Commissioners of Customs and Excise v Plantiflor Limited
40. I entirely accept that in accordance with the decision of your Lordships' House in Custom and Excise Comrs v Redrow Group plc  1 WLR 408 in an arrangement such as is here in issue different supplies may be involved. There is nothing in the Redrow case in my view to justify the suggestion that in this case Plantiflor is supplying to the customer delivery from the Parcelforce depot to the customer or to his order. This is done by Parcelforce alone and it is accepted that Parcelforce is not a subcontractor of Plantiflor in giving this supply. If it were, the supply by Parcelforce would be to Plantiflor and not to the customer and this is contrary to the finding of fact by the tribunal. If Plantiflor is not giving the supply of delivery from the Parcelforce depot to the customer or to his order, I can see no basis on which the consideration for this supply can be included in the consideration for the supply which Plantiflor is giving to the customer, namely, as I said earlier, by providing the packing and delivery of the goods to the relevant Parcelforce depot and arranging that Parcelforce will be paid the amount which the customer has provided for that purpose.
41. An argument was raised by the commissioners on article 11(A) of the Sixth VAT Directive (77/338/EEC). Article 11(A)(1)(a) provides that the taxable amount shall be in respect of supplies of goods and services "everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies. . . " So the question of fact is immediately raised what is the consideration for the supply which Plantiflor in fact gave to the customer. It is only if the sum of £1.63 for delivery is part of that consideration that the later provisions, in particular article 3A, applies. In my view article 3A deals with the question that arises where in order to provide a supply the supplier incurs an expense to a third party, for example a subcontractor. Where that expense is incurred in the provision of the supply for which the consideration is in issue it can only be deducted in terms of article 3A when the full conditions are satisfied as, for example, when trust conditions are impressed on part of a payment to a contractor to protect the cash flow of a subcontractor in the event of the principal contractor becoming bankrupt. It does not appear to me to answer the question whether a particular sum is or is not part of the consideration for the supply.
42. The agreement between Plantiflor and Parcelforce rightly described during the hearing by my noble and learned friend Lord Hobhouse of Woodborough as a contract for carriage, involves a supply by Parcelforce to Plantiflor of the service of accepting customers' goods for delivery to the customer or to his order on terms set out in it but the consideration for this is not the charge that Parcelforce makes for delivery by it to the customer.
43. The argument for the commissioners is based upon the submission that Plantiflor makes arrangements with Parcelforce for delivery of the goods to the customer or to his order but in my opinion the effect of this for purposes of value added tax depends on the nature of the arrangements in question. If the arrangements involve that the responsibility for delivery to the customer is to be that of Plantiflor carried out, for example, by way of a subcontract with Parcelforce then the consideration for the service of making arrangements will include the cost of the delivery to the customer. On the other hand if the arrangements to be made are simply the handing over to Parcelforce of the goods to be delivered to the customer with appropriate arrangements for payment the responsibility for the delivery rests with Parcelforce and not with Plantiflor. In my opinion, therefore, liability cannot be determined simply by saying that Plantiflor is responsible for making the arrangements for the delivery. What is all-important is the nature of those arrangements and whether the supply of delivery to the customer is made by Parcelforce or by Plantiflor. If the supply is by Parcelforce the consideration for it is not part of the consideration for the supply which Plantiflor makes to the customer. If the supply of the delivery is made by Plantiflor then the consideration for it is part of the consideration which the customer pays to Plantiflor.
44. I do not believe that the factual position is in doubt in this case and I do not regard it as necessary for Plantiflor's argument to succeed that it had the character of an agent for the customer in the transaction with Plantiflor. In this connection I refer to a passage in the judgment of Laws J in Customs and Excise Comrs v Reed Personnel Services Ltd  STC 588, 595 where he said:
This is also in accord with the judgment in the Court of Justice of the European Communities in Finanzamt Uelzen v Armbrecht (Case C-291/92)  STC 997, 1019, paras 13 and 14. In terms of article 11(A)(1), already quoted, the consideration for the supply by Parcelforce to the customer includes the consideration paid to the supplier by a third party. In this case Plantiflor paid to Parcelforce £1.63 for delivering the goods. It is therefore the consideration for this supply for VAT purposes.
