Thursday 7 February 2013

Hassen Eid-En Rummun v The State of Mauritius

[2013] UKPC 6
Privy Council Appeal No 0033 of 2012


JUDGMENT

Hassen Eid-En Rummun (Appellant)

v

The State of  Mauritius (Respondent)

From the Supreme Court of Mauritius

before

Lord Hope
Lord Kerr
Lord Reed



JUDGMENT DELIVERED BY
LORD KERR  ON

7 February 2013

Heard on 12 December 2012



Appellant
S Kailash Trilochun
(Instructed by Roshan Rajroop)

Respondent
Geoffrey Cox QC
(Instructed by Royds Solicitors LLP)

LORD KERR:
1.         Following a trial before a magistrate of the Intermediate Court of Mauritius, Mrs V Phoolchund-Bhadain, Hassen Eid En Rummun was found guilty on 9 October 2009 of the offence of larceny while armed with an offensive weapon. On 5 November 2009 he and three co-accused who had pleaded guilty earlier received sentences of imprisonment.  The three coaccused were Lall Sujore, Beny Lutchoomun and Deojit Vallacanna Beeharry. They had entered pleas of guilty on 27 November 2008.  In the case of Beeharry the plea was to the offence of aiding and abetting the commission of larceny. All other accused, including the appellant, were either convicted or pleaded guilty to the offence of larceny with an offensive weapon.

2.         In sentencing the accused, the magistrate said that they had each taken part in a “well planned plot” to commit the offence.  On 30 December 1999, in a car hired for the purpose, they had followed the victim from his business premises.  When he had brought his car to a halt, they approached it wearing masks. Some of the offenders were carrying sabres.  The appellant, Rummun, was one of these. Threats were made to the victim, including that he would be killed if he did not hand over the takings from that day’s business.  The windscreen of his car was smashed by the defendant, Lutchoomun, wielding a piece of wood. Some 800,000 Mauritian rupees (approximately £17,000) were handed over. The proceeds of the crime were divided up between the defendants. Most of the proceeds were not recovered.
3.         The appellant was arrested on 2 February 2000 and cautioned for the offence. He and his three co-accused confessed to the crime on that date.  Rummun appeared before the Intermediate Court of Mauritius on 15 July 2002 and his trial was postponed on many occasions until, finally, it took place in September 2009.  It appears that the basis of the defence was that Rummun had not participated in the offence as a principal but merely as a secondary participant. On the hearing of the appeal before the Board, Mr Trilochun, who appeared on his behalf but not in the proceedings below, wisely accepted that, in light of Rummun’s confession and what was established about the manner of his participation in the offence, this defence was non-viable.
4.         When she came to sentence the defendants in November 2009, the magistrate said that she took into account that the offence was committed in 1999. But her sentencing remarks then continued as follows:

