Neutral citation number [2001] EWCA Civ 1972                  Case No: A3/2001/0810/CHRVF
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
Rimer J.
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Friday 21 December 2001

B e f o r e :

LORD JUSTICE PETER GIBSON
LADY JUSTICE ARDEN
and 
MR JUSTICE MORLAND
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	COMMISSIONERS OF CUSTOMS & EXCISE	Respondent	
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	UNIVERSITY OF LEICESTER STUDENTS UNION	Appellant	

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040,  Fax No:  020 7831 8838
Official Shorthand Writers to the Court)
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Mr. Owain Thomas (instructed by The Solicitors for Customs & Excise of Salford for the Respondents)
Mr. Rupert Baldry (instructed by Messrs Bray and Bray Solicitors of Market Harborough for the Appellant)

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Judgment
As Approved by the Court

Crown Copyright ©

Peter Gibson L.J.: 
1.	The dispute underlying this appeal is whether supplies of soft drinks made by the University of Leicester Students’ Union (“the Union”) to students are exempt from Value Added Tax (“VAT”).  The Manchester Value Added Tax and Duties Tribunal (Mr. D. S. Porter) on 11 August 2000 by an interim decision on a preliminary issue held that the Union was entitled to an exemption on any such supplies which were closely related to the supply of education.  It did so on the ground that the Union was an integral part of the University of Leicester (“the University”).  The Tribunal has not yet determined whether the supplies in question are closely related to the supply of education.  The Commissioners of Customs and Excise (“the Commissioners”) appealed against the Tribunal’s decision and the appeal was allowed by Rimer J. (see [2001] STC 550).  The Union now appeals with the permission of Robert Walker L.J.
2.	The University was established by Royal Charter dated 1 May 1958.  By clause 1 the University was constituted and founded.
3.	Clause 2 provided for the incorporation of the University in the following terms:
“…. [Lord Adrian (the first Chancellor of the University)], the persons named in the First Schedule hereto as members of the Court, the Council and the Senate, and the Faculties of the University, the Graduates and the Undergraduates of the University, the Chancellor, the Pro-Chancellors, the Vice-Chancellor, the Treasurer, the Pro-Vice-Chancellor and the Deans of the Faculties of the University for the time being and all others who shall pursuant to this our Charter and the Statutes for the time being be Members of the University are hereby constituted and from henceforth for ever shall be one body politic and corporate with perpetual succession and a Common Seal by the name and style of “The University of Leicester” …. with full power and capacity by and in such name to sue and be sued and to take and hold land …. and to do all other lawful acts whatsoever ….”
4.	By clauses 4 – 9 the office of Chancellor of the University and the various other University offices incorporated into the University by clause 2 were established.  Clause 10 stated that the supreme governing body of the University was the Court.  Clause 11 provided for a Council of the University to be the governing body and executive of the University.  By clause 12 a Senate of the University was established to regulate and superintend the education and discipline of students of the University.  Clause 13 was in this form:
“There shall be a Convocation of the University and there shall also be a Students’ Union.  The Convocation and the Students’ Union shall respectively have such and so many representatives on the Court and on such conditions as may be provided by the Statutes of the University.”
5.	Clause 14 stated that the University should be both a teaching and an examining body and should have the power, amongst other things, 
“(m)  To enter into any agreement for the incorporation in the University of any other institution.”
6.	Clause 15 provided for Statutes of the University to prescribe and regulate the constitution, powers and business or duties of the Court, the Council, the Senate and the Boards of Faculties and the constitution of, and other matters relating to, the Convocation.  No mention is made of the Union.  Clause 16 allowed the Statutes of the University to direct that any other matter directed by the Charter to be prescribed by Statutes should be prescribed by Ordinances of the University.  Clause 17 provided for Regulations to be made by the Court and the Council.  Clause 22 provided for amendments to be made to the Charter by the Court if allowed by the Privy Council.
7.	Statutes of the University laid down in section 13 of whom the Court should consist.  This is a vast body widely drawn (for example they include no less than a minimum of 27 representatives of public authorities).  Included in the numerous “Representatives of the University” are three representatives of the Union elected by the Union.  Section 25 provided:
“There shall be a Students’ Union of the University and Ordinances shall prescribe the constitution functions privileges and other matters relating to such Union.”
Section 36 stated that the Statutes were to be interpreted so as not to conflict with the Charter.