45. Although the consideration for the delivery by Parcelforce to the customer or to his order was paid by the customer as part of the total sum he paid to Plantiflor it was clearly the intention of the parties that it should be passed on to Parcelforce and this is what in fact happened and in my opinion it is entirely right that the total sum paid by the customer to Plantiflor should, for the purposes of value added tax be allocated to the various supplies involved in the transaction, a supply of goods by Plantiflor to the customer, the packing and delivery of the goods to the Parcelforce depot which is a supply of services by Plantiflor to the customer and finally the supply of services by Parcelforce to the customer.
46. I conclude by agreeing that there were three distinct suppliers in the present case.(i)
The principal difference between my noble and learned friends and myself is that they say the contract in (ii) was without consideration, whereas I say the consideration was £1.63 paid by Plantiflor, as a third party to this supply, to Parcelforce.
47. For these reasons, in my opinion, the decisions of the tribunal and of the Court of Appeal were correct and I would dismiss the appeal.
LORD HOBHOUSE OF WOODBOROUGH
48. In agreement with my noble and leaned friends Lord Slynn of Hadley and Lord Millett, and for the same reasons, I too would allow the appeal.
49. Value Added Tax is charged on the value of the supply of goods or services made in the United Kingdom for a consideration and is a liability of the person making the supply. In the ordinary case the supply and the liability to pay the consideration for the supply are reciprocal, that is to say the supply is made to the person who is liable to pay the consideration and the consideration is payable to the supplier by the person who receives the supply. But this is not always the case. Tripartite arrangements which result from two or three separate but related bilateral contracts call for close analysis in order to determine their tax consequences.
50. In Customs and Excise Comrs v Redrow Group plc  1 WLR 408 there were three separate bilateral contracts between the three parties, but only one of them was liable to pay the consideration and accordingly there was only one taxable supply. The taxpayer, which built houses for sale, offered prospective purchasers who bought a new house from it the free services of a firm of estate agents to value and market their existing homes. It entered into an agreement with the firm to pay their fees for the work, but only where a customer sold his existing home and bought a new house from the taxpayer. In order to recover their fees if a prospective customer found a buyer for his home but did not proceed to buy a house from the taxpayer, the firm entered into separate contracts with the customers. The firm were held to have made two different supplies. One, made to the customer, was a supply of the ordinary services of an estate agent in valuing and marketing his house. The other, made to the taxpayer, was the supply of the services of an estate agent in valuing and marketing its customer's house. Thus a single course of conduct by one party may constitute two or more supplies to different persons.
51. In the present case the three parties entered into two separate but related bilateral contracts. One was the contract between Plantiflor and its customer by which Plantiflor sold plants, bulbs and other horticultural and related products to the customer and, if the customer requested it and paid a sum of £2.50 (which included postal charges of £1.63), arranged to have the goods delivered by Parcelforce (part of Royal Mail) to the customer or to his order. This was a contract for the supply of goods and services. We are concerned only with that part of the arrangements which constituted a supply of services. The question is whether that was a taxable supply, and this depends on whether it was made for a consideration.
52. The relevant part of this contract was in the following terms:
53. The other was the contract previously entered into between Plantiflor and Parcelforce by which Plantiflor had made the necessary arrangements to have its customers' goods delivered. By this contract, which was to remain in force for a term of five years, Plantiflor undertook to despatch a minimum of 400,000 parcels in each year of the term of a specified average weight and was charged a preferential bulk rate of postage. As my noble and learned friend Lord Hobhouse of Woodborough observed in the course of argument, this was a contract for delivery and not a contract of delivery. It was not itself a taxable transaction.
54. There was no third contract between Parcelforce and the customer under which Parcelforce agreed to deliver goods to the customer's order and the customer agreed to pay the postal charges. The customer's agreement to pay postal charges was made with Plantiflor not with Parcelforce.
