Customs and Excise v Plantiflor Ltd [2002] UKHL 33

House of Lords
Between
Customs and ExciseAppellantPlantiflor LtdRespondent
Before
Lord Slynn of HadleyLord Mackay of ClashfernLord Hobhouse of WoodboroughLord MillettLord Scott of FoscoteDate 25 July 2002
[1]Miss Brierley ordered some bulbs from "Bakker Holland", the name under which Plantiflor Ltd trades in the United Kingdom. She received an "invoice" dated 5 September 1996. The invoice specified that the price of the goods she had ordered was £52.00. There were other charges of £2.50 ("Postage (£1.63) plus packing (£0.87)") and £0.25 transport insurance. The total was thus £54.75. The invoice acknowledged that she had already paid this sum. The total VAT was stated to be "£53.12 17.50% = £7.91". The difference between £53.12 and £54.75 is £1.63, the postage charged. Thus no VAT was charged on the postage. The commissioners however say that VAT was chargeable to Plantiflor on the postage. Plantiflor says it was not. Accordingly, Miss Brierley's order was taken as a particular assessment to test the practice of the Commissioners in respect of many thousands of mail orders.[2]Mr P M F Horsfield QC, the chairman of the London VAT and Duties Tribunal, allowed Plantiflor's appeal and held that VAT was not payable by Plantiflor on the postage. Laws J held that it was and reversed Mr Horsfield. The Court of Appeal held that it was not and so reversed Laws J. The commissioners have now appealed to your Lordships. Miss Brierley would no doubt be surprised that what seemed a simple transaction should have led to such complex arguments and different decisions. That, however, seems to be inherent in the administration of the VAT system.[3]The basis of that system is to be found in the Sixth Council Directive of 17 May 1977 (77/338/EEC) as subsequently amended and as applied to the United Kingdom by the Value Added Tax 1994 and Orders in Council made pursuant to it. It is accepted for present purposes that the United Kingdom legislation is in accordance with the Community Directives.[4]By article 2 of the Sixth Directive "the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such" shall be subject to value added tax, a tax not on profits but on turnover. The supply of goods means "the transfer of the right to dispose of tangible property as owner" (article 5) and the supply of services means any transaction which does not constitute a supply of goods within the meaning of article 5: article 6.[5]By article 11(A)(1)(a) the taxable amount is to be, subject to exceptions, "everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies". By article 11(A)(2) the taxable amount shall include "(b) incidental expenses such as commission, packing, transport and insurance costs charged by the supplier to the purchaser or customer."[6]By article 11(A)(3):
"The taxable amount shall not include: . . . (c) the amounts received by a taxable person from his purchaser or customer as repayment for expenses paid out in the name and for the account of the latter and which are entered in his books in a suspense account."
[7]By article 13(A)(1)(a) member states are required to exempt from VAT "the supply by the public postal services of services other than passenger transport and telecommunication, services, and the supply of goods incidental thereto". By section 31 of, and Group 3 of Schedule 9 to, the 1994 Act "the conveyance of postal packets by the Post Office" and "the supply by the Post Office of any services in connection with [such] conveyance" were made exempt from VAT.[8]By section 19 (2) of the 1994 Act:
"If the supply [of goods or services] is for a consideration in money its value shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration."
[9]The contract between Plantiflor and its customers is to be found in a page in Plantiflor's catalogue and the order form filled in by the customer together perhaps with the invoice. The catalogue under the heading "Convenience of Delivery to Your Door" states:
"Bakker deliver every order, whether large or small, direct to your home. Everything neatly packed with the utmost care. You will also receive the latest Garden Review"
. Under the heading "Collection and Delivery":
"Orders collected incur no handling charges. If you require delivery by carrier then a nominal charge is made to cover mail order packing and handling. We will happily arrange delivery on your behalf via Royal Mail Parcelforce if requested. In which case please include the postage and handling charge on your order. We will then advance all postal charges to Royal Mail on your behalf"
. Under the heading "Collection and Delivery":[10]The order form in the present case on the front side contains spaces to indicate (a) "Total Order Value", (b) "Goods in Transit Insurance (Cross out if not required) 0.25p" and (c) "Contribution Towards Post and Packing £2.50" and (d) "Final Total". On the reverse side the customer was told that if some goods were to be sent in advance "Please add an extra £2.50 postage and packing charges".[11]Plantiflor is the subsidiary of a Dutch company and the group operates widely in Europe selling directly to the public. Customers can collect the goods ordered from Plantiflor in Spalding or in the Netherlands though very few customers do so and then it seems only from Spalding. When orders are received in Spalding either by post or telephone they are forwarded to Holland where the goods are packed and sent by lorry to the United Kingdom. On arrival in the United Kingdom parcels go direct to Royal Mail Parcelforce, at the time a section of the Post Office. They are then delivered by Parcelforce. In 1995 some 475,500 orders were made by Plantifor's customers, the average price being £22.11. Something in the order of £2,000 worth of goods are sent by trailer each week from Holland to the United Kingdom.[12]Plantiflor entered into a contract with Parcelforce on 6 January 1994 in relation to the carriage of Plantiflor's products, the contract to remain in operation from 1 August 1993 until 31 August 1998. The agreement recited that "Plantiflor has agreed to send a certain number of items and Parcelforce has agreed to deliver them for Plantiflor at the prices set out below". Plantiflor's obligation was to send a minimum of 400,000 parcels a year, with an average weight of 3.4 kgs. For the first four years Plantiflor was to "use Parcelforce for the dispatch and delivery of 100% of its parcels traffic". In the fifth year Plantiflor could use another carrier for a maximum of 5% of its total parcels traffic.