragraphs the Tribunal appear to have thought that the principle of Marleasing required them to construe items 6 and 11(a) so as to accord, so far as possible, with Article 15(9) and (13). That, in my view, was wrong. The authorities to which counsel for the Taxpayers referred (see paras 17 and 18 above) show quite clearly that measures permitted by Article 28(2)(a) do not have to be interpreted by reference to and so as to accord so far as possible with harmonised measures from which they are a permitted derogation. Any other conclusion would be illogical.[23]No doubt such a derogation must be strictly construed, see for example Talacre Beach v Commissioners for Customs & Excise Case C-151/05 para 23. Further it may not exceed the derogation in force as at 1st January 1991, when the 6th Directive entered into force, if its retention is to be permissible thereafter until the expiration of the transitional period. To that extent the general rules of interpretation require this court to construe items 6 and 11(a) so far as it properly can to avoid any breach by UK of its treaty obligations. If items 6 and 11(a) exceed the derogation in force on 1st January 1991 they are not deprived of legal effect, but, as an exemption, should be construed strictly and, so far as possible, consistently with Articles 14 and 15. Only to that extent do the general principles of construction, as laid down in Marleasing, require this court to interpret items 6 and 11 (a) consistently with those articles. In summary therefore I consider that, subject to the further arguments to which I shall refer, items 6 and 11(a) have to be considered from two standpoints: (1) do they purport to provide a derogation in excess of that permitted as at 1st January 1991? and if so (2) to the extent of any such excess can items 6 and 11(a) be construed consistently with Article 15(9) and (13)?[24]The argument of counsel for HMRC is to the effect that, whatever the position under Community law, it is clear that it was the intention of Parliament in amending the provisions of VAT Act 1983 in 1990 to bring Group 10 in Schedule 5 into line with corresponding provisions of Articles 14 and 15. Accordingly, so he submits, the court should give effect to that intention in the way the Tribunal did. He relies for this submission on three documents, namely(1) the Explanatory Notes to the Value Added Tax (Transport) Order 1990 SI No 752 (see para 8 above),(2) an undated Explanatory Memorandum submitted by the Commissioners for Customs and Excise to the Select Committee on Statutory Instruments in relation to that order and(3) a statement of the Economic Secretary to the Treasury made in the House of Commons in relation to that order on 2nd May 1990. He submits that the first two are properly to be considered by reference to the speech of Lord Steyn in R v National Asylum Support Service [2002] 1 WLR 2956 paras 2 to 6. He suggested that the third was admissible in accordance with the principles of Pepper v Hart [1993] AC 593. He never developed that submission but invited me to see what the Economic Secretary had said de bene esse.[25]Counsel for the Taxpayers did not oppose the introduction of the first two documents. He submitted that their generality robbed them of any utility. He opposed the introduction of Hansard on the basis that there is no relevant ambiguity but even if there is the statement is of no help. To deal with these submissions it is necessary to refer to the relevant documents.[26]As I have already pointed out in paragraph 8 above the Value Added Tax (Transport) Order 1990 SI No 752 added the words “or storage” in item 6 and deleted the word “passengers” from item 11 as included in Group 10 of Schedule 5 to the VAT Act 1983. The relevant passage in the explanatory notes reads:
“Article 6 extends zero-rating to handling services for ships or aircraft outside the United Kingdom and to the storage of ship or aircraft cargo at United Kingdom ports or airports.”
Counsel for HMRC relies on the use of the word “cargo” as a compendious description of “goods carried in a ship or aircraft”. In my view he is entitled to do so but whether it makes any difference to the outcome remains to be seen.[27]The Explanatory Memorandum set out to describe the effect of the various provisions of the Order. With regard to the amendment to item 6 it stated: “5. Having regard to Articles 15.8, 15.9 and 17.3(b) of the Sixth Directive item 6(a) has been varied so as also to zero-rate the supply of services for the handling of ships and aircraft where those services are provided outside the United Kingdom.[6]Having regard to Articles 15.8, 15.9 and 15.13 of the Sixth Directive item 6(b) has been varied so as also to zero-rate the storage of goods.” Counsel for the Taxpayers submitted that though admissible these statements were too general to be of any help on the point of construction. I agree.[28]The statement in Hansard was made by the Economic Secretary to the Treasury when moving the consideration of the Value Added Tax (Transport) Order 1990 SI No 752. In relation to Article 6 (of the Order) he said:
“Article 6 brings item 6 more in line with the EC VAT law by extending relief to ship and aircraft handling services outside the United Kingdom and to the storage of ship and aircraft cargo within United Kingdom ports and airports. For handling services the relevant Sixth Directive provisions are articles 15.8 and 15.9 and for cargo storage they are 14.1(i) and 15.13. Article 6 of the order extends zero-rating to storage of ship or aircraft cargo at United Kingdom ports and airports.”
