 |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | |
High Court of Ireland Decisions |
||
|
You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Inspector of Taxes v. Cablelink Ltd. & Ors [2003] IEHC 625 (14 February 2003) URL: http://www.bailii.org/ie/cases/IEHC/2003/625.html Cite as: [2003] IEHC 625 |
||
[New search] [Printable RTF version] [Help]
[2002 No. 374 R.]
BETWEEN
Applicant
Respondents
JUDGMENT of Lavan J. delivered the 14th of February, 2003.
This is a case stated by the Appeal Commissioners for the opinion of the High Court under the provisions of s.428 of the Income Tax Act, 1967, as applied to Value Added Tax by s.25(2) of the V.A.T. Act, 1972, as amended.
At hearings before the Appeal Commissioners on 13th June, 1994 and on 301' September, 1994, Cablelink Limited, Cablelink Waterford Limited and Galway Cable Vision Limited (hereinafter referred to as "Cableink") appealed against the decisions of the Inspector of Taxes refusing a VAT repayment claimed for the period March/April, 1989 and raising s.23 estimates for the periods March/April, 1989 and September/October, 1991.
The question for determination by the Appeal Commissioners was whether the fee received by Cablelink in respect of the connection/reconnection of the customer to their cable television or MMDS (Multi-Channel Microwave Distribution System) for the purposes of receiving communication signals was in respect of.-: (a) A service consisting of work on immovable goods, or
(b) A service consisting of the development of immovable goods where the value of movable goods (if any) provided in pursuance of an agreement in relation to such service does not exceed two-thirds of the total amount on which tax is chargeable in respect of the agreement, or
(c) A service consisting of the maintenance and repair of immovable goods including the installation of fixtures, where the value of movable goods (if any) provided in pursuance of an agreement in relation to such service does not exceed two-thirds of the total amount on which tax is chargeable in respect of the agreement, or
(d) The provisions of telecommunications signals.
The services at (a) were liable to VAT at 10% in March/April, 1989, and 12.5% in September/October, 1991. The services at (b) and (c) were liable at 10% in both these periods.
The rates of VAT applicable to the provision of services at (d) were 25% in March/April, 1989, and 21% in September/October, 1991.
Legislation
(1) March/April, 1989
Paragraph (xiib) Sixth Schedule (inserted by Finance Act, 1986, s. 91 (c):
"Services consisting of work on immovable goods, other than services consisting of such work specified in paragraph (xiv) and services specified in paragraph (iii). "
The services specified in paragraph (xiv) are agricultural services which have no application to the present case, and those specified in paragraph (iii) were:
"Services consisting of the development of immovable goods, and the maintenance and repair of immovable goods including the installation of fixtures, where the value of movable goods (if any) provided in pursuance of an agreement in relation to such services does not exceed two-thirds of the total amount on which tax is chargeable in respect of the agreement. "
(2) September/October, 1991
Paragraph (xiib) Sixth Schedule as inserted by s. 87(2) of the Finance Act, 1991:
"(a) services consisting of work on immovable goods, other than services specified in –
(i) subparagraph (b) or paragraph (xiv), or
(ii) paragraph (ii) of the Third Schedule... "
The services specified in subpara. (b) are cleaning services, and the services specified in para. (xiv) are agricultural services, neither of which have application to the present case.
Paragraph (ii) of the Third Schedule:
"services, other than services specified in paragraph (xiv) ofthe Sixth Schedule, consisting of the development of immovable goods and the maintenance and repair of immovable goods including the installation of fixtures, where the value of movable goods (if any) provided in pursuance of an agreement in relation to such services does not exceed two-thirds of the total amount on which tax is chargeable in respect of the agreement. "
Findings of Fact:
Based upon evidence adduced at the hearing of the appeal, the fdllowing findings of fact were made:
(1) The respondent companies are Irish incorporated;
(2) Cablelink supplies television and radio signals through cable which may be run overground and also underground or through the MMDS system;
(3) Where overground cables are supplied, a main cable is run along the eaves from one house to the next and, in order to make a connectio into an individual house, a drop cable is run from a junction box at the eaves level. That drop cable goes to, for example, a living room window where it is brought into the house and attached to a small connection box on the window sill or somewhere adjacent thereto. The connection box is approximately the size of a cigarette packet. The drop cable is fixed to the external wall by cable clip (a small nail and a plastic bridge) or screws. The junction box is attached to the eaves of the building by screws.