“However, the delay in disposing of this matter is largely attributable to the defence. True it is that since that time, the accused parties have not been convicted of any offence, this being an indication that they have stayed away from crime.  Nevertheless, being given (sic) the gravity of the offence, the interests of justice will be served by a custodial sentence.”
5.         The three accused who had pleaded guilty were each sentenced to three years’ penal servitude. The magistrate referred to that consideration in sentencing each of them. The appellant was sentenced to four years’ penal servitude. All four appealed their sentences to the Supreme Court.
6.         On 21 September 2011 the Supreme Court (Judges S B Domah and S Bhaukaurally) substituted a sentence of two years’ imprisonment for the sentence of three years’ penal servitude in the case of Sujore because his clear record had not been given sufficient weight as a mitigating factor.  In the case of Lutchoomun, the court reduced the sentence of three years’ penal servitude to one of two years and nine months, reflecting the fact that, after pleading guilty on 28 November 2008, he had moved for a separate trial in order to have the matter disposed of. That application had been refused but the Supreme Court considered that Lutchoomun deserved credit for this attempt to have the case dealt with at an earlier stage. The sentences imposed on Beeharry and Rummun were affirmed. The court rejected the argument that Rummun had received a heavier sentence because he had pleaded not guilty.  It found that the discrepancy between his sentence and those imposed on the others was the consequence of their having earned a discount by pleading guilty.
7.         On the hearing of the appeal before the Supreme Court counsel for Rummun had raised the issue of delay in bringing his case to trial.  It does not appear from the record of the proceedings with which the Board has been provided that any submission was made about the impact which the delay had on the appellant’s rights under section 10(1) of the Constitution which, among other things, guarantees a fair trial within a reasonable time to all those charged with criminal offences. The Supreme Court, perhaps understandably in light of the absence of any submission to the effect, did not address the question of the possible breach of the appellant’s constitutional rights.  In the Board’s view, this is unfortunate. In cases such as the present involving substantial delay, the Board considers that it is the duty of the sentencing court, whether or not the matter has been raised on behalf of a defendant or appellant, to examine the possibility of a breach of that person’s constitutional rights in order to decide whether any such breach should have an effect on the disposal of the case.  
8.         Section 10(1) of the Constitution 1968 provides:
“(1) Where any person is charged with a criminal offence, then, unless the charge is withdrawn, the case shall be afforded a fair hearing within a reasonable time by an independent and impartial court established by law.”
9.         This is a fundamentally important constitutional guarantee.  The Board has had to consider, in a series of cases of which Celine v State of Mauritius [2012] UKPC 32, [2012] 1 WLR 3707 is but the most recent, the effect of failure to adhere to this provision. The Board notes with approval the reference in the judgment of the Supreme Court to reforms that the legal profession are advocating to deal with delay in the conduct of trials.  But the duty of the courts is also clear. Magistrates and judges should be astute to detect delay in the conduct of criminal trials and should be pro-active in seeking to eliminate it.
10.      It appears from the Supreme Court judgment that much of the delay in this appeal was attributable to the conduct of Beeharry’s case.  Apart from the fact that Rummun advanced a defence that proved in the event to be unmeritorious, there is no suggestion that he was actively responsible for any significant delay. He was absent from court hearings twice on medical grounds. On the first of these occasions, 7 April 2009, three of the total of five prosecution witnesses were also absent, so that the trial could not have proceeded in any event. He was again absent on 19 October 2009, having been admitted to hospital. This caused sentencing to be postponed for 15 days until 5 November 2009.  In the overall period of delay in bringing this case to trial, such a short period is not of significance.
11.      The Board considers that the magistrate ought to have addressed the question of delay in the context of the constitutional guarantee to a fair trial within a reasonable time.  She should also have examined the individual responsibility of each of the defendants for that delay.  Instead she summarily dismissed the relevance of this factor on the basis that the delay was “largely attributable to the defence”.
12.      Likewise, the matter should have been directly addressed by the Supreme Court.  It should have been considered whether a declaration ought to be made that the appellant’s section 10(1) rights had been breached.  Instead the Supreme Court also dismissed this factor, saying:
“As rightly pointed out by learned counsel for the respondent, public interest demanded that the delay in disposal of the case should not be a factor for the reduction of sentence on account of the nature and gravity of the case.”
13.      In the event, the respondent has now accepted that the delay in this case constitutes a breach of the appellant’s constitutional right.  A breach of that right will always be a factor to be considered in deciding upon the appropriate disposal. In some instances it may not be a factor of great weight and there may even be some cases in which, because of the strength of countervailing factors such as the gravity of the offence, it will be accorded no weight at all.  But it will always be a factor to be considered.
14.      In Dyer v Watson [2004] 1 AC 379, paras 52-55, Lord Bingham of Cornhill set out a number of propositions by which the reasonableness of the period taken to complete the hearing of a criminal case was to be judged.  These propositions were endorsed by the Board in Boolell v State of Mauritius  [2006] UKPC 46, [2012] 1 WLR 3718.  It is not necessary to refer to all of the passages from Dyer v Watson which were cited in Boolell. It is sufficient for present purposes to quote from paras 53-55:
“53. The court has identified three areas as calling for particular inquiry. The first of these is the complexity of the case. It is recognised, realistically enough, that the more complex a case, the greater the number of witnesses, the heavier the burden of documentation, the longer the time which must necessarily be taken to prepare it adequately for trial and for any appellate hearing. But with any case, however complex, there comes a time when the passage of time becomes excessive and unacceptable.
54.      The second matter to which the court has routinely paid regard is the conduct of the defendant. In almost any fair and developed legal system it is possible for a recalcitrant defendant to cause delay by making spurious applications and challenges, changing legal advisers, absenting himself, exploiting procedural technicalities, and so on. A defendant cannot properly complain of delay of which he is the author. But procedural time-wasting on his part does not entitle the prosecuting authorities themselves to waste time unnecessarily and excessively. 
55.      The third matter routinely and carefully considered by the court is the manner in which the case has been dealt with by the administrative and judicial authorities. It is plain that contracting states cannot blame unacceptable delays on a general want of prosecutors or judges or courthouses or on chronic under-funding of the legal system. It is, generally speaking, incumbent on contracting states so to organise their legal systems as to ensure that the reasonable time requirement is honoured …”
15.      Three matters fall to be considered, therefore, in deciding whether the delay constitutes a breach of the right to a trial within a reasonable time: (i) the complexity of the case; (ii) the conduct of the appellant; and (iii) the conduct of the administrative and judicial authorities.  The Board considers that these factors are also relevant to the question whether, when a breach of the constitutional right has been established, there should be any effect on the sentence that would have been passed if there had been no delay.
16.      It has not been suggested that this case was unduly complex.  Most of the witnesses were police officers and the defendants had all confessed to the crime. This is therefore not a factor which can excuse or explain the delay.  The conduct of the appellant is criticised in two respects.  First because he advanced a spurious defence and secondly because he acquiesced in the delay that had been engineered by one of his co-accused and was complacent about the delays for which the prosecuting authorities were responsible.  On the latter aspect the Board has recently said in the Celine case [2012] 1 WLR 3707 that this may affect the choice of appropriate sentence.  At para 8 of that case the Board said this:
“[The Board] observes, however, that a defendant who seeks to challenge the propriety of a sentence passed on the ground that there has been delay in the prosecution of offences must expect to have his attitude to the postponement of proceedings closely examined. Even if success in opposing applications for adjournment is unlikely, one would expect to see evidence of representations on a defendant’s behalf protesting about delay before accepting that he was truly anxious for the case to be completed.” and at para 23:
“All the indications are that the defendant was content to postpone the day of judgment and while this cannot excuse the failure to adhere to the reasonable time guarantee (see Boolell’s case [2012] 1 WLR 3718, para 32 and Elaheebocus v The State [2009] MR 323, para 20), it is relevant to the selection of the proper sentence.”
17.      In this case the appellant does not appear to have pressed to have his case tried expeditiously. This must therefore be taken into account in deciding whether any reduction in his sentence is appropriate.  The Board observes, however, that while he may have been passively acquiescent in the continued postponement of the case there is no evidence that he was actively complicit in the manoeuvrings of others in delaying the trial of the case.
18.      On the question of the appellant’s decision to contest the case on grounds that proved to be unfeasible, the Board considers that this factor should be treated with some caution.  A defendant to any criminal charge is entitled to put the prosecuting authorities to proof of his guilt. The Board considers that the circumstances in which, by reason of a not guilty plea, a trial is delayed call for anxious scrutiny before he is penalised for such delay.
19.      In relation to the third factor identified by Lord Bingham in Dyer v Watson it seems clear that much of the responsibility for the delay in this case lies with the prosecuting authorities. A crucial witness for the prosecution, the officer who had recorded many of the defendants’ statements, was absent on no fewer than 13 occasions, although his absence seems only to have been solely responsible for postponements twice, presumably because other witnesses were also absent. An officer who had recorded the appellant’s statement was absent on 11 occasions but it is not, at present, clear how often his absence was alone responsible for the trial being adjourned.
20.      The Board has decided that the necessary close examination of the reasons for the plainly inordinate delay in this case is best conducted by the Supreme Court of Mauritius. That court is also better placed to evaluate how the seriousness of the offence of which the appellant has been convicted should rank as a factor against the now admitted breach of the appellant’s section 10(1) right. It will also be familiar with such sentencing guidelines as exist to point to the range of sentence that would have appropriate if there had not been delay and how much, if at all, that range should be adjusted to reflect the violation of the appellant’s constitutional right to a trial within a reasonable time.
21.      The Board will therefore remit this case to the Supreme Court of Mauritius to consider the sentence to be passed on the appellant in light of the guidance provided by this judgment and its examination of the factors which the Board has outlined should now be considered.  It is to be hoped that this reconsideration of the appellant’s case can be conducted with all due expedition.
22.      The parties will have 21 days within which to make submissions on costs.



