18870
EXEMPTION – Land – Supplies of kennel facilities – Quarantine and non-quarantine facilities – Whether supplies of kennels are supplies of land – No – Whether supplies of kennels are ancillary or incidental to quarantine supplies of detention with isolation and care – Yes – Whether supplies of kennels are ancillary or incidental to non-quarantine supplies of care and safe keeping – Yes – VATA 1994 Sch 9, Gp 1, item 1

LONDON TRIBUNAL CENTRE

	LEANDER INTERNATIONAL PET FOODS LTD	Appellant
T/A ARDEN GRANGE

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	STEPHEN OLIVER QC   (Chairman)
						TONY RING CTA (Fellow) ATT

Sitting in public in London on 21 and 23 October 2003

Paul Key, counsel, instructed by BDO Stoy Hayward, Accountants, for the Appellant

Nicola Shaw, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

1.	The Appellant, Leander International Pet Foods Ltd (“Leander”) appeals against the decision dated 18 June 2002 by which the Respondents refuse to allow Leander’s claim for a refund of £80,056 pursuant to a voluntary disclosure made by letter of 10 May 2002. Leander’s claim had been made on the basis that it had wrongly treated supplies made in the course of its kennel and cattery business as standard rated supplies whereas in fact, Leander claimed, those supplies had been exempt grants of licences to occupy land falling within VAT Act 1994 Schedule 9 Group 1 item 1.

2.	Leander’s case is that each relevant supply has been a single supply in which the predominant element has been the exempt supply of “an interest in or right over land or a licence to occupy land”.  In the alternative Leander’s  case is that it has been making multiple supplies, some of which are standard rated supplies and at least one of which, the supply of an interest in or right over or licence to occupy land, is exempt.  The Commissioners say that each relevant supply has been a single standard rated supply of the service of looking after the customer’s dog or cat for the duration of the agreement between customer and Leander. 

The Facts

3.	We heard evidence from Wendy Stephens, director of an associated company of Leander and involved in a supervisory capacity in the business of Leander.  Also called to give evidence was Robert Harlow; he had been a customer of Leander’s for its quarantine facilities.  He is partner in another boarding kennels business.

4.	At all material times Leander has owned and operated a quarantine and boarding kennels business. Leander’s quarantine facilities consist of 71 units licensed to accommodate dogs and 30 units licensed to accommodate cats.  Its boarding facilities, carried on under licence, provide accommodation for 56 dogs and 24 cats.  We shall deal separately with Leander’s quarantine kennels activity and then with its boarding kennel activity.

Licences to import animals

5.	An animal may not enter the United Kingdom unless its owner has previously obtained a licence from DEFRA.  The licence requires that the owner arranges for the animal to be accommodated at approved quarantine premises and for an authorized carrying agent to be engaged to take charge of the animal and deliver it to quarantine.  The animal is to remain at the quarantine premises until authorized to be released by the Department, normally after six months, or longer in certain circumstances such an outbreak of rabies at the quarantine premises.  The veterinary superintendent of the quarantine premises is required to vaccinate the animal with rabies vaccine on arrival.  The animal may be moved to another quarantine premises but only with the permission of the Department. 

6.	The effect of the licence requirements is that the animal is required to be kept in isolation throughout the quarantine period.  Each animal must have its own kennel or sleeping compartment and its own attached exercise run.  An exception to the last rule covers animals of the same type (i.e. dog or cat) which belong to the same owner and arrive from the same originating country into the United Kingdom together.  In that situation up to three dogs or three cats may share the same accommodation.  

Approved quarantine premises and Voluntary Code of Practice

7.	DEFRA has the responsibility of approving and licensing quarantine premises.  The premises, once approved, are inspected several times each year.  DEFRA has published a voluntary code of protection giving guidance to quarantine premises, their proprietors, their veterinary superintendents and their staff.  It covers (and here we quote from the DEFRA leaflet entitled “The welfare of dogs and cats in quarantine premises”) “the need for calm and careful handling, provision of stimuli, food and water, as well as advice on unit sizes and sleeping departments”.  The leaflet goes on to deal with the following heads:

•	“Responsibility for welfare” of the animals is said to be the prime responsibility of the proprietor/manager of the kennels

•	Unit sizes are prescribed by reference to minimum internal measurements applicable to small, medium and large dogs.