55. When Parcelforce made delivery of a parcel pursuant to its contract with Plantiflor, then like the estate agents in the Redrow case it made two different supplies. One was the supply to Plantiflor's customer of the service of delivering his goods to his order, that is to say to the addressee. The other was the supply to Plantiflor of the service of delivering its customer's goods to the addressee. These supplies were made for reward, and if the supply of postal services by Parcelforce were not an exempt supply there would be at least one taxable supply and possibly more than one.
56. Plantiflor also made a supply of services to its customer, but these did not include the service of making the actual delivery of the goods. It had not undertaken to do that. It had undertaken only to make arrangements for the goods to be delivered by Parcelforce. Those arrangements, however, included not only packaging the goods and delivering them to Parcelforce for onwards transmission, but also paying the postal charges. It had expressly agreed with its customer to pay them.
57. If Plantiflor had undertaken to deliver the goods itself, using Parcelforce as its subcontractor to make the actual delivery, the tax position would be straightforward. There would be two supplies: (i) a supply by Parcelforce to Plantiflor of the service (as its subcontractor) of delivering the customer's goods to the addressee and (ii) a supply by Plantiflor to the customer of the service of delivering his goods to the addressee (performed through its subcontractor). Consideration would pass from the customer to Plantiflor and from Plantiflor to Parcelforce. If Plantiflor were to use a private and taxable carrier instead of Parcelforce to make delivery, both supplies would be taxable supplies. But there would be no double payment of tax. The tax payable by Plantiflor to the carrier would be deductible in its hands as input tax.
58. The problem which confronted Plantiflor was that article 13(A) (1)(a) of the Sixth Directive (77/338/EEC) has the effect of making the supply of public postal services by Parcelforce an exempt supply, with the result that postal charges paid by Plantiflor to Parcelforce contain no element of output tax. Plantiflor understandably sought to avoid finding itself in the unenviable position of being liable to output tax on the postal charges which it receives from the customer while being unable to recover the like amount as input tax in respect of payments which it makes to Parcelforce.
59. To this end it worded its agreement with the customer to make it appear that it is merely the customer's agent in relation to the delivery of the goods. If this were truly the case, Parcelforce would make an exempt supply to the customer of the service of delivery, and the consideration for the delivery would pass from the customer to Parcelforce with Plantiflor acting merely as the customer's agent for payment. There would also be a supply of agency services by Plantiflor to the customer, but the consideration for these services would not include the postal charge.
60. The terms of the contract between Plantiflor and the customer naturally support this analysis, as they were intended to do. The customer pays Plantiflor a sum inclusive of (unspecified) postal charges, and Plantiflor undertakes to "arrange delivery on your behalf via Royal Mail Parcelforce" and to "advance all postal charges to Royal Mail on your behalf" (emphasis added).
61. The difficulty with this analysis, however, is that it does not fit the facts. As Laws J correctly held, Parcelforce does not deliver the goods pursuant to any contract with the customer or his agent. It makes delivery pursuant to its contract with Plantiflor, which both parties entered into as principals. This is plain from the terms of the contract, which was to last for a term of five years, contained an obligation on the part of Plantiflor to deliver a minimum number of parcels in each year, and provided for the annual indexation of postal charges. The minimum volume obligation, for example, which indirectly affects the price per parcel payable by Plantiflor, does not attach to any individual customer or to all the customers collectively. The conclusion is inescapable that neither party entered into the contract as agent for Plantiflor's future customers as undisclosed principals; and the contrary has not been suggested.
62. Plantiflor is accordingly contractually liable to Parcelforce to pay the postal charges, and the customer is not. Parcelforce cannot look to the customer for payment. It does not even know his identity unless he happens to be the addressee. When it delivers the customer's goods pursuant to its contract with Plantiflor, therefore, Parcelforce gives credit to Plantiflor, not to Plantiflor's customer.