[13]In the first year, "Parcelforce will charge Plantiflor at a rate of £1.45 per parcel with a rate of £1.35 to commence with the introduction of bar-coded Plantiflor parcels scanned at collection and delivery." Thereafter the charges were to be varied as provided at the beginning of each year of the agreement. Plantiflor "shall pay invoices submitted to Parcelforce by means of direct debit transfer". The parcels were to be delivered to Parcelforce at Peterborough for onward transmission. Parcelforce undertook that 95% of the parcels dispatched would be delivered on or before the third working day after dispatch.[14]On 21 September 1993 Plantiflor told Parcelforce that in Holland and Germany no VAT was charged on postage. This was on the basis that "providing we charge the customer the actual value of the postage paid to the PTT and that all contracts state clearly that we are receiving postage, and posting parcels on their behalf, we will no longer be the contract principal, merely the customers' agent". Plantiflor therefore proposed that Parcelforce should confirm that it delivered parcels "(a) for us as principal and (b) as agent of our retail customers".[15]Plantiflor on 7 March 1994 told the commissioners that they intended no longer to pay VAT on the postal charge and they asked for the commissioners' acceptance of this. "If the customer requires us to present the goods either to a chosen carrier or to Royal Mail Parcelforce at a special price of £1.45 negotiated on our customers' behalf then we will do so subject to an additional packaging charge of £0.50."[16]By letter of 8 August 1994 the Commissioners replied that it might be possible to treat the postage as a disbursement but only if the customer knew "precisely what the Post Office charged for delivery. Have you any evidence that the Post Office actually charges the flat rate of £1.45 referred to in all cases? Failure to meet the basic requirements will nullify acceptance of such charges as a disbursement".[17]Plantiflor replied that the customer knew the charges of £1.49 (previously £1.45) which was disclosed on the invoice and that Parcelforce charged Plantiflor a flat rate of £1.49 per parcel. By letter of 29 September 1994 Customs and Excise accepted that postage should be treated as a disbursement but on 9 May 1996 they said that they had been advised and had decided that "'Plantiflor are making single supplies of delivered goods, and those supplies cannot be divided into component parts.' Delivery is therefore part of your supply, and the full payment made by your mail order customer is therefore liable to VAT at the appropriate rate".[18]On 23 August 1996 the Post Office told the commissioners that it considered that the Post Office services were provided to the mail order company with whom it had a contract.[19]My Lords,[19]it is clear that under the contract Plantiflor is to supply the goods packed and, if required, insured for the transport. A principal feature of its marketing is the "Convenience of Delivery to Your Door" that is really why "You'll Enjoy Ordering from Bakker" and the catalogue states "Bakker deliver every order, whether large or small, direct to your home". It is equally made clear that Plantiflor is not undertaking and does not intend to deliver the goods itself. What it is undertaking is to ensure that the goods are delivered. It will do this by arranging delivery via Royal Mail Parcelforce if so requested. The total payable for all this is in the present case £54.75. The sole question raised on this appeal is whether the "Postage (£1.63)" or that part of the "Contribution Towards Post and Packing £2.50" which relates to the postage cost is part of the consideration moving from the customer to Plantiflor for the relevant supply or whether it constitutes money handed to Plantiflor which is not part of that consideration.[20]From the calculation of the VAT on the invoice it seems to have been accepted that VAT was payable on transport insurance. If Plantiflor acted as insurers that would clearly be the position. If, as seems more likely, Plantiflor merely undertook to arrange insurance then the position would seem to be analogous to the present question though the matter has not been gone into in argument. If VAT was payable on the arrangement for insurance it may follow that it was also payable in respect of the arrangement for transport.[21]Plantiflor's case relating to the transport in essence is that it made arrangements in September 1993 to act as agent for its customers and that it would receive the postage and pass it on to Parcelforce as such agent and that all services rendered by Parcelforce were rendered as principal to the customer. The consideration of £1.63 in fact moved from the customer to Parcelforce.[22]The Court of Appeal considered that the commissioners had conceded that there were two supplies—one of the sale of goods by Plantiflor and one of the service of arranging delivery of the goods via Parcelforce. There was also a supply of services by Parcelforce to the customer in the actual delivery of the goods. The judge thought this "concession" right. The Court of Appeal refused to allow the commissioners to go back on the concession and to argue that there was only one integral supply of the sale of delivered plants and that even if the delivery by Parcelforce was a supply by Parcelforce to the customer that there was still a supply of services by Parcelforce to the plaintiffs. The court, however, went on to say that these two arguments were in any event wrong, and to explain that delivery was quite separate from the sale and there were two supplies as the tribunal had accepted.[23]If, as I considered in Customs and Excise Comrs v British Telecommunications plc [1999] 1WLR 1376 , 1382 - 1383, and as I still consider, the appropriate question is whether one act (here arranging the delivery) is "ancillary or incidental to another" (here the supply of bulbs) or is "a distinct supply", it seems to me on the contractual documents between Plantiflor and the customer which are before the House that these arrangements constituted a single supply. What the customer wanted and what Plantiflor agreed to provide was bulbs delivered to the home.