Director General, Mauritius Revenue Authority v Central Water Authority

[2013] UKPC 4
Privy Council Appeal No 0012 of 2012

JUDGMENT

Director General, Mauritius Revenue Authority
(Appellant)

v

Central Water Authority
(Respondent)

From the Supreme Court of Mauritius

before

Lord Mance
Lord Kerr
Lord Wilson
Lord Sumption
Lord Reed



JUDGMENT DELIVERED BY
LORD MANCE

ON

7 February 2013

Heard on 22 November 2012

Appellant
Philip Baker QC
Aparna Nathan
Rajeshsharma Ramloll
(Instructed by Carrington & Associates)

Respondent    
Rishi Pursem SC
Nadeem Lallmamode
 (Instructed by Simons Muirhead & Burton)

LORD MANCE:

Introduction

1.         The issue on this appeal is whether the Central Water Authority (“CWA”) is entitled to credit in its VAT returns for periods from 7th September 1998 to May 2000 for the input VAT which it incurred when acquiring water meters to fit in customers’ properties and undertaking infrastructure works to construct or maintain the connection between such meters and its water mains. 

2.         The CWA is the sole undertaker for the supply of water for domestic, commercial and industrial purposes in Mauritius. It provides meters and arranges with contractors for infrastructure works to be undertaken for customers wishing a water supply. Meters cost the CWA 400 rupees, and infrastructure works cost it unspecified and no doubt variable sums. The CWA charges customers an initial connection fee, a “symbolic” rent for meters of 10 rupees a month, no specific sum for subsequent maintenance and statutorily fixed charges for the water actually supplied.

3.         VAT is levied in accordance with the provisions of the Value Added Tax Act 1998 (“the VAT Act 1998”), as amended from time to time. Under the VAT Act 1998, the supply of water is (save for the first 15 cubic metres of water per month supplied by the CWA to any customer for domestic purposes) subject to VAT at the standard rate. The present issue arises from an amendment, introduced by ministerial regulations, stating that “the renting out of a meter and the carrying out of infrastructure works by the Authority” were to be exempt goods or services for VAT purposes. The Revenue submits that it follows that the input tax incurred in respect of the acquisition of a meter and carrying out of works is not allowable. The CWA submits that it makes only one relevant supply to its customers, water, and that its input tax in respect of the necessary prerequisites - meters and working connections - is and remains allowable against the VAT received on its taxable supplies of water (in a proportion corresponding, more or less precisely as will appear, to the proportion of taxable supplies of water to total water turnover).