(4) Where underground cables are used, the main cable system is run under the street rather than through the customers' properties and there are a number of junction boxes from which separate cables will be run into each house. The cable is normally installed as the house is constructed, usually with the agreement of the builder. It is brought above ground by ducting into a point in the living room where a terminal box is mounted on the wall from which a connection is made to a television or radio.
(5) The MMDS system requires the installation of an antenna and down convertor on the roof of the customer's house. A cable is installed from the antenna/down convertor to the decoder and from the decoder int the television set. The decoding box is not attached or in any way affixed to the customer's premises.
(6) The objective of both cable-type systems and the MMDS system is to deliver multi-channel television reception. The delivery systems are different for the same product.
(7) Cablelink would not install connection boxes or provide decoder boxes without subscription for the multi-channel television service.
(8) The installations remain in the ownership of Cablelink.
(9) Neither the underground cable nor the overground main cable is removed when service is withdrawn from a customer.
It is Cablelink's policy not to re-use overground cable removed from customer's premises although it could be re-used.
(10) Connection boxes and decoder can be removed from customer's premises without damaging them. It is Cablelink's policy not to re-use connection boxes but to re-use decoders.
(11) The Department of Communications has statutory authority to separately regulate rental charges and installation charges for cable systems.
(12) The subscriber enters into an agreement with Cablelink. The respective agreements form part of the case stated.
(13) The installation work may not be done other than by Cablelink or its agents.
Contentions:
The following were the contentions made on behalf of Cablelink:
(1) Cablelink engages in the development of immovable goods including the installation of fixtures.
(2) Cablelink carries on two separate activities- firstly, the supply of a connection to the house and, secondly, the supply of the signal. It was argued that in the agreement that the subscriber signs, there is separate provision for the installation charge and for the charge in respect of the supply of the signal. Immovable goods are developed by bringing piped television to the house.
(3) Cablelink supplies fixtures because of the type of connection boxes and cabling supplied.
The Inspector contended:
(1) There is no supply of fixtures.
(2) There is no development of immovable goods.
(3) There are not two separate supplies, rather there is one supply, namely, the supply or provision of telecommunication signals.
(1) No Supply of Fixtures:
The nature of the physical items supplied as part of the service by Cablelink does not constitute a supply of fixtures. The only physical item supplied and distributed to the individual subscriber's premises are a connection box and, in the case of the MMDS system, a decoder. The connection box is connection box is connected to some part of the outside of the premises by cable in the cable system. Where the installation is of MMDS rather than cable, then the transmission system consists of a type of antenna or dish attached to the roof or eaves of the premises. The cabling, connection box and decoder remain the property of Cablelink.
(2) Development of Immovable Goods:
Section 1 of the VAT Act, 1972, defines "development" in relation to any land as follows –
"( a ) the construction, demolition, extension, alteration or reconstruction of any building on the land, or
( b ) the carrying out of any engineering or other operation in, on, over or under the land to adapt it for materially altered use".
The Inspector contends that the attaching of a small box or an antenna does not constitute any of the above acts and, accordingly, is not a development within the meaning of the Act. The house continues to remain a residence for the occupants and has not been subjected to a "materially altered use".
(3) One Service Supplied:
The service being provided, even if it is work on immovable goods, is the provision of telecommunication signals. The installation of cables or communication boxes or decoders or sockets is only for the purpose of the real supply being made, namely the supply of telecommunication signals. There is one supply, one service, and that is the provision of telecommunication signals.
The decision of the Appeal Commissioners on the 29`h March, 1995, was given in the following terms:
(1) Cablelink supplies two separate services: firstly, the supply of a connection/reconnection to the customers' premises, and, secondly, the supply of television and radio signals.
(2) The service with which this appeal is concerned is the supply of a connection/reconnection to the customers' premises.
(3) The application of the two-thirds rule (i.e. where the value of movable goods (if any) provided in pursuance of an agreement in relation to such service does not exceed two-thirds of the total amount on which tax is chargeable in respect of the agreement) was not argued before us in relation to either "the development of immovable goods" or "the maintenance and repair of immovable goods including the installation of fixtures". The Appeal Commissioners have, accordingly, not made a determination in relation to this issue.
(4) The service provided does not consist of the development of immovable goods.
(5) The service provided does not consist of the maintenance and repair of immovable goods in the ordinary meaning of those words. Neither does it consist of the maintenance and repair of immovable goods including the installation of fixtures.
(6) The service consists of work on immovable goods.
After the determination, the Inspector of Taxes requested a case stated for the opinion of the High Court on the basis that the determination was erroneous in law.