[24]There was a separate supply consisting of the delivery of the bulbs from Plantiflor to Parcelforce, under a distinct contract. However, under the contract between the customer and Plantiflor arranging the delivery is ancillary to the making available of the bulbs. I do not consider that the answer to this question will vary according to, or depend on, the precise event or time when as a matter of English contract law the property in the bulbs passed to the customer. The reality is that Miss Brierley paid one total sum for one supply of delivered bulbs.[25]On the basis, however, that in the contractual documents between Plantiflor and its customer properly construed there were two supplies, the question arises whether the money received by Plantiflor for postage can constitute consideration received by Plantiflor or whether it is simply money that is channelled through Plantiflor but never became Plantiflor's property so that it cannot amount to consideration passing to Plantiflor.[26]It is contended by Plantiflor that there was no supply by Plantiflor to the customer in return for the postage. Properly analysed, Plantiflor was acting as agent for its customer and the only consideration received by Parcelforce (£1.63) for the only thing it did (delivering the parcels) was received from the customer. No consideration passed between the customer and Plantiflor for the delivery because Plantiflor did not deliver the goods and there was no consideration paid either in the postage charge or in the handling charge or in the price of the bulbs for arranging the delivery by Parcelforce.[27]As to the agency argument Plantiflor of course relies on the provision of the catalogue "We will . . . arrange delivery on your behalf. . . We will then advance all postage charges to Royal Mail on your behalf." They insist that for this reason no consideration moved from Plantiflor to Parcelforce.[28]The tribunal [1977] V & DR 301, 322 accepted that "the role of Plantiflor in relation to delivery was that of agent or other intermediary"[29]This conclusion however does not take into account the terms of the agreement between Plantiflor and Parcelforce. It is plain from the terms of that agreement to which I have referred that Parcelforce was to deliver parcels "for Plantiflor". Parcelforce was to "charge Plantiflor" and Parcelforce was to pay invoices from Parcelforce by direct debit transfer. There is nothing in that agreement to express or even indicate that the two contracting parties were not acting as principals, in other words that Plantiflor was acting as agent for its customers. There is no link between Parcelforce and the customer. Since all that Parcelforce knew was the name of the addressee on the parcel (or perhaps even only the address), it might well not know the identity of the customer. Plantiflor agreed to pay postal charges; Plantiflor and not the customer was liable to pay Parcelforce. Even though Parcelforce supplied the service for delivery of the goods there was no consideration passing from the customer to Parcelforce. Plantiflor agreed to arrange delivery including paying Parcelforce for the postage and the customer paid Plantiflor for that.[30]It seems to me that looking at the written terms of both contracts (Plantiflor and its customer: Plantiflor and Parcelforce) it is not shown that this £1.63 or any other of the 400,000 sums of £1.63 became on payment to Plantiflor the property of Parcelforce. They are not sums earmarked for Parcelforce. They are part of the receipts by Plantiflor as part of its turnover. The fact that by a direct debit mechanism Plantiflor must pay Parcelforce the total sum of £1.63 times the number of parcels delivered in any period does not convert the specific payment by the customer to Plantiflor into a payment to or on behalf of Parcelforce. This may not be exactly the same as the case where, eg a builder agrees to do work for which he will have to procure materials, the cost of which is part of the eventual price but it is sufficiently near to require an analogous result as Laws J thought. The analogy is perhaps nearer if the contract includes the provision of a particular item (a tap) which the builder is to obtain from a particular supplier at a known price for which the builder pays in advance and which is included in the overall charge for the work, unless it is shown that under article 11(A)(3)(c) of the Sixth Directive the price of the tap is repayment of an expense "paid out in the name and for the account of the [customer] and which [is] entered in his books in a suspense account".[31]In the present case it is not possible to say that £1.63 was paid out "in the name and for the account of the customer" even if the moneys here can be treated as entered in Plantiflor's books as a separate account. Even if, by the time Parcelforce got the periodic direct credit for all parcels delivered during the relevant period, it knew the name and address of the customers from the parcels or even from a list, it would not be sufficient to constitute each part of the global direct debit or credit as being in the name or for the account of the individual customer.[32]It is clear from Customs and Excise Comrs v Redrow Group plc [1999] 1 WLR 408 that one set of acts can constitute two different supplies of services. There it was to be found in the work of the estate agent in connection with the marketing of the existing home of the potential purchaser of a new Redrow home as well as selling the Redrow home. The House held that what was done was a supply of services to Redrow as well as to the owner. Lord Millett said, a pp 418-419:
"In the present case the taxpayer did not merely derive a benefit from the services which the agents supplied to the householders and for which it paid. It chose the agents and instructed them. In return for the payment of their fees it obtained a contractual right to have the householders' homes valued and marketed, to monitor the agents' performance and maintain pressure for a quick sale, and to override any alteration in the agents' instructions which the householders might be minded to give. Everything which the agents did was done at the taxpayer's request and in accordance with its instructions and, in the events which happened, at its expense. The doing of those acts constituted a supply of services to Redrow. "
