College of Estate Management v. Her Majesty's Commissioners of Customs and Excise

The appeal concerned the VAT characterisation of distance‑learning course fees and in particular whether the College's supply of printed study materials to its students was a separate zero‑rated supply of books under section 30(1) and Group 3, Schedule 8 of the Value Added Tax Act 1994, or whether the materials formed part of a single exempt supply of education under section 31(1) and Group 6, Schedule 9. The House applied the Court of Justice's guidance in Card Protection Plan (Case C‑349/96) and emphasised economic reality: the tribunal's primary findings (notably that students spent about 94% of study time using the printed materials and that qualification was the object of the transaction) supported treating the transaction as a single supply of education.

The House held that the tribunal was entitled to conclude there was one supply of education; although the tribunal's description of the printed materials as "ancillary" was unnecessary and arguably misplaced, that did not vitiate the determinative conclusion. Applying the Value Added Tax Act 1994 and Community principles, the Court allowed the Commissioners' appeal and restored the tribunal's decision that no separate zero‑rated supply of books was made.

The College of Estate Management (the College), a distance‑learning provider and an eligible body under the Value Added Tax Act 1994, charged students fixed inclusive fees for modules. The College supplied extensive written study materials (usually binders) which students were expected to use; the tribunal found students spent about 94% of their study time using those materials. The College sought to treat the printed materials as a separate zero‑rated supply of books under section 30(1) and Group 3 of Schedule 8, enabling recovery of input tax; the Commissioners contended the fee was for a single exempt supply of education under section 31(1) and Group 6 of Schedule 9.

Procedural history: the tribunal found for the Commissioners (one supply) ([2003] V & DR 165). Lightman J in the Chancery Division dismissed the College's appeal ([2004] STC 235). The Court of Appeal allowed the College's appeal ([2004] EWCA Civ 1086; [2004] STC 1471) and remitted for apportionment. The Commissioners appealed to the House of Lords.

Issues framed: (i) whether the transaction comprised a single supply of education (exempt) or separate supplies including a zero‑rated supply of books; (ii) how to apply the ECJ's test in Card Protection Plan about whether, from an economic point of view, there is a single supply or several distinct supplies and the role of "ancillary" elements.

Reasoning and conclusions: the House reviewed the Card Protection Plan principles and related authorities and emphasised that the national court must examine the economic reality and essential features of the transaction. The tribunal's primary factual findings were unchallenged and supported treating the printed materials as integral to the education supplied: the students purchased the opportunity to obtain a qualification and the materials were the principal means by which that education was delivered. The tribunal's additional characterisation of the materials as "ancillary" was unnecessary and inapt, but did not undermine the determinative overall conclusion. The Court of Appeal had substituted its own view of the evaluative conclusion; the House held that such interference was unwarranted. The appeal was allowed and the tribunal's decision restored.

The judgment also explains that classification for VAT requires circumspection and that an over‑zealous dissection into separate supplies is inappropriate where commercial reality indicates a single supply.

The House allowed the Commissioners' appeal. It concluded that, on the tribunal's unchallenged factual findings, the College made a single supply of education which was exempt under section 31(1) and Group 6 of Schedule 9 VATA 1994. The tribunal's additional description of the printed materials as "ancillary" was unnecessary but did not invalidate its conclusion. The Court of Appeal erred in substituting its own evaluative conclusion.

First instance: VAT Tribunal decision for the Commissioners [2003] V & DR 165 (tribunal). Chancery Division (Lightman J) dismissed College's appeal [2004] STC 235. Court of Appeal allowed College's appeal [2004] EWCA Civ 1086; reported [2004] STC 1471. House of Lords allowed the Commissioners' appeal [2005] UKHL 62.