Commissioners of Customs & Excise v University of Leicester Students Union

A students’ union is not an integral part of a university merely because it is created by the university’s charter, represented on university organs, supervised financially, or assists the educational process. The constitutional documents and the parties’ legal relationship determine whether the union is a distinct entity.

For VAT purposes, the education exemption for closely related supplies applies only where the statutory conditions are satisfied. Under Group 6 of Schedule 9 to the Value Added Tax Act 1994, the supplier must be the eligible body making the principal supply, unless the legislation provides otherwise. Article 13A(1)(i) of the Sixth Directive did not require the wider construction advanced by the union.

The University of Leicester Students Union sold soft drinks to students and sought repayment of VAT. The Manchester Value Added Tax and Duties Tribunal held on a preliminary issue that the union formed an integral part of the university and could qualify for exemption in respect of supplies closely related to education.

Rimer J allowed the Commissioners’ appeal, holding that the union was a separate entity and that the drinks were not supplied by the eligible body making the principal supply: [2001] STC 550. The union appealed to the Court of Appeal. The central issues were whether the union was part of, or an institution of, the university and whether the domestic legislation unlawfully restricted the exemption in Article 13A(1)(i) of the Sixth Directive.

1. Appeal dismissed. The Students Union was a distinct entity from the University of Leicester. Its foundation under the charter, representation on the University Court, dependence on the University, educational contribution, charitable status and financial supervision did not make it an integral part of the University.
2. Peter Gibson LJ treated the charter as the most important evidence. Clause 2 incorporated the Court, Council and Senate into the University but did not incorporate the Union. The Union had its own constitution, bankers, investments and auditors, and the agreement concerning the Percy Gee Building showed that the University and the Union treated each other as separate entities.
3. Note 1(b) to Group 6 of Schedule 9 to the Value Added Tax Act 1994 covered a university and separate colleges, institutions, schools or halls which were parts of that university. Those entities shared the characteristic of supplying university education. The Union supplied no education and was not an institution within the provision. Exemptions were to be construed restrictively.
4. Even if the Union were an institution of the University, Item 4 required the closely related goods or services to be supplied by the eligible body making the principal supply. The Union did not make the principal supply of education.
5. The alternative argument under Note 1(e) failed. The Union had not established that it satisfied the statutory condition concerning the application of profits, and in any event it did not make the principal supply.
6. Article 13A(1)(i) of the Sixth Directive did not require the broader construction advanced by the Union. The words concerning closely related goods and services were ancillary to education supplied by bodies having education or similar objects as their aim. The domestic limitation was therefore not shown to be inconsistent with the Directive. The Union was also not entitled to raise its direct-effect argument on Note 1(e) after failing to adduce the necessary evidence below.
7. Arden LJ agreed that the appeal should be dismissed. She considered that an institution need not itself provide systematic instruction, but must have academic links and recognition from the university. Pastoral, recreational and representative links were insufficient. She regarded the Directive issue as unnecessary to decide. Morland J agreed entirely with Peter Gibson LJ.

• Court of Appeal (Civil Division): appeal dismissed with costs; permission to appeal to the House of Lords refused.
• High Court, Chancery Division: Rimer J allowed the Commissioners’ appeal from the Tribunal’s preliminary decision: [2001] STC 550.
• Manchester Value Added Tax and Duties Tribunal: held on a preliminary issue that the Union formed an integral part of the University for supplies closely related to education.