Appellant supplying vending machines – Agreement to install machine in public house – Whether agreement constituting licence to occupy land – Whether supply exempt from VAT – Value Added Tax Act 1994 section 31 Schedule 9 Group 1 – Appeal dismissed
The appellant was part of Imperial Tobacco Group and sold its cigarettes through vending machines, placed in public houses, hotels, clubs and leisure centres. The appellant made an agreement with the siteholder of a public house for the installation of a machine on his premises. It was agreed that the siteholder would take a share of the proceeds of sales from the cigarettes and, in consideration for that, the siteholder agreed: (1) that the machine would be provided, installed, operated and maintained at the premises; and (2) that a restrictive covenant would be granted, not to allow competition at the premises, thus ensuring exclusivity of the appellant’s products. The issue was whether the agreement between the appellant and the siteholder constituted a licence to occupy land and was therefore exempt from VAT, within section 31 and Group 1 of Schedule 9 to the Value Added Tax Act 1994. The appellant submitted, first, that the siteholder did not grant a licence to occupy land within the meaning of Schedule 9, as what was granted was merely a licence to use land; and, second, even if it did, the licence was an incidental element and the true and substantial supply was the exclusive right to sell cigarettes to the siteholder’s customers, which was a taxable supply. The Commissioners submitted that the right to sell cigarettes, even exclusively, was not a supply but merely the purpose of the licence. The supply was the licence to occupy and was thus exempt.
Held: The appeal was dismissed.
1. Economically, it was artificial and wholly arbitrary to split the consideration and apportion part to an exempt supply and part to a taxable supply. Looking at the commercial reality and the agreement itself, the true and substantial nature of the consideration was the grant of the right to bring the machine on to the premises. The commercial value of the licence was enhanced by removing competition from other brands. However, making the machine and its contents available to the public was the dominant element in the transaction. The grant of the restrictive covenant was merely ancillary to, or an integral part of, the grant to place the machines on the premises. Therefore, the right to “provide, install, operate and maintain the machine” was the only relevant supply for consideration.
2. It did not matter who had the controlling power to decide where the machine should be sited or for how long it should remain sited. The more important point was that it occupied the place where it was, or even where it had from time to time been placed, and that the occupation of that space endured for the term of the agreement. As the machine was taking up its space on the premises, it was occupying the land it stood on or was annexed to. Accordingly, the grant of the licence to do so fell within Group 1 of Schedule 9 to the Act and was exempt by virtue of section 31.
David Milne and Rupert Baldry (instructed by Dario Garcia) appeared for the appellant; Rupert Anderson (instructed by the solicitor to HM Customs & Excise) appeared for the respondent.
Sarah Addenbrooke, barrister