The value added tax tribunal had the second of the two factors to which I have referred in mind when it said that it was necessary to await events and see to whom the agent makes the supply; it is only if the taxpayer becomes liable to pay the agent's fees that his services are supplied to it. The commissioners criticised this reasoning, submitting that the destination of a supply must be ascertainable when it is made; it cannot be held in suspense to await subsequent events. But this assumes that the services rendered to the householder and those rendered to the taxpayer are the same. They are not. The services rendered to the householder are the ordinary services of an estate agent in the valuation and marketing of his house. If the householder sells his home but fails to complete the purchase of a Redrow home, he may become liable for the agent's fees. He is not, however, entitled to deduct input tax in respect of the fees because, although the services in question were supplied to him, they were not used or to be used for the purpose of any business carried on or to be carried on by him". "The services obtained by the taxpayer are different. They consist of the right to have the householder's home valued and marketed in accordance with the taxpayer's instructions".[33]In the judgments of the courts below there are citations from earlier cases on the one hand cases like Glawe (HJ) case 38/93 [1994] STC 543 [1994] ECR I - 1679, Fischer v Finanzant Donaueschingen [case C-283/95] [1998] STC 708 and Customs and Excise Comrs v First National Bank of Chicago [case C-172/96] [1998] STC 850 dealing with exchange control or gaming machine transactions. These seem to me to be in a special category. I do not think that they give direct assistance in the present case. Nell Gwynn House Maintenance Fund Trustees v Customs and Excise Comrs [1999] STC 79 indicates clearly that a distinction may have to be drawn between a situation where a person supplies a product or service by himself or by his sub-contractor and the situation where a person agrees to arrange for the supply of that product or service. In this case it was the latter[34]For the reasons already given I would hold that VAT is payable in the sum of £1.63 in respect of postage and I would allow the appeal. LORD MACKAY OF CLASHFERN My Lords, LORD MACKAY OF CLASHFERN My Lords,[35]Plantiflor supplies goods and services to its customers. No question arises with regard to the supply of goods. So far as the supply of services is concerned what Plantiflor has agreed to do in respect of the consideration of £2.50 paid by the customer to Plantiflor is to arrange that the goods in question will be delivered by Parcelforce to the customer or to his order, the goods having been packed and delivered by Plantiflor to the relevant Parcelforce depot. It is agreed that the charge by Parcelforce for the delivery by them to the customer or to his order is £1.63 and the charge for packing and delivering the goods to the relevant Parcelforce depot and making the arrangements for their transmission by Parcelforce to the customer or to his order is 87p.[36]The service of delivery is optional. By the time the question of delivery arises the goods are agreed to have become the property of the customer and therefore can only be moved or delivered to Parcelforce with the customer's authority. The arrangements for payment to Parcelforce are contained in their contract with Plantiflor and there is provision for regular accounting. If there were default by Plantiflor in payment to Parcelforce it is clear in my opinion that the customer who has paid in advance to Plantiflor would not be liable to Parcelforce for the cost of the postage. On the other hand it is clear that the intention of the transaction is that the payment made by the customer to Plantiflor included the payment for the sum which Parcelforce requires as the consideration for its delivery of the goods to the customer or to his order. The value added tax tribunal was satisfied on the evidence that the supplier of the delivery service was not Plantiflor but Parcelforce. The tribunal makes it clear that this delivery supply extended from the time the goods had been placed in the hands of Parcelforce to the time the goods reached the customer or the person to whom the customer directed them to be supplied [1997] V & DR 301, 322, finding 7.1(1). Accordingly Plantiflor was not entitled to charge for this supply, the charge for this supply was due to Parcelforce and Plantiflor acted purely as an intermediary, its supply being, as I have said, completed when it handed over the goods to Parcelforce so that they might deliver them to the customer or to his order.[37]I respectfully agree with my noble and learned friend Lord Slynn of Hadley in Customs and Excise Comrs v British Telecommunications plc [1999] 1 WLR 1376 , 1380 where he said:
"Like Nourse LJ [1998] STC 544, at 549, I fully agree with the statement of Mr P M F Horsfield QC in Plantiflor Ltd v Customs and Excise Comrs [1997] V & DR 301, 313-314 para 4.1 that: 'Prima facie, therefore, article 11(A) has nothing to do with the identification of a supply, but operates, when the supply has been identified, [under the earlier titles of the Sixth Directive] to quantify the taxable amount in respect of the supply. . .' "
This passage was agreed to by all the other members of your Lordships' House that took part in that decision. Accordingly the first question is to identify the supply and then on the facts ascertained to decide what was the consideration given for the supply in question. This passage was agreed to by all the other members of your Lordships' House that took part in that decision. Accordingly the first question is to identify the supply and then on the facts ascertained to decide what was the consideration given for the supply in question.[38]In my opinion on the facts found in the present case by the Tribunal the supply of delivery of the goods by Parcelforce to the customer or to his order was not part of the supply which Plantiflor gave to the customer. That supply was completed when the packed goods were handed by Plantiflor to Parcelforce for delivery and the payment for it was made. The tribunal found as a fact that the consideration for that supply was included in the purchase price of the goods plus the 87p for the packaging cost. [1977] V & DR 301, 323, finding 7.1(5). The £1.63 was not payment to any extent for the supply that Plantiflor gave to the customer. It was entirely devoted to the payment of the service supplied by Parcelforce to the customer.