[29]Counsel for the Taxpayers submitted that there was no ambiguity to which this statement was relevant and in any event the statement was insufficiently clear to assist on the issue I am considering. He pointed out that the phrase “more in line” did not connote complete consistency. In any event Articles 14.1(i) and 15.13, to which the Minister referred, had nothing to do with storage of cargo or anything else. I agree with all those propositions. Insofar as the Minister equated “goods carried in a ship or aircraft” with “cargo” his statement adds nothing to the Explanatory Notes and Memorandum.[30]Having considered these three documents I cannot accept the submission of counsel for HMRC to the effect that it was the clear intention of Parliament to bring items 6 and 11(a) so “into line with” Articles 15(9) and (13) that they do not extend to goods of any wider description than that warranted by those articles. For all these reasons I conclude that the answer to the question posed by this issue is in the negative save to the extent I have explained in paragraph 23 above. In these circumstances the second issue to which I referred in paragraph 13 above has been dealt with in my consideration of the first issue. I see no reason to consider items 6 and 11(a) separately. Accordingly I will deal with them together in the next section.[31]The conclusions of the Tribunal are set out in paragraphs 22 to 29 of their Decision in the following terms: “How should Items 6 and 11 be interpreted?[22]On the basis that Items 6 and 11 have to be interpreted in accordance with Community Law for the reasons given above, we will consider each item in turn.[23]Item 6 deals with “goods carried in a ship or aircraft”. Here the goods either have been or are to be carried in an aircraft and so may not fall within the wording because of the tense used. Assuming this hurdle is overcome they must still be “goods carried in a ship or aircraft”.[24]HMRC argued that “goods carried in a ship or aircraft” was akin to cargo and that there was a business flavour to this. We note that Article 15.9 refers to supplies “to meet the direct needs of aircraft… or of their cargoes”. We consider that Item 6 has to be considered in the context of Article 15.9 and on doing so we consider that the words “goods carried in a ship or aircraft” must be construed in this context as akin to cargo, ie as having a commercial requirement.[25]Item 11 refers to “goods” not to “goods carried in a ship or aircraft”. Accordingly, we consider that the word can and does bear a different meaning from the phrase in Item 6 as it is not so restricted. Here the word “goods” in our view is not akin to cargo but more akin to chattels or tangible moveables. This accords with Article 15.13 dealing with the export and import of goods with no reference to cargoes. Construed on that basis the word “goods” in Item 11 has a wider meaning than that in Item 6. HMRC cannot object to this on the grounds of their own State’s mis-implementation of the Directive. Does the supply here fall under Item 6?[26]We conclude that it does not. We have already found that the baggage does not constitute cargo. On that basis it is not “goods carried in a ship or aircraft” and so not within Item 6.

Does the supply fall under Item 11?

