1863013/5/04 03 559  MR G MILLER
       and
MRS J MILLER Mr J D Demack   29 April   

	VAT  — input tax — fitting out of shop — whether supplies made by shopfitters those of services or of goods — if of services irrecoverable as having been made more than 6 months before appellants registered for VAT — if of goods recoverable — held on facts supplies of goods — appeal allowed

MANCHESTER TRIBUNAL CENTRE

 
 	
	MESSRS G, J & B MILLER	Appellants

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 Mr J D Demack (Chairman)
						 The Hon Mrs A Widdows (Member)	

Sitting in public in York on 29 April 2004

Mr J R Parkin chartered accountant for the Appellants

Mr J Cannan of counsel instructed by the Solicitor for the Customs and Excise for the Respondents

	© CROWN COPYRIGHT 2004

DECISION

1.	This is an appeal by Gary Miller, Julie Miller and Becky Miller, t/a Pulse, against a decision of the Commissioners of Customs and Excise by letter of 18 July 2002 to disallow an input tax credit claim of £3463.02.  The appellants, to whom we shall refer for convenience as ‘Pulse’, made their claim in period 05/02 in respect of a supply made at least 6 months before their registration for VAT; and as the Commissioners considered that supply to have been one of services they disallowed the repayment claimed under reg. 111(2)(d) of the Value Added Tax Regulations 1995.  The significance of six months is that by reason of reg. 111 the Commissioners may authorise a taxable person to treat as input tax tax on the supply of goods and services made by him before the date from which he is registered, but no tax may be treated as input tax in respect of services (as distinct from goods) which have been supplied more than 6 months before his registration.
2.	We are required to decide the supplies made to Pulse more than 6 months before it registered for VAT were supplies of goods, or of services, or a combination of the two.
3.	We were presented with the oral evidence of Mr Gary Miller of Pulse, a series of photographs which he produced, three invoices and the Commissioners’ bundle of copy documents.  From that evidence, we find the following facts to have been established.
4.	Pulse carried on business as a clothes retailer from shop premises in Colliergate, York from 1 October 2001 until 31 December 2003.  It acquired the premises as a shell with the intention of fitting them out according to a design of Mr Miller.  A firm called Spectrum was invited to tender for the work required to meet that design and it did so on 23 August 2001 in the following terms:
“Quotation for Pulse Clothing, Colliergate York 
 	Thank you for your recent enquiry to undertake the full shop fit of the Pulse Clothing store at the above address.  We are pleased to forward the following quotation.
	Work to be carried [out] as follows:
	Themed painting of the shop using the design provided
	Price £350
	To lay new flooring, supply of a service counter and changing booths all to be fixed into areas as specified by the designer.
	Supply of lighting and various accessories to be fitted into place
	Total price £19,442.25
	Please note that all prices are exclusive of VAT
We hope the above is of interest to you, please do not hesitate to contact us if you have any queries”
5.	Pulse accepted the quotation, and Spectrum supplied the goods and carried out the work agreed.
6.	Spectrum invoiced Pulse for its supplies on 5 October 2001 in these terms:
	“Service details					Net		VAT
	To fit out the above mentioned shop as agreed design
	Design to include;  
	New flooring laid
	Themed painting
	Service counter
	Lighting
	Changing booths
	Accessories
								£19,792.25	£3463.64”
7.	We should observe that the words ‘Service details’ were pre-printed on Spectrum’s invoice; they did not form part of the narrative inserted specifically to describe the supplies made to Pulse.
8.	In evidence, Mr Miller told us, and we accept, that amongst the goods supplied by Spectrum were the following items:  4 mirrors, a service counter, a seat, brackets to hold shoes on display, wall brackets on which to hang clothes, security fencing used for decoration, light fittings, various mannequins, signage, a display cabinet, changing booths with curtains, and boxes for mannequins.
9.	As Pulse only started trading in October 2001, and did not take over an existing business as a going concern, it was not required to register for VAT at the outset.  In the event, its turnover exceeded the registration limit in March 2002 and it, quite correctly, registered for VAT with effect from the end of April 2002.
10.	Pulse included the VAT on the Spectrum invoice of 5 October 2001 in its input tax for period 05/02.  As we mentioned earlier the Commissioners’ refused the claim on the basis that the supplies in question were those of services and, having been made more than 6 months before Pulse registered for VAT, were irrecoverable.
11.	On the Commissioners refusing Pulse’s claim, Mr Parkin, its accountant (who represented it before us), claimed to have contacted Customs National VAT Helpline and to have been advised that a supply and fix contract fell to be defined as a supply of fixtures and fittings falling within the 3 year rule for input tax recovery.  Mr Parkin made representations to the Commissioners on behalf of Pulse, but to no avail; they continued to maintain that the supply to it was one of services.  Despite being invited to inspect the supplies made by Spectrum, Customs failed to do so, preferring instead to rely on the contents of the 5 October 2001 invoice.
