The Court of Appeal dismissed an appeal by the taxpayer against a judgment of the High Court ([2006] EWHC 127 (Admin)), upholding a VAT tribunal decision that a part work consisting of CDs and written materials involved a single standard-rated supply of the CD to which the written materials were ancillary.

Facts

The product sold by the taxpayer, a direct marketing company, was a ‘continuity’ product called ‘The Classic Composers’. It consisted of ‘CD books’ and cards with a display shelf and ring binder for the cards. HMRC accepted that the cards were zero-rated. The CD books consisted of a hard cover containing a compact disc (CD) and 12 pages of written material and illustrations describing the composer and the musical extracts on the CD. The taxpayer contended that the whole product was a book or booklet within VATA 1994, Sch. 8, Grp. 3, item 1 or, alternatively, that the CD fell within Grp. 3, item 6 as an article supplied with books, booklets, etc. and not separately accounted for.

The taxpayer considered that the product was a single supply of printed matter, the dominant purpose of which was the provision of written material in book form, with the CD being a means of better enjoying the printed material. The commissioners argued that the product was a standard-rated CD with some ancillary sleeve notes bound into the same cover. They maintained that a customer's primary aim was to buy the CD. The printed material did not constitute a book or booklet.

The VAT tribunal held that there was a supply with two elements: the CD being the principal supply and the written material being ancillary. The printed material did not constitute an aim in itself but a means of better enjoying the CD. Accordingly it dismissed the taxpayer's appeal ([2005] BVC 4,080; No. 19,034). The High Court (Collins J) dismissed the taxpayer's appeal against that decision, holding that the tribunal had been entitled to conclude as it had with regard to the nature of the product on offer in which the CD predominated ([2006] EWHC 127 (Admin)). The taxpayer appealed arguing that the tribunal had failed to consider the question of whether there were separate supplies, and that in the circumstances it should have found that the written material was such a significant component of the product that it had to be regarded as a separate supply.

Issue

Whether the tribunal had erred in finding that there was a single standard-rated supply for VAT purposes.

Decision

Arden LJ (Pill and Rix L JJ agreeing) (dismissing the appeal) said that the tribunal had been entitled to conclude, on the evidence, both that there was a single supply and that the CD was the principal element in that supply.

The taxpayer had submitted that the supply of the CD and the accompanying book had to be viewed from an economic point of view. In the court below, the taxpayer had argued that the CD should be treated as part of a single supply of which the predominant element was the provision of a zero-rated book, or alternatively, as two separate supplies. In the Court of Appeal it had argued that the CD and the book were two separate supplies.

Contrary to the taxpayer's argument, it was clear from the decision that the tribunal had dealt with the question whether there was a single supply or two separate supplies. The tribunal had started by setting out the guidance in the case of Card Protection Plan Ltd v C & E Commrs (Case C-349/96) [1999] BTC 5,121; [1999] ECR I-973 which was directed to whether a transaction which comprises several elements is to be regarded as a single supply or as two or more distinct supplies to be assessed separately’. It had applied those tests and concluded that the CD book was to be regarded as a supply having two elements. The tribunal's reasoning made it clear that the tribunal took the view that the CD could not be enjoyed separately from the book. In context, in finding that the booklet was subsidiary to the CD the tribunal rejected the subsidiary submission that the booklet survived as a separate supply in its own right. In the circumstances the relative cost of the CD and the written material was by implication a factor of subsidiary importance. There could be situations in which the book was the dominant or by itself a separate supply. The question whether it was or was not a separate supply was a question for the tribunal to determine on the facts before it. In the Card Protection case, the ECJ did not specifically ask as a preliminary question whether there were two separate supplies. There had been no error of law by the tribunal.

Court of Appeal (Civil Division).
Judgment delivered 8 November 2006.