The question of law for the determination of the High Court is whether, on the facts and evidence as found by the Appeal Commissioners, they were correct in finding that the activity of the respondents constituted two separate services with two separate VAT tax rates.
The question which the Appeal Commissioners were asked to determine was whether the fee received by the respondents in respect of the connection/ re-connection of the customer to their cable television or MMDS (Multi Channel Distribution System) for the purposes of receiving communication signals was in respect of:
(a) a service consisting of work on immovable goods, or
(b) a service consisting of the development of immovable goods where the value of the immovable goods (if any) provided in pursuance of an agreement in relation to such service did not exceed two thirds of the total amount on which tax was chargeable in respect of the agreement, or
(c) a service consisting of the maintenance and repair of immovable goods including the installation of fixtures, where the value of moveable goods (if any) provided in pursuance of the agreement in relation to such services did not exceed the two thirds of the total amount on which tax is chargeable in respect of the agreement, or
(d) the provision of telecommunication signals.
SUBMISSIONS OF THE APPLICANT
The findings of fact of the Appeal Commissioners are found at para. 3.1 of the case stated. The applicant submits that the finding of the appeal commissioners is wrong and unreasonable and not based on the findings of fact before them. In particular, the Appeal Commissioners failed to give any or any sufficient weight to their own findings that the objective of both cable type systems and the MMDS system is to deliver multi-channel TV reception. The applicant further submits that the Commissioners failed to give any weight or proper weight to their own finding of fact that Cablelink would not install connection boxes or provide decoder boxes without subscription for the multi-channel TV service. It is further submitted that the Appeal Commissioners failed to give weight or any sufficient weight to the fact found by them that installation work could not be carried out by anyone other than Cablelink or any of its agents. It is submitted that having regard to the findings of fact made by the Appeal Commissioners that their determination that there were two different supplies is not supported by the facts as found by them.
The applicant submits that, having regard to the basis on which a judge should approach a case stated as set out by Kenny J in Mara (Inspector of Taxes) v Hummingbird Ltd [1982] I.L.R.M. 421, the findings made by the Commissioners in this case were findings that no reasonable Commissioner could draw based upon the primary facts as found by the Commissioners. The Commissioners erred and must be assumed to have misdirected themselves at the law or else made a mistake in reasoning.
In British Airways plc v. Customs and Excise Commissioners [1990] STC 643, the court had to consider whether British Airways plc who operated the business of transporting passengers and freight by air and provided in flight catering for passengers provided one or two services. No part of the ticket price was expressly attributed to the in-flight catering. The price was the same whether or not a passenger wanted or took advantage of the facility and no refund was payable. The court found that the question of whether British Airways had made one supply or two supplies was a question of law on which the court was entitled and bound to form its own view. The court found that in flight catering was part of and integral to the supply of air transportation and that accordingly British Airways had made only one supply; namely, that of air transportation.
The applicant submits that the same reasoning applies in this case in that the provision of a decoding box is part and parcel of the one supply and one service and that is the service of providing telecommunication signals. The objective of the respondents is to provide multi channel TV through that. The decoding box is supplied solely for the purpose of supplying the telecommunication signal. Indeed, it is respectfully submitted by the applicant that this case is even clearer than the British Airways case because while you could have air transportation without food, you could not have the provision of the TV signals without the box and decoder. Therefore, the provision of the box and decoder is completely integral and not really incidental to the supply of the telecommunication signals. The applicant submits that the Appeal Commissioners were wrong in finding that there were two separate services.
The court was again asked to consider whether there was one or two supplies in the case of Customs and Excise Commissioners v. United Biscuits (UK) Ltd. (trading as Simmers) [1992] STC 325. In this case, the issue was whether biscuits supplied in a decorative tin constituted two supplies. The evidence was that the tin was 55% of the total cost of the product and had a useful afterlife as a container after the biscuits were consumed. The court found that the correct legal test to be applied was whether the supply of the decorative tin was incidental to or an integral part of the supply of biscuits. The court considered that what was supplied was biscuits in a biscuit tin rather than a general purpose container with biscuits in it. Alternatively, they said that the tin was integral to the biscuits not merely in the sense that it was the container in which they were packaged but further in the sense that it served the supply of biscuits to a restricted quality market and was prolonging their shelf life and keeping the biscuits in better condition once consumed. Accordingly, they found that there was only one supply.
