HM Revenue & Customs v EB Central Services Ltd & Anor

Zero-rating provisions preserved under the transitional derogation in article 28(2)(a) of the Sixth Directive are not automatically to be construed as matching harmonised exemptions from which they derogate. They must first be construed according to their own terms. A derogation must be strictly construed and, so far as possible, consistently with Community law, but that does not justify importing limitations absent from the domestic provision.

In the absence of contextual restriction, “goods” includes chattels and tangible personal property, including passengers’ personal luggage. Storage of such goods at a customs and excise airport may fall within item 6 of Group 8 in Schedule 8 to the Value Added Tax Act 1994. Item 11(a) may also apply where the statutory connection with import or export transport is established.

The respondents provided landside storage for passengers’ luggage at Heathrow, Gatwick and Manchester airports. They had accounted for VAT at the standard rate but claimed that their services were zero-rated under items 6 and 11(a) of Group 8 in Schedule 8 to the Value Added Tax Act 1994.

The VAT and Duties Tribunal held that item 6 did not apply because the luggage was not commercial cargo, but that item 11(a) applied to 76 per cent of the supplies relating to travel outside the European Union. HMRC appealed the item 11(a) conclusion, while the taxpayers appealed the rejection of item 6. The central issues were the correct relationship between the domestic provisions and the Sixth Directive, and whether passengers’ luggage constituted “goods” within the relevant items.

1. Appeals. The taxpayers’ appeal was allowed and HMRC’s appeal was dismissed.
2. Construction under the Sixth Directive. The Tribunal had erred in treating Marleasing as requiring items 6 and 11(a) to conform generally to articles 15(9) and 15(13) of the Sixth Directive. Article 28(2)(a) permitted the maintenance of national exemptions with refund of tax paid, subject to Community-law limits. The domestic provisions therefore had to be considered first by reference to their own terms.
3. The derogation had to be strictly construed and could not exceed the derogation in force on 1 January 1991. If a provision exceeded that derogation, the excess was to be construed, so far as possible, consistently with the relevant Directive provisions. That did not justify implying a commercial or business limitation absent from the statutory language.
4. Meaning of goods. In the VAT legislation, “goods” ordinarily bears its general meaning and includes chattels and tangible personal property. Neither item 6 nor item 11(a) restricted the word to goods intended for sale or resale. “Cargo” did not carry an implied limitation to commercial freight.
5. Item 6. For item 6, the goods had to be goods carried in a ship or aircraft. “Carried” was used adjectivally and did not necessarily refer only to carriage at the time of storage. Since 95 per cent of the stored luggage had been or was to be carried on an aircraft, the services fell within item 6. The taxpayers were entitled to zero-rating to that extent.
6. Item 11(a). The issue was technically unnecessary because the relevant supplies were already within item 6. Nevertheless, the extension from business passengers to all passengers did not deprive item 11(a) of legal effect or require a narrower construction. Storage could occur at the airport despite being landside, and the storage was directly connected with the owner’s recent or intended flight. The Tribunal’s result on item 11(a) was therefore upheld, although for different reasons.

The judgment records an appeal from the VAT and Duties Tribunal’s decision released on 16 June 2006. The Tribunal allowed the taxpayers’ claim under item 11(a) for 76 per cent of the supplies and rejected their claim under item 6. The High Court allowed the taxpayers’ appeal and dismissed HMRC’s appeal.