•	“General standards” require that quarantine kennels and catteries should be kept clean and hygienic with regular disinfection of premises and equipment. Materials must be used that provide a safe environment for the animal. Sleeping compartments are to be draught free and bedding is to be kept dry and clean.  

•	“Feeding and management” require every animal to be weighed on arrival, to have a regular supply of clean and fresh water, to be fed at least once everyday and to be checked at regular intervals (at least 4-hourly between the hours of 9.00am and 10.00pm).

•	“General conduct” requires anyone observing any likely or actual suffering to report it immediately.  The proprietor of the quarantine premises is responsible for ensuring that all staff employed have been given appropriate training.  Animal owners are to be permitted reasonable access for visiting their animals.

Leander’s premises

8.	Leander’s premises at Arden Grange in Sussex meets DEFRA standards.  The quarantine units are built of solid impervious materials for ease of cleaning and hygiene.  The quarantine unit was built in 1992 at a cost of £500,000 and it is expected to last for at least 25 years.  There is 24 hour lighting, an alarm system and double wired fencing.  Door access keypads ensure that only authorized people get access to the quarantine premises.  Leander’s brochure for customers states that the premises far exceed DEFRA standards and “have been built with the dog’s comfort and well-being in mind”.  Each kennel is heated.  It has its built-in run which is covered to give protection from the weather and which enables the dogs to see the day-to-day activities around the kennel.  The same applies to each cat’s exercise area.  

The agreement between Leander and the quarantine customer

9.	The customer’s initial enquiry will normally start with the question – “Have you got space for my dog (or cat)?”  The customer will be sent Leander’s brochure and price list.  The brochure describes the kennels, the cattery and the staff; it sets out visiting hours, arrangements for the pet’s possessions, veterinary care, optional insurance and booking and cancellation and payment procedures.  For example it says that the dog will have “a lot of contact with their kennel person” and will be fed on “Arden Grange Dog Food”. That food is manufactured by a company affiliated to Leander. On arrival, the brochure says, “your pet will be met by its allotted kennel person who will treat them as one of their own during the six month stay … All the staff are highly skilled, especially selected for their love and devotion to animals: you need have no anxiety whilst your pet is in our care.”

10.	The owner is permitted to visit during visiting hours but “visitors must be confined in their animal’s compartment during visiting hours”.

11.	From 1 October-30 April the kennels are heated and the owner is charged £15 per month for this.  

12.	On arrival (the brochure says,) the animal is given both the statutory rabies vaccination and other vaccinations for which separate charges are made.  

13.	The agreement between Leander and the owner states that the owner has read the brochure (referred to above) and agrees to the terms and conditions specified in the agreement. These deal with the terms of payment. They state that Leander reserves the right to refuse admission of an animal into quarantine and to terminate the contract giving one month’s notice. They state that the DEFRA approved veterinary superintendent has the right to make decision regarding any treatment for the animal and that this decision is final.

14.	The owner agrees to pay a “monthly boarding charge” based on the size of the unit that will be required to accommodate his animal.  He may contract for specific grooming services; these are charged for separately.

15.	The owner does not book a particular kennel or sleeping compartment.  

The day-to-day conduct of the quarantine unit

16.	There are normally four kennel maids working from 7.30am to 5.00pm for 5½ days each week.  One kennel maid is on duty overnight.  They let the dogs out into their separate exercise areas at 7.30 each morning.  They clear up all the kennels several times each day.  They provide food and water.  They spend much of their times dusting, disinfecting, washing and cleaning the animals’ beds.  All kennels and units for cats are thoroughly cleaned before any new animal occupies them.  The kennel maids are trained to look for changes in the particular animal’s behaviour and to report this to the veterinary superintendent if necessary.  Because of the pressures of work on them, the kennel maids are left with little time, Wendy Stephens told us, to treat each dog as a pet.  Nonetheless they exercise care over the dogs and cats in the quarantine premises.