4.         The CWA succeeded before the Assessment Review Committee which on 26th June 2007 stated a case for the opinion of the Supreme Court, which upheld the Committee’s view in its judgment of 19th July 2011. The VAT Act 1998 is framed, on a significantly condensed basis, on the general model of the United Kingdom Value Added Tax Act 1994, which in turn gives effect to European Union requirements, initially under the Sixth Council Directive of 17 May 1977 (77/388/EC) and, since 1st January 2007 under Council Directive 2006/112/EC. The CWA thus relied below upon case-law of both United Kingdom courts and the European Court of Justice in support of its analysis of its supplies to its customers. The general value of such case law was not disputed in relation to the issues on this appeal, although care may need to be taken in other cases before supposing that the effect of Mauritian and United Kingdom and European Union legislation will always coincide, bearing in mind in particular the differences in their working at a detailed level.


5.         The matter now comes before the Board, where it has been argued with reference to further case-law and principles established in the European Court of Justice which, although not identified in the courts below, have proved in very large measure uncontroversial.

The VAT Act 1998

6.         Section 2 (Interpretation) of the VAT Act 1998 includes definitions as follows:

“ ‘exempt supply’ means a supply of such goods or services  exempted from the payment of VAT as are specified in the First Schedule; …

    "input tax", in relation to a taxable person, means-

(a)       VAT charged on the supply to him of any goods or   services; and

(b)       VAT paid by him on the importation of any goods, being goods or services used or to be used in the course or furtherance of his business; …

    "output tax", in relation to a taxable person, means VAT on the taxable supplies he makes in the course or furtherance of his business; …

    "taxable supply" means a supply of goods in Mauritius, or a supply of services performed or utilised in Mauritius; and

(a)       includes a supply which is zero-rated; but

(b)       does not include an exempt supply, made by a taxable person in the course or furtherance of his business; …”

7.         Section 4 provides a further definition of supply:

    “(1) Subject to the other provisions of this Act, "supply" means 

(a)       in the case of goods, the transfer for a consideration of the right to dispose of the goods as the owner; or

(b)       in the case of services, the performance of services for a consideration.

(2) Without prejudice to the provisions of the Third Schedule and to any regulations made under subsection (4)-
(a)       "supply" in this Act includes all forms of supply, but not anything done otherwise than for a consideration;

(b)       anything which is not a supply of goods but is done for a
consideration (including, if so done, the granting, assignment or surrender of any right) is a supply of services.

(3)       The Third Schedule shall apply for determining what is, or is to be treated as, a supply of goods or a supply of services.

(4)       Without prejudice to section 72(1)(b), the Minister may, by regulations, amend the Third Schedule to provide, with        respect to any transaction, whether-

(a)       it is to be treated as a supply of goods and not as a supply of services;

(b)       it is to be treated as a supply of services and not as a supply of goods; or

(c)       it is to be treated as neither a supply of goods nor a supply of services.

(5)            (a) A supply of goods incidental to the supply of services is part  of the supply of the services. 

(b)       A supply of services incidental to the importation of goods       is part of the importation of the goods.

(c)       A supply of services incidental to the supply of goods is part of the supply of the goods. …”

8.         Section 10 provides for VAT to be charged at the rate specified in the Fourth Schedule on any taxable supply by reference to the value of the supply as determined under section 12. Section 11 provides for zero-rating of goods or services specified in the Fifth Schedule. Section 12 provides, inter alia, that the value of any taxable supply is equal to such amount as with VAT is equal to the consideration for it, and that, where the consideration covers other matters, the value is “such part of the considerations as is properly attributable to it”.

9.         Part IV of the Act (Return, Payment and Repayment of Tax) then commences with section 21 (Credit for input tax against output tax), which reads:

“(1) Subject to the other provisions of this section, any person may,         if he is a taxable person, take ….as a credit against his output tax         in any taxable period, the amount of input tax allowable to him       during that period.

(2) No input tax shall be allowed as a credit under this section in respect of-

(a) goods or services used or consumed to produce an exempt  supply; …

(3) Where goods or services are used partly for taxable supplies          and partly for exempt supplies, the credit shall be allowed in            such proportion as is specified in the Seventh Schedule.”

With effect from 1st September 1999, section 21(2)(a) was amended to read so as to read simply “goods or services used to make an exempt supply”, and section 21(3) was replaced by the following:

“(b)  ... where goods or services are used to make both taxable supplies and exempt supplies, the credit in respect of those goods or services shall be allowed in the proportion of the value of taxable supplies to total turnover on the basis of-

(i)        in the case of a new business, the estimated figures for the current accounting year; or

(ii)      in any other case, the actual figures for the previous  accounting year.”

10.      Section 72(1) (Regulations) reads:

“(1) The Minister may-
(a)       make such regulations as he thinks fit for the purposes of this Act;

(b)       by regulations-

(i)        prescribe any matter which may or is required to be prescribed   under this Act; or

(ii)      amend the First Schedule, the Second Schedule and the Third  Schedule.”