[27]We have already decided that the word “goods” in Item 11 is not as restricted as the phrase “goods carried in a ship or aircraft” in Item 6. We consider that the baggage here does fall within the meaning of goods in Item 11 as tangible property on chattels.[28]Accordingly, the supply will be within Item 11 to the extent that they are to be exported to or have been imported from a place outside the Member States.[29]We were told and it was unchallenged by HMRC that 76 per cent of the baggage fell within the Non-EU Category. On that basis we hold that in principle 76 per cent of the supplies should be zero-rated.” Does the supply here fall under Item 6? Does the supply fall under Item 11?[32]For the reasons I have already explained I consider that the whole approach of the Tribunal was wrong. Accordingly their conclusions are, at least, suspect. Counsel for HMRC seeks to support their conclusion in respect of item 6 and challenges their conclusion on item 11(a). Common to both of them is the question of what is meant by “goods”. In relation to both item 6 and 11 (a) counsel for HMRC submitted that personal luggage belonging to passengers could not be described as “goods” because that word only connoted items for sale or resale. In the alternative, relying on the Explanatory Notes and Memorandum, he submitted that the goods in question must answer the description of cargo, meaning in his submission commercial freight. Counsel for the Taxpayers submitted that prima facie “goods” embraced all chattels and tangible personal property.[33]I reject the submission of counsel for HMRC. The VAT legislation as a whole speaks of “goods” in the most general sense of the word. It may be restricted by its context but in the absence of such a restriction must extend, at least, to all chattels and tangible personal property. There is nothing in either the word or the context afforded by items 6 or 11(a) to limit the word to ‘goods for sale or resale’. It may be that the word “cargo” is a convenient synonym for goods carried in a ship or aircraft or for goods transported from one place to another but it does not carry any implied limitation to ‘goods intended for sale or resale’ or to ‘commercial freight’. But even if it does and cargo is normally stored or transported in a hold this cannot limit the ambit of the word “goods” so as to exclude the personal or hand luggage of passengers.[34]Accordingly I approach both items on the basis that the word “goods” embraces all chattels and tangible personal property. For the purposes of item 6 the chattels must be “goods carried in a ship or aircraft”. Given the findings of fact to which I have referred in paragraph 5 above the facilities for storage provided by the Taxpayers is used in respect of goods of which 95% have been or are to be carried on an aircraft. Though the Tribunal referred in paragraph 23 to potential problems arising from the tense used in item 6 no point in this connection was relied on by counsel for HMRC. In my view he was right not to do so. The word “carried” is used adjectivally without any necessary reference to the time of carriage. In my view the services supplied by the Taxpayers to the extent found by the Tribunal fall squarely within the terms of item 6. It was not suggested that that item went beyond the equivalent item in the 1983 Act as amended before 1st January 1991 so as to exceed the derogation permitted by Article 28(2)(a). To this extent I will allow the appeal of the Taxpayers.[35]In these circumstances the question of the application of item 11(a) does not arise because the 76% to which it could apply are already included in the 95% to which item 6 applies. Nevertheless I will consider it shortly. The Tribunal accorded to the word “goods” the wide meaning attributed to that word by the Taxpayers which I have already upheld. The Tribunal considered (paragraph 28 of their Decision) without further ado that in those circumstances item 11(a) applied.[36]Counsel for HMRC submitted that in this respect they were wrong in law. He raised, in effect, three points. They were:(1) Item 11(a) went beyond that permitted by the corresponding provision in the 1983 Act. Accordingly in that respect it should be construed as to the excess by reference to Article 15(13).(2) Article 15(13) requires a direct connection between the storage and the transport of those goods.(3) The place of import or export cannot be the airport as a whole but must be some more limited part of it.[37]A comparison of item 12 in Group 10 in Schedule 5 to the 1983 with the corresponding item, being item 11, contained in Group 8 in Schedule 8 to the 1994 Act does indicate an extension to the range of zero-rated goods in the latter when compared with what was permitted by the former. Thus the former was limited to a person in his business capacity who belonged in a country other than the United Kingdom. The latter in respect of sub-paragraph (a) applies to storage services rendered to anyone, the business capacity qualification being applicable to sub-paragraph (b) alone. But that does not rob item 11(a) of legal effect. Nor, in my judgment, can it lead to any more limited construction to enable it to comply with Article 15(13). The excess is the extension from business passengers to all passengers. There is no process of interpretation by which that limitation may be implied into item 11(a). It follows that I reject both the first two submissions.[38]With regard to the third submission it does not seem to have attracted the attention of the Tribunal so as to lead them to making any necessary findings of fact in relation to the place of export or import and its juxtaposition with the site of the storage facilities provided by the Taxpayers save that the latter are “landside”. I take this to mean that they are before or after the relevant customs barrier for exports or imports respectively. But if the place of export and import is treated as the customs barrier storage of goods at that place would be, in practice, impossible. Such a requirement would rob the provision of any practical effect. Nor, in the light of the alternative in item 11(a)(ii) is it necessary to do so.[39]Counsel for HMRC submitted in relation to item 11(a)(ii) that the storage must be directly related to the transport. It does not appear that this submission attracted the attention of the Tribunal either. In any event on the findings of the Tribunal the storage facilities provided by the Taxpayers are directly connected, to the extent of 95%, with the flight the owner of the goods has just taken or is about to take. No reason has been shown why any connection more direct than that should be required.[40]For all these reasons I see no reason to disagree with the result of the Tribunal’s findings with regard to item 11(a), though my reasons for doing so are different.

Conclusions

[41]For all these reasons I will:(a) allow the appeal of the Taxpayers, and(b) dismiss the appeal of HMRC.