17.	The veterinary superintendent carries out an initial inspection of the dog or cat and carries out a regular visit to the animals in the quarantine unit.  

18.	The quarantine unit is normally three-quarters full. Occupancy rates have fallen following the introduction of the “pet passport” scheme. The average cost of feeding is £38 per animal over the six month stay.  The cost is relatively low because the food is manufactured by Leander’s affiliated company.  

19.	The customers are charged with VAT on the full boarding rate.  

Boarding accommodation (non-quarantine)

20.	Leander’s non-quarantine boarding kennels are operated under a local authority licence.  This is renewable annually.  Licence requirements dictate that an individual kennel and an exercise run be allocated for each animal.  Animals from the same owners may share accommodation, up to a limit of three, but only if it is safe for them to do so.  There has to be a veterinary surgeon available but there is no requirement for a daily check by a veterinary surgeon.  Health standards of the particular animal are not the responsibility of Leander’s staff but, if something were obviously wrong with the animal, Leander would be expected to call a veterinary surgeon.  

21.	The kennels and cat units are kept clean by the same kennel maids as attend to the quarantine units.  The animals are fed and watered.  Leander is required as a condition of its licence to keep records of space allocations for five years.

22.	The non-quarantine boarding units have been built to the standards required by the licensing authority.  As with the quarantine premises they are constructed of solid impervious materials for ease of cleaning and for hygiene reasons.  There is twenty-four hour lighting, an alarm system, fencing and door-access keypads.  

23.	The owner books his animal in for the required period.  Prices depend on the size and demands of the animal.  Board is charged on a per day basis.  

24.	Owners usually book their animals in for short stays.  Typically owners will board their pets when they go away for holidays or when for any other reason, such as illness, they cannot care for their pet at their own homes.  There are no permanently resident animals at the Leander premises.

25.	Owners do not book particular kennels or sleeping accommodation.  These are allocated to the animal on arrival.  Customers are charged VAT on the full boarding rate.  

Costs

26.	We were provided with an attempted analysis of running costs of the Leander kennels.  This was designed to show that the ratio of the real cost of the quarantine unit building to the actual running cost over a six month period was in the region of 80:20.  The real cost of the building was calculated by reference to the capital cost of its acquisition spread over its likely life.  The likely life had been taken as ten years.  But Wendy Stephens expected the building to last for at least twenty-five years.  Running cost seemed to us to be understated.  The “payroll” costs struck us as too low as they made no allowance for the employer’s NIC and other related expenses and an insufficient proportion of office expenses had been attributed to running costs. Without more evidence from the person who assembled these figures, we cannot accept them as reliable.  We are prepared to accept however that the real cost of providing the kennels and the sleeping compartments for the cats is much the same each year as the annual running costs of the Leander business.

Law

27.	The following authorities were cited in argument: 

Customs and Excise Commissioners v Scott [1978] STC 1 (Divisional Court); 
Customs and Excise Commissioners v Wellington Private Hospital Ltd [1997] STC 445 (CA)
Bophuthatswana National Commercial Corporation Ltd v Customs and Excise Commissioners [1993] STC 703 (CA),
Rayner & Keeler v Customs and Excise Commissioners [1994] STC 724,
Customs and Excise Commissioners v Madgett & Baldwin [1998] STC 1189,
Card Protection Plan v Customs and Excise Commissioners [1999] STC 270 (ECJ) and [2001] STC 174 (HL),
Customs and Excise Commissioners v Leightons Ltd [1995] 458,
Customs and Excise Commissioners v British Telecommunication Plc [1999] STC 758 (HL),
Customs and Excise Commissioners v Pilgrims Language Courses Ltd [1998] STC 784,
Sea Containers Services Ltd v Customs and Excise Commissioners [2000] 82,
Customs and Excise Commissioners v FDR Ltd [2000] STC 672 (CA),
Co-operative Wholesale Society Ltd v Customs and Excise Commissioners [1999] STC 1096, and
Window v Customs and Excise Commissioners (VAT Dec.17186) [2001] V&DR 252

