Commissioners of Customs and Excise v Sinclair Collis Ltd

The central legal question was whether the grant to a tobacco company of the right to provide, install, operate and maintain cigarette vending machines on premises in return for a share of the gross takings amounted to a "letting of immovable property" within the meaning of Article 13B(b) of Council Directive 77/388/EEC (the Sixth Directive) and thus to a "licence to occupy land" for the purposes of Part II of Schedule 9 to the Value Added Tax Act 1994. The House of Lords examined the Directive and Community jurisprudence (including the need for a strict construction of VAT exemptions) and considered domestic statutory provisions (notably section 1(1) and section 5(2)(b) and Schedule 9 of the 1994 Act).

The majority concluded that the agreements should not be characterised as licences to occupy land for VAT exemption purposes because the arrangements were best understood as enabling the company to place and operate machines (the machines being the real subject of the transaction), and the site owners retained possession and control of the premises. However, because of uncertainty as to the breadth of the Community concept of "letting of immovable property" the House of Lords referred a question to the Court of Justice of the European Communities under article 234 of the EC Treaty for authoritative guidance.

The appellant (Sinclair Collis Ltd), a company owning and operating coin-operated cigarette vending machines, entered standard-form written agreements with site owners (public houses, clubs and hotels) granting the company the right to provide, install, operate and maintain vending machines on the owners' premises in return for a share of gross profits. The machines and their contents remained the company's property; the site owners retained access and agreed to protect the machines and grant exclusivity.

The substance of the dispute was whether the supply made by the site owner to the company was an exempt supply as "the leasing or letting of immovable property" under Article 13B(b) of the Sixth Directive, implemented in domestic law by Schedule 9 Part II Group 1 of the Value Added Tax Act 1994 (item: "The grant of any interest in or right over land or of any licence to occupy land"). If the supply were exempt, input tax relief would be disallowed; if not, input tax could be reclaimed.

Procedural history: the Manchester VAT and Duties Tribunal held that the real subject was the machine (so not an exempt licence); Lightman J (High Court) and the Court of Appeal ([1999] STC 701) held the grant was a licence to occupy land and thus exempt. The appeal came to the House of Lords.

Issues framed by the House of Lords: (i) whether the contractual grant of rights to place and operate cigarette vending machines amounted to a "letting of immovable property" within the meaning of Article 13B(b) of the Sixth Directive and therefore to a "licence to occupy land" under the 1994 Act; (ii) if the domestic statute required a Community interpretation, what principles should govern that interpretation; and (iii) whether a reference to the Court of Justice was necessary.

The House of Lords analysed Community case law (including EC Commission v United Kingdom, Sweden v Stockholm Lindopark, Coffee Shop Siberie and others) emphasising that Article 13B(b)'s exemptions are to be given a Community meaning and construed strictly. Several Lords considered factors such as duration of enjoyment, possession and control, exclusivity and whether the economic purpose of the contract was the letting or the provision of services incidental to occupation. The majority regarded the arrangements as concerning the machine (a supply of services) with the site owners retaining possession and control of the premises; nevertheless, because the Community concept had not been authoritatively settled on the precise facts, the House of Lords referred a question under article 234 to the Court of Justice and adjourned final determination pending that answer.

Appeal allowed. The majority held that, on the facts, the agreements were not properly characterised as licences to occupy land or lettings of immovable property for the purposes of the Sixth Directive and Schedule 9 to the Value Added Tax Act 1994; the arrangements were, in substance, concerned with the machines and the supply of services. However, recognizing uncertainty about the precise Community meaning and principles to be applied, the House of Lords referred a question to the Court of Justice under article 234 of the EC Treaty for authoritative guidance and adjourned final determination pending that response.

Manchester VAT and Duties Tribunal: held the real subject was the machine (transactions taxable). High Court (Lightman J): held the grant was a licence to occupy land (exempt). Court of Appeal: affirmed Lightman J ([1999] STC 701). House of Lords: allowed the appeal and referred a question to the Court of Justice ([2001] UKHL 30).