[39]I accept that the arrangements were not arrangements for Plantiflor to be an agent of the customer to make payment to Parcelforce. The customer incurred no liability to Parcelforce in the event of default by Plantiflor to satisfy the payment arrangements which it had negotiated with Parcelforce. The invoice for the transaction made it plain that the intention of the parties was that the £1.63 should be the payment to Parcelforce for its service. In my opinion therefore in accordance with the view of Lord Slynn to which I have already referred article 11(A) has no part to play in identifying the supply which Plantiflor made to the customer. Once it is clear that Plantiflor did not give to the customer the service of delivery of the goods to the customer or to his order the money which Plantiflor received must be divided between the supply which Plantiflor gave to the customer and the supply which Parcelforce gave to the customer, and the appropriate apportionment was 87p for the supply that Plantiflor gave and £1.63 for the supply Parcelforce gave.[40]I entirely accept that in accordance with the decision of your Lordships' House in Custom and Excise Comrs v Redrow Group plc [1999] 1 WLR 408 in an arrangement such as is here in issue different supplies may be involved. There is nothing in the Redrow case in my view to justify the suggestion that in this case Plantiflor is supplying to the customer delivery from the Parcelforce depot to the customer or to his order. This is done by Parcelforce alone and it is accepted that Parcelforce is not a subcontractor of Plantiflor in giving this supply. If it were, the supply by Parcelforce would be to Plantiflor and not to the customer and this is contrary to the finding of fact by the tribunal. If Plantiflor is not giving the supply of delivery from the Parcelforce depot to the customer or to his order, I can see no basis on which the consideration for this supply can be included in the consideration for the supply which Plantiflor is giving to the customer, namely, as I said earlier, by providing the packing and delivery of the goods to the relevant Parcelforce depot and arranging that Parcelforce will be paid the amount which the customer has provided for that purpose.[41]An argument was raised by the commissioners on article 11(A) of the Sixth VAT Directive (77/338/EEC). Article 11(A)(1)(a) provides that the taxable amount shall be in respect of supplies of goods and services "everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies. . . " So the question of fact is immediately raised what is the consideration for the supply which Plantiflor in fact gave to the customer. It is only if the sum of £1.63 for delivery is part of that consideration that the later provisions, in particular article 3A, applies. In my view article 3A deals with the question that arises where in order to provide a supply the supplier incurs an expense to a third party, for example a subcontractor. Where that expense is incurred in the provision of the supply for which the consideration is in issue it can only be deducted in terms of article 3A when the full conditions are satisfied as, for example, when trust conditions are impressed on part of a payment to a contractor to protect the cash flow of a subcontractor in the event of the principal contractor becoming bankrupt. It does not appear to me to answer the question whether a particular sum is or is not part of the consideration for the supply.[42]The agreement between Plantiflor and Parcelforce rightly described during the hearing by my noble and learned friend Lord Hobhouse of Woodborough as a contract for carriage, involves a supply by Parcelforce to Plantiflor of the service of accepting customers' goods for delivery to the customer or to his order on terms set out in it but the consideration for this is not the charge that Parcelforce makes for delivery by it to the customer.[43]The argument for the commissioners is based upon the submission that Plantiflor makes arrangements with Parcelforce for delivery of the goods to the customer or to his order but in my opinion the effect of this for purposes of value added tax depends on the nature of the arrangements in question. If the arrangements involve that the responsibility for delivery to the customer is to be that of Plantiflor carried out, for example, by way of a subcontract with Parcelforce then the consideration for the service of making arrangements will include the cost of the delivery to the customer. On the other hand if the arrangements to be made are simply the handing over to Parcelforce of the goods to be delivered to the customer with appropriate arrangements for payment the responsibility for the delivery rests with Parcelforce and not with Plantiflor. In my opinion, therefore, liability cannot be determined simply by saying that Plantiflor is responsible for making the arrangements for the delivery. What is all-important is the nature of those arrangements and whether the supply of delivery to the customer is made by Parcelforce or by Plantiflor. If the supply is by Parcelforce the consideration for it is not part of the consideration for the supply which Plantiflor makes to the customer. If the supply of the delivery is made by Plantiflor then the consideration for it is part of the consideration which the customer pays to Plantiflor.[44]I do not believe that the factual position is in doubt in this case and I do not regard it as necessary for Plantiflor's argument to succeed that it had the character of an agent for the customer in the transaction with Plantiflor. In this connection I refer to a passage in the judgment of Laws J in Customs and Excise Comrs v Reed Personnel Services Ltd [1995] STC 588, 595 where he said:
"There may be cases, generally (perhaps always) where three or more parties are concerned, in which the contract's definition (however exhaustive) of the parties' private law obligations nevertheless neither caters for nor concludes the statutory questions, what supplies are made by whom to whom."