Conclusions on the quarantine premises

28.	It is clear from the evidence that there are several component parts to the services that Leander provides in return for the customer’s boarding fee. Where Leander’s quarantine facilities are involved, these include the provision of (a) the services of detention and isolation of the dog or cat in approved quarantine premises, (b) a secure kennel or, for cats, indoor sleeping compartments all of which are cleaned out at least once a day together with bedding and a run, (c) food and water and (d) care and supervision by kennel maids and by the veterinary superintendent which meet requirements of the quarantine regulations; the level of care offered by Leander and expected by the customer will, so far as this is practicable, be that of an allotted “kennel person” who treats the pet as one of her own.  

29.	Each of those component parts comprises what Millett LJ (as he then was) in Wellington Hospitals supra at 462e-f described as “an element of the transaction”.  Each is integral to each other because they are provided by Leander to the customer as part of a single package.  We need therefore to ask whether any one of those elements is, to use Millett LJ’s words, “so dominated by another element as to lose any separate identity as a supply for fiscal purposes”.  The exercise requires us to ask whether, as regards that particular element, it must be regarded “as ancillary to a principal service” because “it does not constitute for customers an aim in itself, but as a better means of enjoying the principal service supplied”: see Card Protection Plan (ECJ) supra at paragraph 30.  In this connection, the House of Lords in Card Protection Plan applied the European Court of Justice’s opinion by examining “why objectively people are likely to join it” (i.e. the scheme) when determining whether there was or was not an essential feature or dominant purpose in the Card Protection Plan scheme.

30.	No customer of Leander wants his or her pet to be detained and isolated in quarantine.  No customer would in the absence of the quarantine regulations require his pet to be subjected to being crated up on arrival in the United Kingdom, transported by an approved carrying agent and subjected to a range of vaccinations on arrival at Leander’s premises.  These are imposed on him by DEFRA as mandatory conditions of the licence to import his pet.  He uses Leander’s facilities because they are authorised quarantine premises and either because he is satisfied from experience or recommendation that Leander provides a sufficient standard of care or because Leander’s own brochure leads him to expect that Leander will care for his pet to the standard described in the brochure.  

31.	The essential needs of the pets while in quarantine are to be accommodated in a secure and clean kennel or sleeping compartment with a secure exercise area, to be fed and watered and to be supervised to ensure their welfare and health.  From the time the pet arrives at Leander’s premises, Leander provides all those facilities as an inseverable package and in return for a single fee.  

32.	Viewed objectively, pet owners use Leander’s services to obtain the licences to import and keep their pets in the United Kingdom; they choose Leander because it has departmental approval and because it supplies a sufficient standard of pet care.  To satisfy the licence requirements the pet has to be properly and securely housed.  But the provision of a secure kennel and a run, essential though these are, is not the object.  It is the means by which Leander supplies its authorized quarantine premises facilities. The same goes for Leander’s supplies of food and supervision.  So regarded, we think that the predominant element in Leander’s supply is that of detention with isolation and care. The supplies of kennels for dogs and indoor sleeping compartments for cats, in both cases with exercise spaces, are essential to the supply of detention with isolation and care; but kennels and sleeping compartments, which are the means by which Leander achieves the principal supplies of detention with isolation and care, do not constitute for the customers aims in themselves.  

33.	For those reasons our conclusion in relation to Leander’s supplies of quarantine facilities is that the service of detention with isolation and care comprises the principal supply; the supplies of kennel space and sleeping compartments for cats are incidental or ancillary to the main supplies.