8.	Ordinance XV related to the Union.  The relevant provisions of that Ordinance are incorporated in the detailed written constitution of the Union.  Paragraph 3 (1) provides that there should be a Students’ Union of the University “for the promotion of the general interests of students and to afford a recognised channel of communication between students and University authorities”.  Paragraph 3 (2) stated who should be members of the Union, viz. all registered students of the University, such members of staff as might elect to become Associate Members of the Union and such persons as the Union in accordance with its Regulations might admit or elect as Associate, Life, Honorary or External Members.  But to these provisions there was a proviso giving any registered student the right to opt not to be a member of the Union.  Paragraph 3 (12) – (15) provided for accounts, annual and quarterly reports and budgets of the Union to be prepared and presented to the Council for approval.  Paragraph 3 (16) prohibited the Union from incurring expenditure or taking any other action which was inconsistent with the law relating to charities.
9.	Paragraph 4 (1) provides that under the University regulations relating to the Union, the consent “of the University” is required if the Union is to do certain specific things.  As the judge pointed out, that might be said to suggest that the University is an entity separate from the Union.  Paragraph 4 (7) similarly refers to “agreement between the University and the Union” enabling students who opt out of Union membership to use Union facilities.  But in paragraph 4 (4) reference is made to the Union as being “part of a charitable organisation.”  It is convenient to mention at this point that the Union is an educational charity.  However, as such it is an entity distinct from the University, which has its own charitable purposes. 
10.	In that part of the Union’s constitution which contains its regulations are set out the aims of the Union.  They are to provide official representation of students in all matters affecting their interests, to provide social, cultural, intellectual and athletic activities for its members, and to assist students in dealing with their problems and to reduce the occurrence of such problems.
11.	There are detailed provisions relating to membership.  Whilst only registered students of the University can be Full Members of the Union with the right to vote, other wide classes of persons can be Associate Members (for example, past Full Members and members of staff of the Union), Honorary  Members (such persons as are elected by the Union Council) and External Members (for example, spouses and children of Full Members and all members of the National Union of Students), and such members of the Union who are not Full Members have some of the privileges of the Full Members such as the right to take advantage of all of the facilities of the Union.
12.	There are also provisions in the Union’s constitution relating to the government and administration of the Union.  They include in paragraph 10.1 that the finances of the Union should be the final responsibility of the Union Council.  There are provisions for the investment of surplus funds of the Union and for the appointment of the Union’s bankers and auditors.  Ten Committees of the Union are provided for in its rules with the possibility of further committees being formed.  They include an Education Committee, the functions of which are to advise officers and members of the Union about policy on educational issues and to assist in the formation of educational policy for the Union, to coordinate representation on the University Senate, to provide a structure by which course representatives may transmit their views on educational issues to the Union and to assist with the promotion of educational issues and any education campaigns run by the Union.
13.	A formal agreement has been entered into between the University and the Union concerning the use by the Union of a building known as the Perry Gee Building on the University campus.  Under the agreement the respective responsibilities of the University and the Union in relation to the building are specified.
14.	A brochure on the Union describes its building and the wide range of services which the Union provides, including shops, restaurants, bars, meeting rooms, clubs and a travel agency.  The Union issues its own newspaper and has its own radio station, local TV show and website.
15.	S. 46 (2) of the Value Added Tax Act 1994 (“the Act”) provides that a club, association or organisation the affairs of which are managed by its members may be registered in the name of the club.  By s. 94 (2) of the Act the provision by such a club, association or organisation of the facilities or advantages available to its members is deemed to be the carrying on of a business.  The Union has been registered for VAT purposes since April 1973 as a taxable person in its own right.
16.	Paragraph 34 of what has been termed the Concordat, being a document dated 30 March 1990 (but which expired on 1 September 1997) and containing guidelines agreed between a Committee of Vice-Chancellors and Principals of the Universities of the United Kingdom and the Commissioners, contains the following statement:
“SUPPLIES TO STUDENT UNIONS, COLLEGE CLUBS ETC
34  Student unions, college clubs, etc, can be treated for VAT in one of three different ways:
•	as part of the parent institution’s VAT registration
•	as a separate VAT registration
•	as a separate legal entity which is not registered because its taxable income is below the registration limit.
In the first case, there are no supplies between parent institution and club, but you must ensure that you account for VAT on all taxable transactions made by the club to third parties.  In the other two cases, where the club consists of students, the supply is to be treated as exempt if it would have been exempt if you had made the supply direct to the students eg. the supply of general administration or sports staff, sales of catering, hire of sports equipment.  In other cases, such as sales of alcoholic drinks, confectionery or the secondment of staff specifically employed on bar duties, you should charge VAT.”