63. Plantiflor advertises that it "deliver[s] every order, whether large or small, direct to your home"; and its undertaking to arrange delivery by Parcelforce and to advance all postal charges to Parcelforce is an undertaking to make all necessary arrangements to have the goods delivered. The customer's acceptance of Plantiflor's terms does not authorise Plantiflor to bring him into a direct contractual relationship with Parcelforce so that, if Plantiflor defaults in payment of postal charges to Parcelforce, the customer, who has already paid postage to Plantiflor, could find himself liable to pay it over again to Parcelforce. None of the parties to these arrangements had any such intention.
64. Plantiflor contended that strict agency was not necessary. It was sufficient that Plantiflor had agreed, not only with Parcelforce but also with the customer, that it would remit the postal charges to Parcelforce. This, it submitted, was sufficient to differentiate the present from the ordinary case where the taxpayer is obliged to make payments to third parties in order to fulfil his contractual obligations to his customer. A trader may, as a matter of practical reality, have to meet his suppliers' bills out of the cash flow provided by his customers, but he does not normally contract expressly with his customers that he will do so.
65. If this were sufficient to differentiate the present case from the normal, value added tax would operate in a very different way. Payments received by agents are excluded from the taxable amount of the consideration by virtue of article 11(A)(3) of the Sixth Directive, but the requirements for exclusion are strict. The article provides:
(c) the amounts received by a taxable person from his purchaser or customer as repayment for expenses paid out in the name and for the account of the latter and which are entered in his books in a suspense account."
It is not enough that the recipient is bound by his contract with his customer to make the payment and that the amount in question is entered in his books in a suspense account. The payment must be made "in the name of and for the account of" the customer, and this has regard to the payment from the perspective of the recipient. It requires that the payment should discharge a pre-existing indebtedness of the customer, not merely of the person making the payment. Otherwise the description of the payment would mean nothing to the recipient.
66. I consider that Laws J reached the right conclusion for the right reasons, and that the tribunal and the Court of Appeal fell into error. They rightly held that the service which Plantiflor supplied to the customer did not include the actual delivery of the goods to the addressee. They rightly held that this service was supplied by Parcelforce, and that it was supplied to the customer. Their error lay in overlooking the facts that Parcelforce also supplied a service to Plantiflor, viz the service of delivering its customer's goods, for which Plantiflor had previously contracted, and that it was this supply which was made for the consideration which Parcelforce received. This led them into the further error of treating the sum paid by the customer to Plantiflor as consideration for the supply of the service of delivery by Parcelforce. It was not, for Parcelforce received its consideration from Plantiflor. The sum which the customer paid to Plantiflor was paid as consideration for the supply which Plantiflor made to the customer, viz of the service of arranging for delivery to be made by Parcelforce.
67. To sum up: there were three distinct supplies in the present case, and it is necessary to identify the particular supply for which the payment made by the customer was the consideration:(i)
The supply by Parcelforce to Plantiflor of the service of delivering its customer's goods. This was supplied pursuant to a contract for delivery made between Parcelforce and Plantiflor and was for a consideration payable by Plantiflor. It is (or would if Parcelforce were a private carrier be) a taxable supply.(ii)
The supply by Parcelforce to the customer of the service of delivering his goods to him or his order. This supply was also made pursuant to the contract for delivery between Parcelforce and Plantiflor. It was made in circumstances in which the customer incurred no liability to Parcelforce to pay a consideration and was not (and would not even if Parcelforce were a private carrier be) a taxable supply.(iii)
The supply by Plantiflor to the customer of an arrangement service for which Plantiflor charged £1.63 per parcel. Whatever else was included in this supply, it was not the service of actual delivery. That was supplied by Parcelforce. What the customer received for his money was the benefit of the arrangements which Plantiflor had made with Parcelforce to deliver its customer's goods to his order without charging him in the normal way. Since Plantiflor made this supply for consideration, it was a taxable supply.
68. I too would allow the appeal.
LORD SCOTT OF FOSCOTE