This is also in accord with the judgment in the Court of Justice of the European Communities in Finanzamt Uelzen v Armbrecht (Case C-291/92) [1995] STC 997, 1019, paras 13 and 14. In terms of article 11(A)(1), already quoted, the consideration for the supply by Parcelforce to the customer includes the consideration paid to the supplier by a third party. In this case Plantiflor paid to Parcelforce £1.63 for delivering the goods. It is therefore the consideration for this supply for VAT purposes. This is also in accord with the judgment in the Court of Justice of the European Communities in Finanzamt Uelzen v Armbrecht (Case C-291/92) [1995] STC 997, 1019, paras 13 and 14. In terms of article 11(A)(1), already quoted, the consideration for the supply by Parcelforce to the customer includes the consideration paid to the supplier by a third party. In this case Plantiflor paid to Parcelforce £1.63 for delivering the goods. It is therefore the consideration for this supply for VAT purposes.[45]Although the consideration for the delivery by Parcelforce to the customer or to his order was paid by the customer as part of the total sum he paid to Plantiflor it was clearly the intention of the parties that it should be passed on to Parcelforce and this is what in fact happened and in my opinion it is entirely right that the total sum paid by the customer to Plantiflor should, for the purposes of value added tax be allocated to the various supplies involved in the transaction, a supply of goods by Plantiflor to the customer, the packing and delivery of the goods to the Parcelforce depot which is a supply of services by Plantiflor to the customer and finally the supply of services by Parcelforce to the customer.[46]I conclude by agreeing that there were three distinct suppliers in the present case. the supply by Parcelforce to Plantiflor of the service of delivering its customer's goods. This was supplied pursuant to a contract for carriage made between Parcelforce and Plantiflor which contains no provision for consideration other then the agreed rates for the delivery of individual packages on a series of conditions. The supply by Parcelforce to the customer of the service of delivering his goods to him or to his order. This supply was also made pursuant to the contract for carriage made between Parcelforce and Plantiflor. The consideration for the supply was the sum of £1.63 paid by the customer to Plantiflor and by Plantiflor to Parcelforce and would be taxable if Parcelforce were a private carrier. The supply by Plantiflor to the customer of an arranged service for which the consideration was 87p. This was a taxable supply. The principal difference between my noble and learned friends and myself is that they say the contract in (ii) was without consideration, whereas I say the consideration was £1.63 paid by Plantiflor, as a third party to this supply, to Parcelforce. The principal difference between my noble and learned friends and myself is that they say the contract in (ii) was without consideration, whereas I say the consideration was £1.63 paid by Plantiflor, as a third party to this supply, to Parcelforce.[47]For these reasons, in my opinion, the decisions of the tribunal and of the Court of Appeal were correct and I would dismiss the appeal. LORD HOBHOUSE OF WOODBOROUGH My Lords, LORD HOBHOUSE OF WOODBOROUGH My Lords,[48]In agreement with my noble and leaned friends Lord Slynn of Hadley and Lord Millett, and for the same reasons, I too would allow the appeal. LORD MILLETT My Lords, LORD MILLETT My Lords,[49]Value Added Tax is charged on the value of the supply of goods or services made in the United Kingdom for a consideration and is a liability of the person making the supply. In the ordinary case the supply and the liability to pay the consideration for the supply are reciprocal, that is to say the supply is made to the person who is liable to pay the consideration and the consideration is payable to the supplier by the person who receives the supply. But this is not always the case. Tripartite arrangements which result from two or three separate but related bilateral contracts call for close analysis in order to determine their tax consequences.[50]In Customs and Excise Comrs v Redrow Group plc [1999] 1 WLR 408 there were three separate bilateral contracts between the three parties, but only one of them was liable to pay the consideration and accordingly there was only one taxable supply. The taxpayer, which built houses for sale, offered prospective purchasers who bought a new house from it the free services of a firm of estate agents to value and market their existing homes. It entered into an agreement with the firm to pay their fees for the work, but only where a customer sold his existing home and bought a new house from the taxpayer. In order to recover their fees if a prospective customer found a buyer for his home but did not proceed to buy a house from the taxpayer, the firm entered into separate contracts with the customers. The firm were held to have made two different supplies. One, made to the customer, was a supply of the ordinary services of an estate agent in valuing and marketing his house. The other, made to the taxpayer, was the supply of the services of an estate agent in valuing and marketing its customer's house. Thus a single course of conduct by one party may constitute two or more supplies to different persons.[51]In the present case the three parties entered into two separate but related bilateral contracts. One was the contract between Plantiflor and its customer by which Plantiflor sold plants, bulbs and other horticultural and related products to the customer and, if the customer requested it and paid a sum of £2.50 (which included postal charges of £1.63), arranged to have the goods delivered by Parcelforce (part of Royal Mail) to the customer or to his order. This was a contract for the supply of goods and services. We are concerned only with that part of the arrangements which constituted a supply of services. The question is whether that was a taxable supply, and this depends on whether it was made for a consideration.[52]The relevant part of this contract was in the following terms:
"If you require delivery by carrier then a nominal charge is made to cover mail order packing and handling. We will happily arrange delivery on your behalf via Royal Mail Parcelforce if requested, in which case please include the postage and handling charge on your order. We will then advance all postal charges to Royal Mail on your behalf."