17.	The supplies relevant to the present case are, of course, not made by the University to the Union.  The possible significance of the paragraph is the apparent acceptance by the Commissioners that a students’ union might be treated for VAT purposes as part of a University.  But although s. 46 (1) of the 1994 Act allows a body corporate carrying on a business in several divisions to obtain registration, if the Commissioners see fit, in the names of those divisions, there is no evidence that the University had consented to, still less requested, the Union’s registration on that basis.  Instead there is evidence that the Union is registered as a separate entity as a non-profit making body.
18.	In the past the Union has accounted for VAT on the sales of soft drinks.  However on 15 April 1998 the Commissioners wrote to the Union advising that any sales to students through vending machines would be exempt from VAT, provided that they were made “by way of catering”.  The Union took the view that similar goods sold through its shop should also be exempt.  On 30 September 1998 it wrote to the Commissioners seeking the repayment of £26,450 for VAT for the period between December 1995 and July 1998.  It claimed that the supplies of soft drinks were exempt from VAT.  The Commissioners disagreed, giving their decision in a letter dated 11 December 1998.  The Union appealed.
19.	At this point it is convenient to set out the provisions of the European and domestic legislation which are relevant.
20.	By Council Directive 77/388/EC (“the Sixth Directive”) it was recited that all Member States had adopted a system of VAT and that a common list of exemptions should be drawn up so that collection might be in a uniform manner in all the Member States.  Title X dealt with exemptions.  Article 13 is headed “Exemptions within the territory of the country.”  Article 13A relates to “Exemptions for certain activities in the public interest.”  It provides so far as relevant:
“1.  Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse:
….
(i) children’s or young people’s education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, provided by bodies governed by public law having such as their aim or by other organisations defined by the Member State concerned as having similar objects”.
21.	By Article 13(2) further conditions are allowed to be attached by the Member States to the granting to bodies other than those governed by public law of the exemption provided for in (amongst others) Article 13(1)(i), including that the bodies concerned shall not systematically aim to make a profit and that if profits nevertheless arise, they shall not be distributed but shall be assigned to the continuance or improvement of the services supplied.
22.	The United Kingdom sought to implement the Sixth Directive by the Act.  VAT is charged on the supply of goods or services (s.1).  By s. 4 (2) a taxable supply is a supply of goods or services other than an exempt supply.  S. 31 (1) provides that a supply of goods or services is an exempt supply if it is of a description specified in Schedule 9.  That Schedule is divided into a number of groups of which Group 6, relating to education, is the relevant group.  This consists of 6 items, and notes are attached to explain the terms used.  The relevant parts of Group 6 are these:
“Item No.
1	The provision by an eligible body of –
(a) education
….
4	The supply of any goods or services (other than examination services) which are closely related to a supply of a description falling within item 1 (the principal supply) by or to the eligible body making the principal supply provided –
(a)  the goods or services are for the direct use of the pupil, student or trainee (as the case may be) receiving the principal supply ; and
(b) where the supply is to the eligible body making the principal supply, it is made by another eligible body.
….
Notes
(1)  For the purposes of this Group an “eligible body” is –
….
(b) a United Kingdom university, and any college, institution, school or hall of such a university;
….
(e)  a body which –
(i) is precluded from distributing and does not distribute any profit it makes; and
(ii) applies any profits made from supplies of a description within this Group to the continuance or improvement of such supplies.”
23.	At the request of the Commissioners two preliminary issues were heard by the Tribunal:
(1)  Is the Union an eligible body within the meaning of Note 1 (e)?
If so, (2) does it make the principal supply of education within the meaning of Item 4 (a)?
24.	Before the Tribunal it was conceded by the Union that it was not an eligible body for the purposes of Group 6.  However the Tribunal accepted a submission on behalf of the Union that it “formed an integral part of the University”.  The Tribunal gave six reasons for this:
(1)  By the Charter the Union was to be established at the same time as the University.
(2)  The Union could not operate without the University and its buildings.
(3)  When the Union registered for VAT purposes in 1973 it did so against the background of a new tax.
(4)  The Concordat showed that the Commissioners agreed that by 1990 a students’ union could be separately registered even though it formed part of a university.
(5)  For the purposes of s. 46 the registration of the Union in 1973 could only have been with the consent of the University, and the Commissioners agreed.  For the purpose of Art. 13 A. 1 (i) the Union is one of the “other organisations” there referred to and is within the public body of the University.