11.      As originally enacted, the First Schedule (Goods or services exempted) included as item 29:
“The first 15 cubic meters of water per month supplied by the Central Water Authority for domestic purposes.”

The Value Added Tax (Amendment of Schedule) Regulations (CN No. 160 of 1998) made by the Minister under section 72 on 22nd September 1998 provided, by regulation 3(k), that there should be added immediately after the words “domestic purposes”, the words 

“and the renting out of a meter and the carrying out of infrastructure works by the Authority”;

The Regulations were expressed to be “deemed to have come into operation on 7 September 1998” (regulation 4). To complete the history, with effect from 2nd October 2000, the VAT Act 1998 was amended by the VAT (Amendment) Act 2000, so as to delete item 29 from the First Schedule and to add into the Fifth Schedule (as a zero-rated supply) an item 7, reading “Water supplied by the Central Water Authority and the renting out of a meter and the carrying out of infrastructure works by the Authority”. From that date, therefore, input tax in respect of the acquisition of meters and arranging of infrastructure works, as well as in respect of the supply of all water, became on any view a legitimate credit against output tax.

The parties’ cases in more detail

12.      The Revenue submits that the VAT incurred by the CWA in acquiring meters and contracting for infrastructure works falls within the scope of section 21(2)(a), as “input tax... in respect of ... goods and or services” which was, assuming the amending Regulations to be valid, “used to make an exempt supply” consisting of the meters fitted at customers’ premises and the connections constructed and maintained between those meters and the CWA mains. The CWA submits that it made only one supply, which was of water, and that the meters provided and infrastructure works undertaken in order to enable that supply to occur were either submerged in that water supply or, if still capable of being identified at all, entirely incidental to it. 

13.      On the CWA’s case, there should be allowed, in respect of the input tax incurred on the acquisition of meters and undertaking of infrastructure works, a credit against output tax in the proportion specified in the Seventh Schedule or, with effect from 1st September 1999, in the proportion which supplies made to customers above 15 cu m per customer per month bore to the total water turnover. Those results follow from section 21(3) in its form as originally enacted and as amended in 1999. On the Revenue’s case, no credit at all is allowable in respect of such input tax, and the CWA is, in effect, in the position of an end user or consumer of the meters it acquired and the infrastructure works it undertook between the meters and the mains. 
 
14.      Before the Committee and the Supreme Court, this was as far as the main arguments went, although there was a subsidiary suggestion (which the Committee rejected and the Supreme Court did not explicitly address) that the amending Regulations were ultra vires because inconsistent with primary provisions of the VAT Act 1998. Before the Board, CWA added to this a complaint based on their retrospectivity.

The relevant principles

15.      The basic principle on which the CWA relies can usefully be taken from the Court of Justice’s judgment in Card Protection Plan Ltd v Commissioners of Customs and Excise (Case C-349/96) [1999] 2 AC 601. The Court was there asked to identify “the appropriate criteria … for deciding, for VAT purposes, whether a transaction which comprises several elements is to be regarded as a single supply or as two or more distinct supplies to be assessed separately” (para 26). It noted that “the question of the extent of a transaction is of particular importance, for VAT purposes, both for identifying the place where the services are provided and for applying the rate of tax or … the exemption provisions ….”, but added the (prophetic) rider (para 27) that

“having regard to the diversity of commercial operations, it is not possible to give exhaustive guidance on how to approach the problem correctly in all cases.” 

16.      In para 28 the Court said that “regard must first be had to all the circumstances in which [the] transaction takes place”, and then, in two further important paragraphs it gave the general guidance on which the CWA particularly relies:

“29 In this respect, taking into account, first, that it follows from article 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, secondly, that a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal services or with a single service.

30 There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied...”

17.      The Card Protection Plan (or CPP) principle has been applied to reach a conclusion that there was only one single transaction for VAT purposes in relation to, for example inflight catering supplied during a flight by air (British Airways plc v Customs and Excise Commissioners [1990] STC 643), a limousine service to and from the airport offered at no extra charge (save beyond a certain geographical area) (Virgin Atlantic Airways Ltd v. Customs and Excise Commissioners  [1995] STC 341), free transportation offered by parking companies between off-airport parking lots and the airport (Purple Parking Ltd v Commissioners for Her Majesty’s Revenue and Customs (Case C-117/11) 19 January 2012) and the provision of a portfolio of management services (Finanzamt Frankfurt am Mai VHochst v Deutsche Bank AG (Case C-44/11) [2012] STC 1951). On the other hand it has apparently been held, in the United Kingdom, that care and treatment by a private hospital may be distinguished as a separate supply from that of medication prescribed by a consultant to the patient while in hospital (Customs and Excise Commissioners v Wellington Private Hospital Ltd [1997] STC 445), although it is unnecessary for the Board to consider or express any view on that decision on particular facts which have no parallel here.