Again, the applicant submits that this case, when applied to the facts as found by the Appeal Commissioners, must result in the conclusion that there was only one supply: the supply or provision of telecommunications signals. The provision of the box and decoder were incidental, integral or part of that supply.
In the European Court of Justice case of Card Protection Plan Limited v Commissioners of Customs and Excise (Case C-349/96, ECJ, 25"February, 1999), the court was considering a card protection plan which provided indemnification to the cardholder against financial loss in the event of loss or theft. When a customer took out this protection his name was added to a block insurance policy. The court, in considering the nature of insurance services also considered how to approach the question of whether there was a single supply or a multiple supply. The court stated. "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, second, 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.
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 (Joined Cases C-308/96 and C-94/97 Commissioners of Customs and Excise v Madgett and Baldwin [1998] ECR I-0000, paragraph 24)".
The applicant submits that in this case, applying the reasoning of the European Court of Justice, there was clearly only one supply as there was only one purpose-that of supply of cable television- to the customer from an economic point of view. In order to fulfil that objective the composite supply of the connection box or decoder box and the signal was necessary.
The applicant submits that equally there was no separate aim or objective for the customer in obtaining the connection box or decoded box; it was only ever obtained to facilitate the receipt of the communication signals. This is borne out by the finding of fact of the Appeal Commisioners at para. 3.1(7) of the Case Stated that "Cablelink would not install connection boxes or provide decoder boxes without subscription for the multi-channel TV service".
SUBMISSIONS ON BEHALF OF THE RESPONDENT
The respondents rely on the case of Inspector of Taxes (Mara) v. Hummingbird [1982] I.L.R.M. 421 in outlining their submissions on the principles on which findings of fact in a case stated on tax matters can be interfered with by the Superior Courts. These principles were most recently affirmed by the Supreme Court in Brosnan v Mutual Enterprises [1997] 3 I.R. 257, where Hamilton CJ went on to elaborate as follows:
"The way in which a court should approach the conclusions of the commissioner was discussed in the House of Lords in Edwards (Inspector of Taxes) v. Bairstow [1956] AC 14, in which the House reversed the finding of the commissioner that a purchase of plant was not an adventure in the nature of trade. In the course of his speech Viscount Simonds said:- 'For it is universally conceded that though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think fairly summarised by saying that the court should take that course if it appears that the commissioners have acted without any evidence, or on a view of the facts which could not reasonably be entertained."
The respondents submit that the findings of fact made by the Appeal Commissioners are not open to review on the grounds as stated in Edwards v Bairstow or Mara v Hummingbird.
The case stated recites that evidence was given on behalf of the respondent taxpayer by Brian Malone, the technical manager of Cablelink, and Pat Dunne, chief accountant with Cablelink. Based on this evidence, the Commissioners found, inter alia, that Cablelink supplies television radio signals through cable over-ground or underground or through MMDS.
They found as fact that where over-ground cables are supplied the main cable is run along the eaves from one house to the next. A drop cable is run from a junction box at the eaves level. The drop cable goes via a small connection box on the windowsill. The drop cable is fixed to the external wall by cable clips. The junction box is attached to the eaves of the building by screws.
They found as fact that where underground cables are used the main cable of the system is run under the street rather then through the customer's properties and there are a number of junction boxes from which separate cables would be run into each house. The cable is normally installed as the house is constructed with the agreement of the builders. It is brought underground by ducting into a point in the living room where the terminal box is mounted.
The MMDS system requires the installation of an antenna and down converter on the roof of the customer's house. The Commissioners found as fact that the installations remain in the ownership of the Cablelink. The Department of Communications (during the relevant periods up to the time of the Appeal Commissioners decision) had authority to separately regulate rental charges and installation charges. The installation work may not be done other than by Cablelink or its agents.
The respondents submit that these various findings of fact are not absurd or such that no reasonable judge or Commissioner could have reached those conclusions. In this regard, the respondents also place reliance on the decision of Blayney J in O'Cualach6in (Inspector of Taxes) v. McMullen Brothers Ltd. [2000] 5 ITR 203. The respondents submit that the finding of fact that Cablelink supplies two separate services, to wit connection/reconnection to the customer's premises and, secondly, the supply of television and radio signals were supported by the only evidence before the Appeal Commissioners, which was the evidence tendered by Brian Malone, Technical Manager of Cablelink, and Pat Dunne, Chief Accountant. The Revenue did not call evidence.