(6) As the Union is part of the University and therefore an eligible body, it is party to the principal supply of education within the meaning of Item 4 (a).
25.	On the Commissioners’ appeal to the judge the Union maintained that the Tribunal was entitled to find that the Union was part of the University and that therefore the Union was an eligible body within Note (1)(b).  The skeleton argument which Mr. Baldry, appearing then for the Union as he does in this court, put to the judge did not refer to the Union being an eligible body within Note (1)(e).  However he has told us that he did refer in his oral argument to Note (1)(e), though he accepts that this was not given prominence.  The judge in his judgment does not mention Note (1)(e).  He stated that it was undisputed that the University was an eligible body providing education and that its supply of education, the principal supply in the language of Item 4, was exempt from VAT.  He said that the soft drinks sold at the Union shop could only be similarly exempt if two conditions were satisfied:  (i) they were supplied by the same eligible body – i.e. the University – making the principal supply and (ii) they were closely related to that principal supply.
26.	The judge considered whether or not the Union was an integral part of the University.  He regarded the material most relevant to that inquiry as being the University’s constitution, and he went through the provisions of the Charter and the Statutes (as well as the Union’s constitution) in much the same way as I have done.  The judge then turned to the Tribunal’s reasons and said:
“[27]  I regard the tribunal’s unqualified finding that the union is an ‘eligible body’ for the purposes of Group 6 as a somewhat surprising one, as well as being wrong.  It is fair to note that the preliminary issue in terms asked the tribunal whether the union is an ‘eligible body’, but the union expressly conceded to the tribunal that it is not, a concession recorded in para 18 of the tribunal’s decision.  The union’s argument was the slightly different one that it was part of the university and so could be said to be making the principal supply of education.  In my view, however, it is fairly obvious that the union itself is not an ‘eligible body’ for the purposes of items 1 and 4 of Group 6 of Sch 9.  The union does not provide, or supply, education for the purposes of item 1.  It is the university that does that.  Item 4 shows that supply of education is the ‘principal supply’.  It further shows that the soft drinks sold at the union shop will only be VAT exempt if (inter alia) they are supplied ‘by … the eligible body making the principal supply’, ie by the university.
[28]  The real issue before the tribunal was, therefore, whether or not it is the university that supplies the soft drinks.  In practice, it is the union that supplies them.  If, however, the union is an integral part of the university, then no doubt there would be a basis for a finding that the relevant supply is made by the university – just as, for example, a sale by a division of a company is a supply by the company.  However, in my view none of the six points justified its conclusion that the union is such an integral part.”
27.	The judge pointed out that neither of grounds 1 and 2 supported the Tribunal’s conclusion nor did ground 3 provide justification for it.  On ground 4 he said that the Concordat did not include any binding concessions or opinions as to the true relationship of the Universities with students’ unions in general or as to that between the University and the Union in particular.  On ground 5 the judge said that the Tribunal had erroneously assumed that the Union was a division of the University for the purposes of s. 46 (1) and had erroneously found, without supporting evidence, that the University must have consented to the separate registration of the Union.  As for the Tribunal’s finding that the Union was an “other organisation” within Art. 13A(1)(i), the judge said that if, as the Tribunal had found, the Union was part of the University, being a body governed by public law, it could not be an “other organisation”, and if it was not part of the University, it was not an “other organisation” as it did not supply education.  On ground 6 the judge drew attention to the finding by the Tribunal that the Union was “party to” the principal supply of education, and said that that was not a legislative expression and made little sense:  if it was an eligible body making the principal supply, it would not be merely party to such supply.