18.      Before the Committee and Supreme Court, the Revenue confronted the CPP principle head on, contending that the effect of the amending Regulations was, nonetheless, to require a different analysis, precluding the rental of water meters and rendering of infrastructure services from being services ancillary to its supply of water, and requiring them to be seen as self-standing services. There is an obvious factual incongruity about such a legal analysis. Before the Board, Mr Philip Baker QC who did not appear for the Revenue below, did not formally abandon the approach taken below. But he preferred as his primary case the more nuanced approach, that it is irrelevant whether the situation should be analysed in terms of separate supplies; what matters is that it was open to the legislator (here the Minister by the amending Regulations) to identify a “concrete and specific aspect” of an overall supply such as that of water made by the CWA, and to give that aspect a different VAT status, whether by making it exempt, by making it zero-rated or by attaching to it a different rate of VAT.

19.      In support of this approach, Mr Baker referred to a line of European Court of Justice case-law not cited below:  European Commission v France (Case C-384/01)[2003] ECRI4395 Talacre Beach Caravan Sales Ltd v Customs and Excise Commissioners (Case C251/05) [2006] STC 1671 Finanzamt Oschatz v Zweckverband zur Trinkwasserversorgung und Abwasserbeseitigung Torgau-Westelbien (Case C-442/05) [2009] STC 1 and European Commission v France (Case C-94/09) [2012] STC 573. The starting point of the first three cases was article 12(3)(a) of the Sixth Council 77/388/EEC.  Under article 12(3)(a) Member States were to fix a standard rate of VAT for the supply of goods and services. However, article 12(3)(a) permitted them to apply either one or two reduced rates “only to supplies of the categories of goods and services specified in Annex H”. Further, article 12(3)(b) permitted them to “apply a reduced rate to supplies of natural gas [and] electricity” and article 28(2) permitted them to maintain certain prior exemptions. Public authorities and bodies were not subject to the VAT régime, save in relation to activities specified in Annex D, which included “the supply of water”. The fourth case was decided under Council Directive 2006/112/EC, which replaced the Sixth Directive with effect from 1st January 2007.

20.      European Commission v France Case C-384/01 concerned the permission to apply a reduced rate to supplies of natural gas and electricity. France applied a reduced rate of 5.5% to standing charges for such supply by public networks, but the standard rate to consumption. The Commission challenged the legitimacy of a reduced rate limited to only part of the supplies made. The Court rejected the challenge on the ground that “since the reduced rate is the exception, the restriction of its application to concrete and specific aspects, such as the standing charge conferring entitlement to a minimum quantity of electricity on the account holders, is consistent with the principle that exceptions or derogations must be interpreted restrictively” (para 28).

21.      Talacre concerned the power to zero-rate a supply of specified goods. The United Kingdom zero-rated caravans. Talacre operated caravan parks, selling or renting fitted caravans as well as pitches and other facilities. It claimed that the contents of its fitted caravans (bathroom suites, floor coverings, curtain rails, curtains, cupboards, fitted kitchens, beds and furniture generally) should attract zero-rating as part of a single supply of the caravan (although they had been identified separately as attracting VAT on the invoice by which Talacre had bought them from their own caravan suppliers). The CPP principle was relied on and European Commission v France cited. The Court rejected Talacre’s claim. It again noted that exceptions to the general principle that VAT should be charged were to be “interpreted strictly” (para 23), and went on:

“24. The fact that the supply of the caravan and of its contents may be characterised as a single supply does not affect that conclusion. The case law on the taxation of single supplies, relied on by Talacre …., does not relate to the exemptions with refund of the tax paid with which art 28 of the Sixth Directive is concerned. While it follows, admittedly, from that case law that a single supply is, as a rule, subject to a single rate of VAT, the case law does not preclude some elements of that supply from being taxed separately where only such taxation complies with the conditions imposed by art 28(2)(a) of the Sixth Directive on the application of exemptions with refund of the tax paid. 

25.      In this connection, as the Advocate General rightly pointed out in paras 38 to 40 of her opinion, referring to para 27 of CCP [1999] STC 270, [1999] 2 AC 601, there is no set rule for determining the scope of a supply from the VAT point of view and therefore all the circumstances, including the specific legal framework, must be taken into account. In the light of the wording and objective of art 28(2)(a) of the Sixth Directive, recalled above, a national exemption authorised under that article can be applied only if it was in force on 1 January 1991 and was necessary, in the opinion of the member state concerned, for social reasons and for the benefit of the final consumer. In the present case, the United Kingdom … has determined that only the supply of the caravans themselves should be subject to the zero-rate. It did not consider that it was justified to apply that rate also to the supply of the contents of those caravans.

26.      Lastly, there is nothing to support the conclusion that the application of a separate rate of tax to some elements of the supply of fitted caravans would lead to insurmountable difficulties capable of affecting the proper working of the VAT system …”

22.      Zweckverband concerned the power to maintain an exemption. The Zweckverband was responsible for water supplies and sewage disposal in the Torgau-Westelbien district. It laid mains connections at the request of its customers, in its case charging them with the cost. Without such a connection, the supply of water was impossible (para 34). The Court accordingly held, in answer to the first question referred to it, that the laying of mains connections was part of the supply of water within Annex D. But the second question referred required it to consider whether this meant that, if Germany chose to make the supply of water an exempt supply under article 12(3)(a) and Category 2 of Annex H to the Sixth Directive, it must do so on an all or nothing basis. The Court answered this question in the negative. A “selective” application of the reduced rate to “concrete and specific aspects of water supplies” could not be excluded (para 41 and 44). Moreover, in para 44, the Court took the reverse of the situation before it as an example, that is the application of a reduced rate to the laying of mains connections. 

