C R Smith Glaziers (Dunfermline) Limited v Commissioners of Customs and Excise

The appeal concerned whether United Kingdom implementing rules (section 38 of the Finance Act 1997 amending Group 2 of Schedule 9 to the Value Added Tax Act 1994) required a supplier to state as a self-contained monetary figure the amounts charged for insurance-related services, or whether disclosure by formula or other means sufficed for the purposes of Note (5) to Group 2. The majority held that, read compatibly with article 13B(a) of the Sixth VAT Directive, the Notes require disclosure of the apportionment of consideration but do not prescribe a particular form of expression; a referential formula that enables the amount to be ascertained satisfied the requirement. The majority reached that conclusion by applying the principle of conformity with Community law and proportionality: imposing a formal requirement to state a numeric figure would be disproportionate where adequate disclosure was given. One Law Lord dissented, preferring the ordinary domestic meaning that "amount" requires a stated monetary figure and considering that such a requirement was proportionate and compatible with the Directive.

Background and facts:

• The appellant, C R Smith Glaziers (Dunfermline) Ltd, sold double glazing in a single package which included a ten year guarantee backed by an insolvency insurance policy; the price charged to customers included the glazing price and additional charges described as the insurance premium and certain administration costs.
• With effect from 19 March 1997 section 38 of the Finance Act 1997 amended Group 2 of Schedule 9 to the Value Added Tax Act 1994 and added Notes (3) to (5) which required a document containing particular "statements" (including the premium and "every amount that the customer is . . . required to pay otherwise than by way of such premium") to be prepared and disclosed to the customer if related insurance services were to be treated as exempt.
• The appellant's standard form contract during the relevant period showed a £16 premium and a reference to an administration charge expressed as "10%" but did not set out a self-contained monetary figure for the administration charge; there were also textual ambiguities about whether percentages were of prices inclusive of VAT.

Procedural history:

• The VAT tribunal considered the contract and found the relevant amount could be ascertained from the written terms but held that a formula might be insufficient; the case went to the Extra Division of the Court of Session which held that "amount" required a specific monetary figure (2001 SC 646).
• The appellant appealed to the House of Lords.

Issues before the House of Lords:

1. Whether the domestic requirement in Notes (3) to (5) was satisfied by the appellant's contract, which disclosed the apportionment by reference to a formula rather than by a self-contained monetary figure; and
2. Whether, in light of article 13B(a) of the Sixth VAT Directive, the domestic provision could be construed so as to avoid incompatibility with Community law and whether a formal requirement of expression in a particular form would be justified by proportionality.

Court's reasoning and decision:

• The majority (Lords Hoffmann, Woolf, Hope and Walker) emphasised the duty to interpret domestic implementing legislation compatibly with Community law and applied the principle of proportionality: conditions attached to an exemption must be suitable, necessary and have the least possible effect on the Directive's objectives. They considered that the Notes aimed to ensure disclosure of the apportionment and to prevent retrospective value shifting, but that a requirement that the amount be given only as a self-contained figure would be a disproportionate formal burden where adequate disclosure enabling the amount to be ascertained had been made. On that basis they allowed the appeal and declared the appellant entitled to the exemption for the insurance-related services in the period in question.
• Lord Slynn dissented, taking the ordinary meaning of "amount" and viewing a specific monetary figure as the clearest and proportionate means of achieving transparency; he would have dismissed the appeal and upheld the Court of Session.

Relief sought:

• The appellant sought a declaration that its insurance-related services were exempt from VAT for the stated period by reason of compliance with the documentary disclosure requirements in the Notes.

Appeal allowed. The majority held that Notes (3) to (5) of Group 2 in Schedule 9 to the Value Added Tax Act 1994, read and construed in conformity with article 13B(a) of the Sixth VAT Directive, require disclosure of the apportionment of consideration but do not mandate expression in a particular form; disclosure by a formula that enables the amount to be ascertained satisfied the statutory requirement. A formal rule insisting on a self-contained monetary figure would be disproportionate and thus incompatible with the Directive in this context.

Appeal from the Extra Division of the Court of Session (Inner House) (reported at 2001 SC 646) following decision of the VAT tribunal; allowed by the House of Lords [2003] UKHL 7.