28.	The judge said that the real question for the Tribunal was whether the Union was an integral part of the University such that it could properly find that the soft drinks sold in the Union shop were supplied by the University.  The judge expressed his conclusions in this way:
“[37]  In my view the answer to the question turns primarily on a consideration of the charter.  Clause 2 sets out those persons for the time being who constitute the body corporate known as the University of Leicester.  Most members of the union will also be members of the university, but not all of them will; and I do not interpret cl 2 as providing that the members of the union in their capacity as such are included in that collection of persons who are there described as constituting the University.  Although clause 13 provides that “…. there shall also be a Students’ Union”, it does not state that it is to be ‘of the University’ a phrase previously used no less than ten times in clauses 4 to 13 in their references to other bodies and officers.  Section 2 of the university’s statutes lists ‘[t]he Members  of the University’ a list from which the union and its members are conspicuously absent.  The union’s best point in this connection is in s 13 of the statutes, which lists the persons who make up the court.  Class 7, headed ‘Representatives of the University’ includes ‘[t]hree representatives of the Students’ Union elected by the Union’.  It can, therefore, be said that the heading of s 13 perhaps provides some tacit recognition that the union is ‘of the University’.  I do not ignore this but, for reasons given in para 18, do not regard it as outweighing the inference to be drawn from the other constitutional provisions to which I have referred – in particular, the charter itself – that the union is not an integral part of the university.  Moreover, s 36 of the statutes provides that they shall be interpreted so as not to conflict with the charter.  In my view, the answer to the question before the tribunal is to be found in the university’s constitution, to which the tribunal appears to have paid little regard.  Had it paid more, I consider that the only conclusion to which it could properly have come is that the union is not an integral part of the university and that the soft drinks sold in the union shop cannot be regarded as supplied by the university.  It ought, in consequence, to have held that the soft drinks were not supplied by the ‘eligible body’ making the ‘principal supply’ of education and were not exempt from VAT.”
29.	The judge therefore allowed the Commissioners’ appeal.  Mr. Baldry’s skeleton argument in support of the appeal to this court criticised the judge for failing to appreciate that the real question was whether the Union was an eligible body either as an integral part of the University or as falling within Note 1 (e).  In giving permission to appeal, Robert Walker L.J. noted the absence of any mention in the judge’s judgment of Note 1 (e).  But the Lord Justice’s attention was not drawn to the fact that no prominence was given by the Union before the judge to any argument based on Note 1 (e), still less to what is now effectively conceded by Mr. Baldry that on any ordinary construction of Item 4 an argument based on the Union being an eligible body within Note 1 (e) would fail because the Union did not make the principal supply.
30.	I cannot accept that the judge did not properly consider whether the Union was an eligible body.  I have already cited his noting that it had been conceded before the Tribunal that the Union was not by itself an eligible body; no request to withdraw that concession was made to the judge.  The substantial argument before the judge as it is before us is whether the Union is an integral part of the University and as such an eligible body.  That argument the judge considered in detail and rejected.  Mr. Baldry submits that the Union is an eligible body within Note 1 (b) which, he says, treats “a United Kingdom university and any college, institution, school or hall of such university” as a composite, so that all colleges, institutions, schools and halls are treated as part of the University.  He argues that the evidence before the Tribunal clearly established that the Union was part of the whole body that comprises the University, and that the Union like the Court, the Senate and the Convocation, derived its existence from the Charter and could not be separated from the University without the permission of the Privy Council.  He relies on the demonstration of its status as one of the principal entities of the University by its right to be permanently represented at the Court as included in the “Representatives of the University”.  He further relies on the Tribunal’s finding that the Union could not operate without the University and he says that the Union’s functions are clearly integrated with those of the University, including its role in developing educational policy and promoting educational issues.  Finally he submits that the Union’s charitable status confirms that the Union has no raison d’être except to further the educational purposes of the University, and he relies on London Hospital v CIR [1976] 1 WLR 613.  Alternatively if that is wrong and the Union is an entity separate from the University, he advances a new argument not taken before the Tribunal or in his original skeleton argument that the Union is an institution of a United Kingdom university and as such an eligible body.
31.	I am not able to accept these submissions.  I start with a consideration of the relationship of the Union and the University.  Like the judge, I regard the Charter as the most important evidence of that relationship though, also like the judge, I do not confine this enquiry to the Charter or the other constitutional documents of the University or the constitution of the Union.
32.	To my mind it is plain from the Charter that the University and the Union are distinct entities.  Clause 2 clearly shows that, in contrast to bodies such as the Court, the Council and the Senate which are incorporated in the University, the Union is not so incorporated.  Nor has the power in clause 14 (m) ever been exercised to effect such incorporation.  I accept that the Graduates and Undergraduates of the University are so incorporated and that those two classes can be Associate Members and Full Members of the Union.  But they are not incorporated in the University in their capacities as members of the Union, nor are all Graduates and all Undergraduates of the University members of the Union, still less are all members of the Union confined to such Graduates and Undergraduates.  True it is that the foundation of the Union derives from clause 13 of the Charter, which expressly provides for the Union to be represented at the Court, and that the three representatives of the Union are included by the Statutes in those called “Representatives of the University” on the Court.  But, as we have seen, the Union representatives are a very small minority in the numerous Representatives of the University and an even tinier minority on the huge Court, and I cannot see that such representation shows the Union not to be an entity distinct from the University.