23.      In Commission v France (Case C-94/09) [2012] STC 573, the Court reiterated the principles in Commission v France (Case C-384/01) and Zweckverband, and recognised as permissible France’s decision to apply a reduced rate to transportation of a body by funeral undertakers, as a concrete and specific aspect of their overall services of managing funeral homes, organising funerals, embalming the body, providing a coffin, etc.

24.      Mr Baker noted that the principles recognised in these cases had found wider informal recognition in article 9 of a draft law on VAT for the state of “Fantasia” prepared by the IMF.

Detailed analysis of the issues

25.      Mr Rishi Pursem SC for the CWA did not take issue with the general principles stated in paragraphs 15 to 24 above, but submitted that they could not support the Revenue’s case in the light of specific provisions of the VAT Act 1998. The Minister, he submitted, only had power under section 72 to amend the First Schedule so as to exempt something which amounted to a “supply” within the meaning of section 4 of the Act, and the provision of a meter and infrastructure for a customer was not a supply. 

26.      In so far as this submission suggests that the only relevant or recognisable supply was or should be treated for all purposes as having been of water, because that was the aim of all of the CWA’s activities, the Board cannot accept it. In speaking of a “single service”, the CPP principle does not mean that ancillary services or supplies entirely disappear. Rather, it treats them as ancillary services or supplies which share the tax treatment of the principal service. The European Court of Justice case-law discussed in paragraphs 19 to 24 above shows that it can be both permissible and relevant to identify the ancillary elements for particular purposes. The power to exempt or attach a lower VAT rate to what would otherwise fall to be treated as a single service can thus attach to a “concrete and specific aspect” of such a service. The Board sees no material difference in this respect between the language of the VAT Directives and that of the VAT Act 1998.

27.      Apart from the actual water supply (and apart from a point on consideration to which the Board will come), a supply of meters on rental and the supply of the necessary infrastructure would in each case constitute a supply of services under section 4(1)(b). Taking into account the actual water supply, section 4(5)(c), while still recognising the supply of the meters and infrastructure as a supply of services, provided that such supply should be treated as part of the water supply. That reflects the CPP principle. But the purpose of section 4(5) is to characterise and distinguish between supplies of goods and services. It does not mean that, when it comes to specifying or amending exemptions in the First Schedule, the principles discussed in paragraphs 19 to 24 above are excluded. The Minister under section 72 was not only entitled to “make such regulations as he thinks fit for the purpose of [the] Act”, but also specifically to amend the First as well as the Second and Third Schedules. The First Schedule, in its unamended form, itself distinguishes between different aspects (the first 15 cu m and the rest) of what would otherwise fall to be treated for VAT purposes as a single water supply to the customer.

28.      The principles discussed in paragraphs 19 to 24 above apply as much where the incidental supplies are a mere means to the end (receiving water) as where they may have some value on their own. The incidental supplies were mere means in the first Commission v France case (standing charges which the Court of Justice appears to have accepted as conferring entitlement to a minimum quantity of gas and electricity: see paras 28-29 of its judgment) and in the Zweckverband case (laying at customers’ request of mains connections to enable water supply). In the second Commission v France case, the transportation of bodies by funeral undertakers could also be described as a means to achieve burial, rather than an end in itself, but was a particular service provided by the undertakers as part of their overall service. Elements used in production which do not involve an incidental supply to a customer, or a concrete and specific element of an overall supply to a customer, would of course raise different considerations.

29.      In a case such as the present, customers need to be supplied with a meter and a connection if they are to be connected to the mains and to receive water. That the supplying of a meter and connection are necessary pre-requisites to any supply of water to a customer is highly relevant to the CPP question whether either is an independent, as opposed to ancillary or incidental, supply, but this does not affect the fact that they are very important, concrete and specific elements which any potential water customer seeks to have installed as soon as possible and maintained thereafter, and correspondingly capable of being recognised as such by the legislator and treated separately for VAT purposes. 

30.      In these circumstances, the Board sees no reason why the Minister should not amend the First Schedule, dealing with exempt goods or services, so as to supplement the distinction between supplies below and above 15 cu b per month with a further distinction between, on the one hand, the principal water supply and, on the other, the supplies of meter and infrastructure services incidental to that principal supply. Mr Pursem submitted at points that the power to amend under section 72 could not legitimately be used to deprive CWA of a benefit which it would otherwise have had under the VAT Act 1998 as originally enacted. That restriction would effectively emasculate section 72, which on any view expressly contemplates amendments to redefine what is, or is to be treated as, a supply of goods or of services under the Third Schedule or to add new categories of exempt goods and services under the First Schedule.