[53]The other was the contract previously entered into between Plantiflor and Parcelforce by which Plantiflor had made the necessary arrangements to have its customers' goods delivered. By this contract, which was to remain in force for a term of five years, Plantiflor undertook to despatch a minimum of 400,000 parcels in each year of the term of a specified average weight and was charged a preferential bulk rate of postage. As my noble and learned friend Lord Hobhouse of Woodborough observed in the course of argument, this was a contract for delivery and not a contract of delivery. It was not itself a taxable transaction.[54]There was no third contract between Parcelforce and the customer under which Parcelforce agreed to deliver goods to the customer's order and the customer agreed to pay the postal charges. The customer's agreement to pay postal charges was made with Plantiflor not with Parcelforce.[55]When Parcelforce made delivery of a parcel pursuant to its contract with Plantiflor, then like the estate agents in the Redrow case it made two different supplies. One was the supply to Plantiflor's customer of the service of delivering his goods to his order, that is to say to the addressee. The other was the supply to Plantiflor of the service of delivering its customer's goods to the addressee. These supplies were made for reward, and if the supply of postal services by Parcelforce were not an exempt supply there would be at least one taxable supply and possibly more than one.[56]Plantiflor also made a supply of services to its customer, but these did not include the service of making the actual delivery of the goods. It had not undertaken to do that. It had undertaken only to make arrangements for the goods to be delivered by Parcelforce. Those arrangements, however, included not only packaging the goods and delivering them to Parcelforce for onwards transmission, but also paying the postal charges. It had expressly agreed with its customer to pay them.[57]If Plantiflor had undertaken to deliver the goods itself, using Parcelforce as its subcontractor to make the actual delivery, the tax position would be straightforward. There would be two supplies:(i) a supply by Parcelforce to Plantiflor of the service (as its subcontractor) of delivering the customer's goods to the addressee and(ii) a supply by Plantiflor to the customer of the service of delivering his goods to the addressee (performed through its subcontractor). Consideration would pass from the customer to Plantiflor and from Plantiflor to Parcelforce. If Plantiflor were to use a private and taxable carrier instead of Parcelforce to make delivery, both supplies would be taxable supplies. But there would be no double payment of tax. The tax payable by Plantiflor to the carrier would be deductible in its hands as input tax.[58]The problem which confronted Plantiflor was that article 13(A) (1)(a) of the Sixth Directive (77/338/EEC) has the effect of making the supply of public postal services by Parcelforce an exempt supply, with the result that postal charges paid by Plantiflor to Parcelforce contain no element of output tax. Plantiflor understandably sought to avoid finding itself in the unenviable position of being liable to output tax on the postal charges which it receives from the customer while being unable to recover the like amount as input tax in respect of payments which it makes to Parcelforce.[59]To this end it worded its agreement with the customer to make it appear that it is merely the customer's agent in relation to the delivery of the goods. If this were truly the case, Parcelforce would make an exempt supply to the customer of the service of delivery, and the consideration for the delivery would pass from the customer to Parcelforce with Plantiflor acting merely as the customer's agent for payment. There would also be a supply of agency services by Plantiflor to the customer, but the consideration for these services would not include the postal charge.[60]The terms of the contract between Plantiflor and the customer naturally support this analysis, as they were intended to do. The customer pays Plantiflor a sum inclusive of (unspecified) postal charges, and Plantiflor undertakes to "arrange delivery on your behalf via Royal Mail Parcelforce" and to "advance all postal charges to Royal Mail on your behalf " (emphasis added).[61]The difficulty with this analysis, however, is that it does not fit the facts. As Laws J correctly held, Parcelforce does not deliver the goods pursuant to any contract with the customer or his agent. It makes delivery pursuant to its contract with Plantiflor, which both parties entered into as principals. This is plain from the terms of the contract, which was to last for a term of five years, contained an obligation on the part of Plantiflor to deliver a minimum number of parcels in each year, and provided for the annual indexation of postal charges. The minimum volume obligation, for example, which indirectly affects the price per parcel payable by Plantiflor, does not attach to any individual customer or to all the customers collectively. The conclusion is inescapable that neither party entered into the contract as agent for Plantiflor's future customers as undisclosed principals; and the contrary has not been suggested.[62]Plantiflor is accordingly contractually liable to Parcelforce to pay the postal charges, and the customer is not. Parcelforce cannot look to the customer for payment. It does not even know his identity unless he happens to be the addressee. When it delivers the customer's goods pursuant to its contract with Plantiflor, therefore, Parcelforce gives credit to Plantiflor, not to Plantiflor's customer.[63]Plantiflor advertises that it "deliver[s] every order, whether large or small, direct to your home"; and its undertaking to arrange delivery by Parcelforce and to advance all postal charges to Parcelforce is an undertaking to make all necessary arrangements to have the goods delivered. The customer's acceptance of Plantiflor's terms does not authorise Plantiflor to bring him into a direct contractual relationship with Parcelforce so that, if Plantiflor defaults in payment of postal charges to Parcelforce, the customer, who has already paid postage to Plantiflor, could find himself liable to pay it over again to Parcelforce. None of the parties to these arrangements had any such intention.[64]Plantiflor contended that strict agency was not necessary. It was sufficient that Plantiflor had agreed, not only with Parcelforce but also with the customer, that it would remit the postal charges to Parcelforce. This, it submitted, was sufficient to differentiate the present from the ordinary case where the taxpayer is obliged to make payments to third parties in order to fulfil his contractual obligations to his customer. A trader may, as a matter of practical reality, have to meet his suppliers' bills out of the cash flow provided by his customers, but he does not normally contract expressly with his customers that he will do so.[65]If this were sufficient to differentiate the present case from the normal, value added tax would operate in a very different way. Payments received by agents are excluded from the taxable amount of the consideration by virtue of article 11(A)(3) of the Sixth Directive, but the requirements for exclusion are strict. The article provides:
"3. The taxable amount shall not include: . . . (c) the amounts received by a taxable person from his purchaser or customer as repayment for expenses paid out in the name and for the account of the latter and which are entered in his books in a suspense account."