Conclusions on supplies of non-quarantine boarding facilities

34.	We turn now to the non-quarantine supplies made by Leander. These are boarding facilities for dogs and cats.  

35.	The usual habitat of a pet dog or cat is his owner’s home. If the owner is incapacitated or away and there is no one available to look after the pet at his home, he will put the animal into kennels and pay a boarding fee. As with Leander’s quarantine facilities the evidence shows that there are at least three component parts of the service provided by Leander in return for the fee. Leander assumes responsibilities of care and safe keeping of the pet for the duration of its stay.  Leander undertakes to provide a kennel (or a sleeping compartment in the case of a cat) with bedding and a run.  Leander agrees to provide food and water and to keep the kennel, the sleeping compartment and the run clean.

36.	We heard no evidence from any user of Leander’s non-quarantine facilities and we were shown no brochures or advertising material covering these facilities.  We assume that the real annual cost of the accommodation building (i.e. one year’s worth of the capital cost of a building spread over its useful life) has at all times been a substantial part of the overall cost of the non-quarantine facilities.  We understand that the non-quarantine boarding facility comes as a package; the customer cannot take one component part only.  

37.	Without available space Leander can make no supply.  And boarding charges, which increase with the size and needs of the dog, are to an extent space-related.  

38.	Viewed objectively we think that the non-quarantine customers use the services supplied by Leander to secure care and safe keeping of their pet for so long as they cannot themselves provide them. Compared to the other components of Leander’s non-quarantine supplies, care and safe keeping of the pet comprises the principal service. Obtaining the benefits of kennel space and of food and water for the pet are not aims in themselves; those are the means by which the principal service is provided and, as such, are ancillary or incidental to the main objective of Leander’s non-quarantine services, i.e. care and safe keeping.  On that basis, it seems to us, the non-quarantine services supplied by Leander are, in their entirety, standard rated services and do not rank, for VAT purposes, as exempt supplies of “an interest in or right over land or licence to occupy land”.

39.	In reaching the above conclusions, we have taken into account the decision of the VAT and Duties Tribunal in Window v Customs and Excise Commissioners (2001) supra. The question there was whether supplies of stabling and livery of horses comprised an exempt supply of land or whether the supply of livery was a standard rated supply separate from the exempt supply of stabling. The tribunal decided that the object of the payments by owners of horses at livery being to secure stabling for the horse which could not be stabled without livery, then the principal supply was exempt and the livery was ancillary to it and not independent of it. On that basis the tribunal concluded that there was a single exempt supply. Horses, unlike pet cats and dogs, live their lives in stables and fields. On that basis it is understandable that an owner who wants to keep a horse has to obtain a licence to occupy land in order to provide his horse with living space.  Pets by contrast inhabit their owners’ homes.  When they are placed in kennels the object is either to secure a quarantine licence or, in the case of non-quarantine premises, to secure care and safe keeping.  Each case has to be decided on its facts and the circumstances of the Window decision are, as we have pointed out, significantly different from the present. 

40.	We mention in conclusion Leander’s alternative case which was that separate supplies were made by it; and in particular separate accommodation supply was made.  For this purpose Leander relies on the same facts which were referred to in support of its argument of the accommodation (i.e. licence to occupy land) element is not an ancillary element.  Reference was made to Rayner and Keeler Ltd, supra, where shop-fitting contracts were held, at 730c-d, to comprise “separate and multiple supplies of goods and multiple separable supplies of services”, to the Leightons decision where the court decided that there had been separate supplies of corrective spectacles and of services of dispensing opticians and Wellington Hospital supra where the Court of Appeal held that drugs and prostheses were separate supplies from other medical services supplied at hospitals.  For the reasons we have given above, we think that, both as regards quarantine and non-quarantine supplies, Leander makes wholly standard rated supplies; Leander does not make separate exempt supplies of accommodation.

41.	We dismiss the appeal.

STEPHEN OLIVER QC
CHAIRMAN

RELEASED: 17 November 2003

LON/02/575