33.	I readily accept that students’ unions in general and the Union in particular play an important and beneficial role in university life and that thereby they assist the educational process, and that the Union is dependent on the existence of the University.  But that does not illuminate the question whether the University and the Union are distinct entities.  The Union is an unincorporated association of its members with the purposes and aims set out in its constitution.  The University and the Union have distinct purposes and functions, the Union not existing solely to further the Union’s educational purposes, and whilst the law of charity benevolently treats the Union as being an educational charity, the Union is not the same charitable entity as the University.  I do not read the judgment of Brightman J. in the London Hospital case as constituting an acceptance of an argument which had been advanced to him that the students’ union in that case was an integral part of the charity that was the Hospital, as distinct from holding on the particular facts of that case that it was a charity in its own right with purposes ancillary to those of the Hospital.
34.	I also accept that the University exercises a good deal of control over the Union, particularly in relation to financial matters.  But that does not establish that the Union is not a distinct entity.  On the contrary, it points to the Union, with its own bankers, investments and auditors being an entity separate from the University which nevertheless has a supervisory role.  The fact that the consent of the University is required for certain acts to be done by the Union again is a pointer away from the Union being part of the University.  Further, the agreement between the University and the Union over the Percy Gee Building provides a concrete example of the University and the Union treating each other as distinct entities.
35.	Against that background I turn back to a consideration of Note 1 (b) and the question whether the Union is an eligible body within it.  It is to be noted that the term “an integral part” or even “a part” does not feature in Note 1 (b) or indeed anywhere else in the European or domestic legislation.  The closest one gets to such concepts is in s. 46 (1) with its reference to divisions of a body corporate, but for the reasons already given that subsection has no application to the present case.
36.	Note 1 (b) on its face refers to five entities, a United Kingdom University, and four entities of such a University.  The conjunction connecting “a United Kingdom University” with the four other entities is the word “and”, not “including”.  Further, the four other entities are alternative to each other as can be seen by the conjunction “or” between “school” and “hall”.  On the ordinary and natural meaning of the words used in Note 1 (b) I would construe them as covering both a university itself and, in those cases where there are separate entities which are nevertheless parts of that university, any of those separate entities.  Furthermore, the common characteristic of all those four entities in my opinion is that they are suppliers of education.  Thus, to take London University as an example, colleges like University College London, and schools like the School of Oriental and African Studies, are all of London University.  Again, to take Oxford University as another example, it has colleges and halls (which are what some entities later to become colleges called themselves when formed).  Accordingly, just as Note 1 (a) covers schools supplying primary and secondary education, so Note 1 (b), in my view, covers Universities and other entities supplying university education.  If it had been intended that Note 1 (b) should cover entities with functions and purposes other than the supply of education, such as a students’ union, I would have expected that to have been made explicit.  These are provisions conferring exemptions and must be construed restrictively.  On that construction, I reject Mr. Baldry’s submission that the Union is an eligible body within Note 1 (b).  It does not come within “a United Kingdom University”, being an entity distinct from the University, nor is it an institution of the University, supplying, as it does, no education.
37.	Further, even if the Union were an institution of the University, it would not as such come within Item 4, not being the eligible body making the principal supply.
38.	I can deal with the alternative argument based on Note 1 (e) very shortly.  Even if the Union comes within the Note (it did not adduce any evidence to the Tribunal that it satisfied the condition of subparagraph (ii) of that Note that it applied any profits from supplies of a description within Group 6 to the continuance or improvement of such supplies), it cannot bring itself within Item 4 as it does not make the principal supply.
39.	Mr. Baldry has a yet further alternative argument which was not advanced before the Tribunal or the judge.  This is that the Act has failed to implement Article 13A(1)(i) of the Sixth Directive correctly.  He submits that the limitation in Item 4 confining exemption for goods and services to supplies by the eligible body making the principal supply is not in accordance with the Sixth Directive, and he points out that, as this court held in Pilgrims Language Courses Ltd. v Customs and Excise Commissioners [1999] STC 874, a Member State is given power by the concluding words of Article 13A(1)(i) to define which organisations, not being bodies governed by public law, may qualify for exemption, but may not impose further limitations on the scope of the exemption.  He further argues that as an “other organisation” defined by the United Kingdom in Note 1 (e) or as a “body governed by public law” the Union is entitled to rely on the direct effect of Article 13A(1)(i).