It is not enough that the recipient is bound by his contract with his customer to make the payment and that the amount in question is entered in his books in a suspense account. The payment must be made "in the name of and for the account of" the customer, and this has regard to the payment from the perspective of the recipient. It requires that the payment should discharge a pre-existing indebtedness of the customer, not merely of the person making the payment. Otherwise the description of the payment would mean nothing to the recipient. (c) the amounts received by a taxable person from his purchaser or customer as repayment for expenses paid out in the name and for the account of the latter and which are entered in his books in a suspense account." It is not enough that the recipient is bound by his contract with his customer to make the payment and that the amount in question is entered in his books in a suspense account. The payment must be made "in the name of and for the account of" the customer, and this has regard to the payment from the perspective of the recipient. It requires that the payment should discharge a pre-existing indebtedness of the customer, not merely of the person making the payment. Otherwise the description of the payment would mean nothing to the recipient.[66]I consider that Laws J reached the right conclusion for the right reasons, and that the tribunal and the Court of Appeal fell into error. They rightly held that the service which Plantiflor supplied to the customer did not include the actual delivery of the goods to the addressee. They rightly held that this service was supplied by Parcelforce, and that it was supplied to the customer. Their error lay in overlooking the facts that Parcelforce also supplied a service to Plantiflor, viz the service of delivering its customer's goods, for which Plantiflor had previously contracted, and that it was this supply which was made for the consideration which Parcelforce received. This led them into the further error of treating the sum paid by the customer to Plantiflor as consideration for the supply of the service of delivery by Parcelforce. It was not, for Parcelforce received its consideration from Plantiflor. The sum which the customer paid to Plantiflor was paid as consideration for the supply which Plantiflor made to the customer, viz of the service of arranging for delivery to be made by Parcelforce.[67]To sum up: there were three distinct supplies in the present case, and it is necessary to identify the particular supply for which the payment made by the customer was the consideration: The supply by Parcelforce to Plantiflor of the service of delivering its customer's goods. This was supplied pursuant to a contract for delivery made between Parcelforce and Plantiflor and was for a consideration payable by Plantiflor. It is (or would if Parcelforce were a private carrier be) a taxable supply. The supply by Parcelforce to the customer of the service of delivering his goods to him or his order. This supply was also made pursuant to the contract for delivery between Parcelforce and Plantiflor. It was made in circumstances in which the customer incurred no liability to Parcelforce to pay a consideration and was not (and would not even if Parcelforce were a private carrier be) a taxable supply. The supply by Plantiflor to the customer of an arrangement service for which Plantiflor charged £1.63 per parcel. Whatever else was included in this supply, it was not the service of actual delivery. That was supplied by Parcelforce. What the customer received for his money was the benefit of the arrangements which Plantiflor had made with Parcelforce to deliver its customer's goods to his order without charging him in the normal way. Since Plantiflor made this supply for consideration, it was a taxable supply. The supply by Parcelforce to Plantiflor of the service of delivering its customer's goods. This was supplied pursuant to a contract for delivery made between Parcelforce and Plantiflor and was for a consideration payable by Plantiflor. It is (or would if Parcelforce were a private carrier be) a taxable supply. The supply by Parcelforce to the customer of the service of delivering his goods to him or his order. This supply was also made pursuant to the contract for delivery between Parcelforce and Plantiflor. It was made in circumstances in which the customer incurred no liability to Parcelforce to pay a consideration and was not (and would not even if Parcelforce were a private carrier be) a taxable supply. The supply by Plantiflor to the customer of an arrangement service for which Plantiflor charged £1.63 per parcel. Whatever else was included in this supply, it was not the service of actual delivery. That was supplied by Parcelforce. What the customer received for his money was the benefit of the arrangements which Plantiflor had made with Parcelforce to deliver its customer's goods to his order without charging him in the normal way. Since Plantiflor made this supply for consideration, it was a taxable supply.[68]I too would allow the appeal. LORD SCOTT OF FOSCOTE My Lords, LORD SCOTT OF FOSCOTE My Lords,[66]I have had the advantage of reading the opinions of my noble and learned friends Lord Slynn of Hadley and Lord Millett. For the reasons they give, with which I agree, I too would allow the appeal.

Cited in 21 later judgments

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