31.      Mr Pursem further submitted that it was impossible for the CWA’s provision to its customers of meter and infrastructure services to be, or to be treated as an exempt supply, under or for the purposes of the Act, because they were not provided for consideration. He relied upon the definition in section 4(2)(a) of “supply” to exclude “anything done otherwise than for a consideration”.  On the Committee’s findings the meter rental was “symbolic”, the only charge for infrastructure was a fee for initial connection and there was no charge for any subsequent works. The Board need not express any view whether a “symbolic” rental is in this context nonetheless valid consideration, as it is in other contractual contexts (vide, the traditional peppercorn). Further, the Board has no real information whether the infrastructure works in issue on the present appeal were in the main related to initial connection to the mains (as the Committee’s case stated suggests, when recording Mr Pursem’s submissions before it) or to subsequent maintenance works (as Mr Baker was inclined to think). There was plainly consideration for the overall package of services and water provided by the CWA. 

32.      The fact that concrete and specific aspects of a principal supply may be segregated for the purpose of exemption from VAT does not mean that there was no consideration for them. Nothing in the European Court of Justice case-law discussed in paragraphs 19 to 24 above requires a “concrete and specific aspect” of a principal supply or package to have its own consideration, and the price at which caravans were on-sold by Talacre in the Talacre case was evidently all-inclusive. The ability to attach a different VAT status to a concrete and specific aspect of a principal supply cannot vary according to whether the supplier allocates to that aspect a separately identifiable consideration (as in Zweckverband) or no, limited or symbolic consideration (as in the present case). Further, section 12 of the VAT Act 1998 provides, where necessary, for the allocation to a taxable supply of “such part of the consideration as is properly attributable to it”.

33.      Finally, Mr Pursem questioned how the rental of meters and their connection and the maintenance of their connection to CWA’s mains could be treated as exempt for the purposes of section 21(2(a), when it was common ground that the CWA was entitled to deduct input tax in respect of infrastructure works undertaken to construct and maintain the mains themselves. The answer to this given by Mr Baker was that the latter works could not be related to any supply, or any concrete and specific aspect of any supply, to any particular customer. Their costs represent general overheads of the CWA, outside the scope of section 21(2((a).

34.      The Board accordingly considers that the CWA’s acquisition of meters and undertaking of infrastructure works to connect or maintain the connection between its mains and the meters supplied to its customers were under section 21(2)(a) goods and services used to produce or make what was or falls to be treated as an exempt supply under the terms of the First Schedule as amended by the 1998 Regulations. The consequence, assuming the validity of that amendment, is that no input tax could be recoverable in respect of the acquisition of such meters and the undertaking of such works. 

The vires of the amending Regulations

35.      That leaves for consideration the vires of the amending Regulations. In so far as CWA has suggested below and before the Board that amending Regulations could not legitimately deprive CWA of any benefit provided by the original Act or make exempt an incidental service which would otherwise, under the CPP principle, attract the same VAT treatment as the principal supply to which it was incidental, the Board rejects the submission for reasons already given.

36.      The other aspect of the amending Regulations which CWA has before the Board submitted lay outside the Minister’s power relates to their retrospectivity. This does not appear to have been part of CWA’s case before the Committee or in the Supreme Court, and there are no findings of fact about its implications. Mr Pursem accepted that the complaint could at best go only to the deduction of input tax in respect of meters acquired and infrastructure works undertaken in the period between 7th September and 3rd October 1998. There are no findings as to the precise circumstances in which the amending Regulations were passed, as to CWA’s state of knowledge about them before they were passed, or as to whether any (and if so what) meters were acquired or works undertaken during the period between 7th September and 3rd October 1998. However, Mr Pursem accepted that, if any were, any input tax on them would in the overall context of this case be of marginal significance. In these circumstances, the Board does not regard the point as one which it ought to address at this stage of the proceedings.

37.      The Board adds this. Before the Vat Act 1998 came into force on 7th September 1998, CWA wrote on 4th August 1998 enquiring whether meter rental and connection fees would be subject to VAT, and were informed by the Revenue by letter of 28th August 1998 that they would be treated as non-vatable. The amending Regulations of 22nd September 1998 were, on their face, designed to achieve that result. Although there are no findings on the subject, the amending Regulations may well therefore have come as no surprise to CWA.

38.      Even a general power like that conferred by section 72 will not normally suffice to justify subordinate legislation with retrospective effect. But different considerations may arise if the subordinate legislation has been announced in advance and/or has caused no relevant prejudice. However, the Board did not hear any detailed submissions in this area, and need not consider it further. As it has already stated, the point appears to have been unexplored below, and in any event in the light of the shortness of the period involved and the lack of any findings making this relevant on the facts, the Board as stated does not consider that it should address it further.

Conclusion

39.      In conclusion, the Board allows this appeal, and determines that the Central Water Authority was not entitled to credit in its VAT returns for periods from 7th September 1998 to May 2000 for the input VAT which it incurred in such periods when acquiring water meters to fit in customers’ properties and undertaking infrastructure works to construct or maintain the connection between such meters and its water mains.

40.      The Board invites any submissions on costs, to be made in writing within 21 days.