40.	On the question whether Parliament has failed to implement Article 13A(1)(i) of the Sixth Directive correctly, Mr. Baldry submits that, on the true construction of the paragraph, provided that children or young people’s education, school or university education, vocational training or retraining and the supply of services and of goods closely related thereto, or any of them is supplied by a body governed by public law or by an “other organisation” defined by the Member State concerned as having similar objects, that supply is exempt.  It is readily apparent that the draftsman of the Act did not take that view, and instead treated the words of inclusion, “including the supply of services and of goods closely related thereto”, as not defining the requisite aim of the body governed by public law or the object to which the objects of the other organisation” had to be similar.  Thus by Item 4 it is only the person making the principal supply who can obtain exemption for supplies closely related to the principal supply.
41.	In construing Article 13 it must be borne in mind that in principle VAT should be imposed on all supplies of goods and services by a taxable person for consideration unless the supply comes within an exemption and that the exemptions envisaged by Article 13 are to be interpreted strictly (Stichting Uitvoering Financiële Acties v Staatssecretaris von Financiën [1989] ECR 1737 (“the SUFA case”) at p. 1752 para. 11).  The consequences of that principle will depend on the words used to give effect to the exemption in question and in particular on any conditions attached.  In Bulthius Griffoen v Inspecteur der Omzetbelasting [1995] STC 954 at p. 962 para. 18 the European Court of Justice said that the exemptions “have their own independent meaning in Community law” and the same “must also be true of the specific conditions laid down for those exemptions to apply and in particular of those concerning the status and identity of the economic agent performing the services covered by the exemption.”  Thus in Commission v Germany [1986] ECR 2655, a case on Article 13A(1)(a), the Court emphasised that, although it is true that the exemptions are granted in favour of activities pursuing specific objectives, most of the provisions also define the bodies which are authorised to supply the exempted services, and that those services are not defined by reference to purely functional criteria.  Similarly in the SUFA case for the purpose of Article 13A(1)(f) it was held that the fact that the body claiming the exemption was closely related to another body which, had it made the supply, would have been exempt was immaterial.  However in Gregg v Commissioners of Customs and Excise [1999] STC 934 it was held that for the purposes of Article 13A(1)(b) and (g) the fact that it was indicated that specific activities were to be performed by “establishments” and “organisations” of a particular description did not exclude activities performed by individuals in partnership who otherwise satisfied the description and performed the activities.
42.	In reliance in particular on the Gregg case Mr. Baldry submitted that a body which made supplies of goods and services closely related to the supply by the University of education should obtain exemption from those supplies.  I am not able to accept that the Gregg case, relating as it does to the different question whether “establishments” and “organisations” in Article 13A(1)(b) and (g) excluded individuals carrying on the specific activities, has any bearing on the question whether Article 13A(1)(i) required the person supplying services or goods closely related to the supply of education to be a supplier itself of education.
43.	On that question it is to be noted that in paragraph (i) the words of inclusion relate to a supply closely related and thus ancillary to the supply of education or training by the specified bodies and organisations.  Further, the words of inclusion are introduced not by “and”, still less “or”, but by “including”.  The supply of services and goods is, as a matter of language, not mentioned as being on a par with the education and training earlier referred to.  One sees in paragraph (i) a different technique for referring to closely related activities performed by specified persons from that in paragraphs (b), (g), (h), (l), (m) and (n), where the exemption is conferred directly for those closely related activities, and not by words of inclusion as an ancillary supply.  On their ordinary and natural construction the words of paragraph (i) read to me as requiring that the bodies which make the supply must have the specified education or training as their aim and that other organisations which make the supply must have objects similar to the specified education or training.  It is not sufficient that the body has as its aim the supply of services and of goods closely related to education or training or that the other organisation has an object similar to such supply.  That would be to elevate the making of the ancillary supply into a primary objective.  I do not see that as a justified construction of the exemption.
44.	I would add that the industry of counsel produced for us the German, Italian and Spanish texts of Article 13A(1)(i) (the French text appears in the Pilgrims case at p. 879); but no submissions based on the texts in other languages was made to us.  Whilst I see some minor differences between the texts, for my part I do not believe that they throw any light on the meaning of paragraph (i) on this particular point.
45.	For these reasons, therefore, I would not accept the construction placed by Mr. Baldry on Article 13A(1)(i), nor his criticism of the drafting of Item 4.  Mr. Thomas for the Commissioners raised the possibility that the draftsman may have worded Item 4(b) too widely in allowing any eligible body (whether or not making the principal supply) to supply the closely related services or goods to the eligible body making the supply.  But that is not a point material to this appeal and it may not be impossible that the excess in the exemption could be cured by the implication of limiting words.
