VAT – Exempt supply – Value Added Tax Act 1998 – Water undertaker seeking credit in VAT returns for input tax incurred on acquiring water meters and carrying out infrastructure works – Amendment to First Schedule to 1998 Act providing that renting out of meters and carrying out of infrastructure works constituting exempt supplies – Appellant tax authority deciding credit for input tax on meters and infrastructure therefore precluded as being incurred in respect of goods and services used to make exempt supply – Assessment review committee holding to contrary – Appeal allowed
The respondent was the sole undertaker for the supply of water for domestic, commercial and industrial purposes in Mauritius. Its operations included the provision of meters and arranging with contractors for infrastructure works to be undertaken for customers who wanted a water supply. It charged a fixed amount for meters and variable sums for the infrastructure works. In addition, it charged customers an initial connection fee, a small “symbolic” rent for meters, and statutorily fixed charges for the water actually supplied. No specific sum was charged for subsequent maintenance of infrastructure. Pursuant to the Value Added Tax Act 1998, VAT was levied at the standard rate on the supplies of water to customers.
An amendment to the First Schedule to the 1998 Act, introduced by the Value Added Tax (Amendment of Schedule) Regulations 1998, provided that the renting out of a meter and the carrying out of infrastructure works by the respondent were exempt goods or services for VAT purposes. The Mauritius Revenue Authority took the view that, as a result of that amendment, input tax that the respondent incurred on acquiring meters and carrying out infrastructure works was not allowable as a credit against the VAT that it received on its taxable supplies of water, since it fell within the provisions of section 21(2)(a) of the 1998 Act disallowing any credit for input tax in respect of goods or services used to make an exempt supply. The respondent argued that it made only one relevant supply to its customers, namely water, and that its input tax in respect of the necessary prerequisites, such as meters and working connections, remained allowable against the VAT received on that taxable supply.
The assessment review committee decided the matter in the respondent’s favour; the Revenue appealed. By a later amendment to the 1998 Act, introduced by the VAT (Amendment) Act 2000, input tax on the renting out of a meter and the carrying out of infrastructure works, as well as on the supply of all water, indisputably became a legitimate credit against output tax.
Held: The appeal was allowed.
A supply that comprised a single service from an economic point of view was usually treated as a single supply of the principal service for VAT purposes, with other elements being regarded as ancillary and sharing the tax treatment of the principal service: Card Protection Plan Ltd v Customs and Excise Commissioners Case C-349/96 [1999] 2 AC 601 considered. However, that did not mean that the ancillary services or supplies entirely disappeared. It was both permissible and relevant to identify the ancillary elements for particular purposes. Accordingly, the fact that the supply of water was the aim of all the respondent’s activities did not mean that the only relevant or recognisable supply was, or should be treated for all purposes as being, a supply of water. It was open to the legislator to identify a concrete and specific aspect of an overall supply, such as that of water made by the respondent, and to give a different VAT status to that aspect, whether by making it exempt, zero-rating it or attaching to it a different rate of VAT: European Commission v France Case C-384/01 [2003] ECR I-4395, Talacre Beach Caravan Sales Ltd v Customs and Excise Commissioners Case C-251/05; [2006] STC 1671 and Finanzamt Oschatz v Zweckverband zur Trinkwasserversorgung und Abwasserbeseitigung Torgau-Westelbien Case C-442/05 [2009] STC 1; [2008] PLSCS 85 applied.
Apart from the actual water supply, the supply of meters on rental and the supply of the necessary infrastructure would constitute a supply of services falling within section 4(1)(b) of the 1998 Act. Although, by section 4(5), the supply of those services was to be treated as part of the water supply, that did not preclude the relevant minister from specifying or amending exemptions in the First Schedule in such a way as to distinguish between different aspects of what would otherwise fall to be treated for VAT purposes as a single water supply to the customer. That applied where ancillary or incidental services were a mere means to the end of supplying water as much as where they had some value on their own. Accordingly, the fact that the supplying of a meter and connection were necessary prerequisites to any supply of water to a customer did not affect the fact that they were important, concrete and specific elements, which any potential water customer would seek to have installed as soon as possible and maintained thereafter, and which were correspondingly capable of being recognised as such by the legislator and treated separately for VAT purposes. The minister was entitled to amend the First Schedule to the 1998 Act, dealing with exempt goods or services, to add a distinction between the principal water supply and the supplies of meter and infrastructure services incidental to the principal supply.
The supply of meters and infrastructure was not excluded from being a “supply” on the grounds that it was done “otherwise than for a consideration” within the meaning of section 4(2)(a). It made no difference that 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. There was consideration for the overall package of services and water provided by the respondent. The fact that concrete and specific aspects of a principal supply could be segregated for the purpose of exemption from VAT did not mean that there was no consideration for them. The ability to attach a different VAT status to a concrete and specific aspect of a principal supply could not vary according to whether or not the supplier allocated a separately identifiable consideration to that aspect. It was permissible to allocate to a taxable supply such part of the overall consideration as was properly attributable to it: see section 12 of the 1998 Act.
Consequently, the respondent’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 goods and services used to make an exempt supply, within section 21(1)(a), such that no input tax could be recovered in respect of them or credited to the respondent in its VAT returns for the relevant period.
Philip Baker QC, Rajeshsharma Ramloll and Aparna Nathan (instructed by Carrington & Associates) appeared for the appellant; Rishi Pursem SC and Nadeem Lallmamode (instructed by Simons Muirhead & Burton) appeared for the respondent.