12.	Against that factual background, Mr Cannan, counsel for the Commissioners, reminded us that to succeed in its appeal Pulse was required to establish on the balance of probabilities that the supply made to it by Spectrum was one of goods, or possibly a mixed supply of goods and services.
13.	In support of the Commissioners’ case, Mr Cannan substantially relied on the following passage from the speech of Lord Hope of Craighead in C E C v British Telecommunications plc [1999] STC 758 at p. 768:
“As Millett LJ recognised in [Customs and Excise Commissioners v] Wellington Private Hospital Ltd (Case 353/85) [1988] STC 251 at 265, [1988] ECR 817, the Court of Justice in EC Commission v United Kingdom (Case 353/85) [1988] STC 251 was not laying down a general rule of classification for use in all cases where the question is raised as to whether a particular supply is or is not incidental or ancillary to another supply.  It may be said that before the supply can be regarded as a separate and distinct supply it must, at least to some degree, be physically and economically dissociable from the other supply.  But it would not be right to take this factor as the sole criterion as to whether the supply was separate and distinct from the other supply or was merely incidental or ancillary to it.  If that were so, it would mean that in every case where it was possible to dissociate the two economically and physically (for example, because one supply was of goods and the other supply was of services and the price for each supply could be separately identified) the two supplies would have to be treated as separate supplies for VAT purposes.  That would not be consistent with the guidance which the Court of Justice  [of the European Communities] gave in Card Protection Plan Ltd v Customs and Excise Comrs (Case C-349/96) [1999] STC 270 at 293 para 29 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.  According to this guidance, the question is one of fact and degree, taking account of all the circumstances.”
14.	Mr Cannan maintained that the quotation and invoice supplied by Spectrum to Pulse showed that the supplies made were not physically indistinguishable: there was no question of separating what Spectrum had provided  - it was a full shop fit, a supply of services.  He added that it was plain that Spectrum had carried out work which was incorporated into the fabric of the building.  It had made no attempt to separate the invoice into labour and time charges; and the goods supplied by Spectrum were ready made.
15.	He submitted that the tribunal was concerned with the way in which Pulse and Spectrum had contracted:  Pulse wanted a fitted out shop.  In theory, the parties could have contracted separately for goods and services, but there was no evidence from Spectrum as to how any apportionment might have been made.  It had been open to Pulse to adduce evidence from Spectrum as to apportionment, but it had failed to do so.
16.	Mr Cannan then referred to the only two shopfitting cases which have been concerned with apportionment in a VAT context, namely the High Court judgment in Rayner & Keeler Ltd v CEC [1994] STC 724 and the tribunal decision in Burgess and Holmes v Customs & Excise Commissioners (1996) Decision no 14475 observing that in the former Owen J had said at p. 730, “In the final analysis I can only agree with each counsel that necessarily the answer is, to a great extent, a matter of impression”. And in the latter, the learned Chairman, having observed that the appellant had prepared a detailed layout plan which suggested that all or virtually all the items to be supplied were to be individually made either before delivery to, or on site, had said: “There were no free standing units, and no unit was other than against a wall”.  The learned Chairman went on to conclude that the contract in that case could be thought of as one for “the elaborate decoration of a room”, and thus constituted a supply of services.
17.	Mr Parkin simply maintained that the contract was a single one for supply of goods.
18.	As Owen J observed in Rayner & Keeler, “in the final analysis… the answer [to the question before us] is a matter of impression”, to which Balcombe LJ added in Card Protection Plan Ltd v Customs and Excise Commissioners [1994] STC 199  in the Court of Appeal (at p. 207) “on which different minds may reach different conclusions”.  Owen J then added, significantly in our view, “I question the chairman’s decision that the contract was for shopfitting  and therefore of services.  It seems to me that just as easily and possibly more accurately he could have found that it was for the supply of goods which were to be fitted”  (emphasis added). 
19.	We earlier listed some of the goods which Spectrum was required to provide to Pulse.  Almost all required fitting.  The impression we draw from the facts, including in particular the photographs provided by Mr Miller, is one of a single supply from an economic point of view which ought not to be artificially split.  Taking account of fact and degree, and ignoring the themed painting of the shop (which was quoted for separately by Spectrum and constituted a supply of services), we conclude that in the instant case, the remaining supply was one of goods.
20.	It follows that, with the exception of the supply of painting services, we hold that Pulse is entitled to recover the input tax on Spectrum’s supplies as being attributable to a supply of goods.  We allow the appeal.

DAVID DEMACK
CHAIRMAN
RELEASE DATE: 04/06/2004
MAN/03/559