The inference from these proven facts that there was a supply consisting of work on immoveable goods consisting of the connection/ reconnection cannot, it is submitted by the respondent, is shown by the applicant to have been founded on a wrong view of the law. The respondent contends that the finding of fact/ inference from the finding of primary facts that the service of connection/ reconnection consisted of work on immoveable goods was drawn fairly from findings of fact, to wit, that installations remained in the ownership of Cablelink, they are not removed when the service is withdrawn, the policy of Cablelink is not to reuse over-ground cable power. The cables are fixed to external walls by cable clips and the junction box is attached to the eaves of the building by screws an the underground cable is brought above ground by ducting into a point in the living room, the facts are consistent with the inference that the service consists of work on immoveable goods.
The respondents separately apprehend the applicant's contention that the findings of the Appeal Commissioners are flawed on the basis that there as a matter of fact and as a matter of law "all one service was being supplied even if it involved work on immoveable goods ".
The respondent relies in this regard on the case of Card P7otection Plan Ltd. v. Customs and Excise Commissioners (Case C-349/96), which has been summarised above. The respondents contend the contract between Cablelink and its customers clearly encompasses a separate charging for connection and supply of service. The customer forms an initial intention to obtain a connection. He then contracts annually for the supply of the signal. The respondents contend that the finding of fact support a conclusion that the connection can be maintained and remain as the property of Cablelink notwithstanding the failure to continue to subscribe for the service.
The respondents also place reliance on the case of Madgett and Baldwin v Commissioners for Customs and Excise [1998] STC 1189. The appellants in that case were hoteliers whose customers bought a package, paying a fixed price for half board accommodation, transport by coach from various pickup points and a day excursion throughout their stay.
The question before the European Court of Justice was essentially one of whether the services supplied by the appellants constituted a single consummate supply of, in essence, hotel accommodation or two separate supplies, one of hotel accommodation and the other of organising transport. The European Court of Justice held that there would be only one composite supply if the travel service concerned constituted a small proportion of the package price and did not constitute for the customer an aim in itself, but as a means of better enjoying the principal service supplied by the appellant.
The respondent submits that the provision of the connection/reconnection is an end in itself. The ability of the customer subsequently to maintain service is dependent on his payment for the transmission of the communications details. The respondents place reliance on the case of TJ Brosnan (Inspector of Taxes) v. Cork Communications Ltd. ITR Vol. IV, p.349. In that case, Caroll J held that the business of Cork Communications Ltd. for VAT purposes in supplying a signal was the transmission of TV cable and radio signals on which it was liable to VAT. The respondents contend that this finding is consistent with the contrary conclusion that the separate charge contracted for, levied and imposed for the installation and connection/ reconnection of the means by which such supplies might be made is not itself the supply of an electronic signal as such.
CONCLUSION
I am satisfied that the various findings of fact are not absurd or such that no reasonable judge or commissioner could have reached those conclusions. Having regard to the principles outlined by Hamilton CJ in Brosnan v. Mutual Enterprises [ 1997] 3 I.R. 257, affirming the approaches set out in Inspector of Taxes (Mara) v. Hummingbird [1982] I.L.R.M. 421 and Edwards (Inspector of Taxes) v. Bairstow [1956] AC 14, the findings of fact made by the Appeal Commissioner are not open to review.
I am satisfied that a rational approach to the issue of the supply of services by Cablelink is to look at the contract between Cablelink and its customers and ascertain whether it encompasses a separate charging for connection and supply of services. In line with the reasoning of the European Court of Justice in Card Protection Plan Ltd. Y. Customs and Excise Commissioners (Case C-349/96), I am satisfied that Cablelink supplies two separate services:
1. the supply of a connection/reconnection to the customers' premises, and
2.the supply of television and radio signals.
The question of whether Cablelink had made one or two supplies is a question of law on which the Court is entitled and bound to form its own view. Customers pay an initial fee to obtain connection and then contract annually for the supply of the signal. This connection can be maintained and remain as the property of Cablelink notwithstanding the failure to continue to subscribe to the service. These are two distinct and separate services with two distinct and separate charges and consequently, two distinct and separate VAT tax rates.
The service with which this appeal is concerned is the supply of a connection/reconnection to the customers' premises.
I am furthermore satisfied that the facts are consistent with the inference that the service consists of work on immovable goods.
There is nothing in the finding of facts to support the contention that the service provided consists of the development or maintenance and repair of immovable goods. Neither does it consist of the maintenance and repair of immovable goods including the installation of fixtures.
I will, accordingly, uphold the decision of the Appeal Commissioner. Appeal dismissed.