Sally Dobson, barrister
VAT – Exempt supply – Value Added Tax Act 1998 – Water undertaker seeking credit in VAT returns for input tax incurred on acquiring water meters and carrying out infrastructure works – Amendment to First Schedule to 1998 Act providing that renting out of meters and carrying out of infrastructure works constituting exempt supplies – Appellant tax authority deciding credit for input tax on meters and infrastructure therefore precluded as being incurred in respect of goods and services used to make exempt supply – Assessment review committee holding to contrary – Appeal allowedThe respondent was the sole undertaker for the supply of water for domestic, commercial and industrial purposes in Mauritius. Its operations included the provision of meters and arranging with contractors for infrastructure works to be undertaken for customers who wanted a water supply. It charged a fixed amount for meters and variable sums for the infrastructure works. In addition, it charged customers an initial connection fee, a small “symbolic” rent for meters, and statutorily fixed charges for the water actually supplied. No specific sum was charged for subsequent maintenance of infrastructure. Pursuant to the Value Added Tax Act 1998, VAT was levied at the standard rate on the supplies of water to customers. An amendment to the First Schedule to the 1998 Act, introduced by the Value Added Tax (Amendment of Schedule) Regulations 1998, provided that the renting out of a meter and the carrying out of infrastructure works by the respondent were exempt goods or services for VAT purposes. The Mauritius Revenue Authority took the view that, as a result of that amendment, input tax that the respondent incurred on acquiring meters and carrying out infrastructure works was not allowable as a credit against the VAT that it received on its taxable supplies of water, since it fell within the provisions of section 21(2)(a) of the 1998 Act disallowing any credit for input tax in respect of goods or services used to make an exempt supply. The respondent argued that it made only one relevant supply to its customers, namely water, and that its input tax in respect of the necessary prerequisites, such as meters and working connections, remained allowable against the VAT received on that taxable supply.The assessment review committee decided the matter in the respondent’s favour; the Revenue appealed. By a later amendment to the 1998 Act, introduced by the VAT (Amendment) Act 2000, input tax on the renting out of a meter and the carrying out of infrastructure works, as well as on the supply of all water, indisputably became a legitimate credit against output tax.Held: The appeal was allowed. A supply that comprised a single service from an economic point of view was usually treated as a single supply of the principal service for VAT purposes, with other elements being regarded as ancillary and sharing the tax treatment of the principal service: Card Protection Plan Ltd v Customs and Excise Commissioners Case C-349/96 [1999] 2 AC 601 considered. However, that did not mean that the ancillary services or supplies entirely disappeared. It was both permissible and relevant to identify the ancillary elements for particular purposes. Accordingly, the fact that the supply of water was the aim of all the respondent’s activities did not mean that the only relevant or recognisable supply was, or should be treated for all purposes as being, a supply of water. It was open to the legislator to identify a concrete and specific aspect of an overall supply, such as that of water made by the respondent, and to give a different VAT status to that aspect, whether by making it exempt, zero-rating it or attaching to it a different rate of VAT: European Commission v France Case C-384/01 [2003] ECR I-4395, Talacre Beach Caravan Sales Ltd v Customs and Excise Commissioners Case C-251/05; [2006] STC 1671 and Finanzamt Oschatz v Zweckverband zur Trinkwasserversorgung und Abwasserbeseitigung Torgau-Westelbien Case C-442/05 [2009] STC 1; [2008] PLSCS 85 applied.Apart from the actual water supply, the supply of meters on rental and the supply of the necessary infrastructure would constitute a supply of services falling within section 4(1)(b) of the 1998 Act. Although, by section 4(5), the supply of those services was to be treated as part of the water supply, that did not preclude the relevant minister from specifying or amending exemptions in the First Schedule in such a way as to distinguish between different aspects of what would otherwise fall to be treated for VAT purposes as a single water supply to the customer. That applied where ancillary or incidental services were a mere means to the end of supplying water as much as where they had some value on their own. Accordingly, the fact that the supplying of a meter and connection were necessary prerequisites to any supply of water to a customer did not affect the fact that they were important, concrete and specific elements, which any potential water customer would seek to have installed as soon as possible and maintained thereafter, and which were correspondingly capable of being recognised as such by the legislator and treated separately for VAT purposes. The minister was entitled to amend the First Schedule to the 1998 Act, dealing with exempt goods or services, to add a distinction between the principal water supply and the supplies of meter and infrastructure services incidental to the principal supply.The supply of meters and infrastructure was not excluded from being a “supply” on the grounds that it was done “otherwise than for a consideration” within the meaning of section 4(2)(a). It made no difference that 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. There was consideration for the overall package of services and water provided by the respondent. The fact that concrete and specific aspects of a principal supply could be segregated for the purpose of exemption from VAT did not mean that there was no consideration for them. The ability to attach a different VAT status to a concrete and specific aspect of a principal supply could not vary according to whether or not the supplier allocated a separately identifiable consideration to that aspect. It was permissible to allocate to a taxable supply such part of the overall consideration as was properly attributable to it: see section 12 of the 1998 Act.Consequently, the respondent’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 goods and services used to make an exempt supply, within section 21(1)(a), such that no input tax could be recovered in respect of them or credited to the respondent in its VAT returns for the relevant period.Philip Baker QC, Rajeshsharma Ramloll and Aparna Nathan (instructed by Carrington & Associates) appeared for the appellant; Rishi Pursem SC and Nadeem Lallmamode (instructed by Simons Muirhead & Burton) appeared for the respondent.Sally Dobson, barrister
