Commissioners of Customs & Excise v Sinclair Collis Ltd

For VAT purposes, the court must identify objectively what the supplier provides under the agreement. The parties’ motives and commercial intentions are irrelevant. Where several contractual elements are economically indissociable, the court must identify the dominant supply. An element which merely facilitates enjoyment of the principal supply is ancillary and shares its tax treatment.

A licence permitting a vending machine to remain installed in a defined space for the agreement’s term is a licence to occupy land. The fact that the machine’s precise location may be selected by the siteholder, or that the licence exists to facilitate sales, does not alter that conclusion.

The taxpayer operated cigarette vending machines in public houses and other premises under agreements with siteholders. The agreements granted rights to install, operate and maintain the machines, together with exclusivity provisions preventing competing tobacco machines and products.

The VAT tribunal held that the agreements did not grant licences to occupy land. Lightman J reversed that decision, holding that the supply was an exempt licence under section 31 and Group 1 of Schedule 9 to the Value Added Tax Act 1994. The central questions were whether the agreements granted licences to occupy land and whether the exclusivity provisions constituted a separate taxable supply.

1. Appeal dismissed. The agreements granted an exempt licence to occupy land under section 31 and Part II Group 1 of Schedule 9 to the Value Added Tax Act 1994.
2. The critical question was what the siteholder supplied in return for a share of the vending-machine profits. That question had to be answered objectively by construing the agreement. The parties’ motives and intentions were irrelevant.
3. The agreement contained two elements: permission to install and operate the machine, and restrictive covenants preventing competing machines and products. Applying the principles concerning composite supplies, the elements were economically indissociable. It would be artificial to apportion the consideration between them.
4. The dominant element was the right to bring and keep the machine on the premises. The restrictive covenants enhanced the value of that right and enabled better enjoyment of the principal service. They were ancillary and did not constitute a separate supply.
5. The right to install, operate and maintain the machine was a licence to occupy land. The machine occupied its allotted space for the two-year term. This was materially different from temporary use of premises by persons enjoying recreational facilities. It did not matter who controlled the precise siting of the machine.
6. The exemption for leasing or letting immovable property in Article 13(B)(b) of the Sixth Directive was to be construed strictly. Domestic legislation had to be construed consistently with the Directive where possible. The licence granted here nevertheless fell within the domestic exemption.
7. Lord Justices Schiemann and Henry agreed with the judgment of Lord Justice Ward. The appeal was dismissed with costs and leave to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): dismissed the appeal from Lightman J, who had restored the Commissioners’ decision.
• VAT Tribunal: held that the agreements did not grant licences to occupy land.
• House of Lords: leave to appeal refused.