46.	I would add that even if wrong on Article 13A(1)(i) I am unable to accept that the Union is able to rely on the direct effect of that provision by reference to its position as an eligible body under Note 1(b) or (e).  In referring to the Union as a “body governed by public law”, Mr. Baldry, as I understand him, was repeating his argument that the Union was an integral part of the University and as such governed by public law.  I have already rejected that argument.  He was not, I think, relying on the Union’s charitable status.  That would have been a difficult argument, given the distinction drawn in Article 13A(1)(g) between bodies governed by public law and organisations recognised as charitable.  As for Note 1 (e), I would not allow the Union now to raise this point.  The first preliminary issue was specifically directed to whether the Union came within Note 1 (e) and it was incumbent on the Union to put all the facts relevant to that point before the Tribunal.  It did not do so, no doubt because it conceded then that it was not an eligible body in its own right.  Mr. Baldry accepts that the Tribunal would need to make further findings of fact on this point.  I do not think that the Union should be permitted a second bite of the cherry, particularly in view of the Union’s concession to the Tribunal.
47.	For these reasons, therefore, which owe much to Mr. Thomas’s admirable arguments, I would dismiss this appeal.
Lady Justice Arden: 

48.	I gratefully adopt the facts as set out in the judgment of Peter Gibson LJ.  I agree with Peter Gibson LJ that the primary argument of the appellant under note 1(b) that the University of Leicester Students’ Union forms part of the legal entity which is the University of Leicester, and the appellant’s argument based on note 1(e) of group 6 must fail for the reasons which he has given.  I now turn to the appellant’s further argument based on note 1(b).  I start by setting out the relevant provisions of Community and domestic law.
49.	Article 13 A.1 of the EC Sixth Council Directive (the Sixth Directive) provides for exemptions from value added tax (VAT) for “certain activities in the public interest”:
“Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse:
……
(i)  children’s or young people’s education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, provided by bodies governed by public law having such as their aim or by organisations defined by the Member State concerned as having similar objects;”
50.	The preamble to the Sixth Directive makes it clear that exemptions are to be uniform across the Community.
51.	Article 13A.1(i) has been implemented in the United Kingdom by the following provisions of schedule 9 to the Value Added Tax 1994 (as amended):
“GROUP 6 – EDUCATION
Item  No.
…….
4.  The supply of any goods or services (other than examination services) which are closely related to a supply of the description falling within item 1 (the principal supply) by or to the eligible body making the principal supply provided -
a)  the goods or services are for the direct use of the pupil, student or trainee (as the case may be) receiving the principal supply; and
b)  where the supply is to the eligible body making the principal supply, it is made by another eligible body.
…….
Notes
1)  For the purposes of this group  an “eligible body” is –
……
b)  a United Kingdom university, and any college, institution, school or hall of such a university;
……
e)      a body which –
i)  is precluded from distributing and does not distribute any profit it makes; and
ii) applies any profits made from supplies of a description within this Group to the continuance or improvement of such supplies;
……”
52.	It is accepted that the supply of catering to students is a supply of goods or services “closely related” to the provision of education (see Pilgrims Language Courses v CCE [1999] STC 874). 
53.	The next question is whether the Students’ Union is an “institution” of the University of Leicester.  The starting point is that the term “university” is in any event a dynamic concept.  A teaching university provides an environment in which undergraduates develop their thinking powers in the period of their undergraduate careers.  The Commissioners accept that education does not take place simply in a lecture hall but that a wider view of education has to be taken.  It must follow from this that the facilities which a university can properly provide may extend far wider than teaching activities.  For instance, it may obviously cover facilities for physical recreation, a medical centre and services for the repair of students’ computers.  Moreover, provision of a students’ union is a valuable and integral part of modern university life:  see the observations of Brightman J in London Hospital v IRC [1976] 1 WLR 612.
54.	Mr Rupert Baldry, for the appellant, submits that the term “institution” is wide enough to include a students’ union.  Mr Owain Thomas, for the Commissioners, submits that to fall within note 1(b) an institution must have “an educational flavour”.  In my judgment, in the normal sense of the term, the word “institution” does not necessitate an educational flavour since that term is often used in relation to financial institutions, religious institutions or government institutions (see for example the use of the word “institution” in Article 13A.1(k)),  but it does denote an organisation for the promotion of some public object.  In my judgment a students’ union does promote some object of public utility within the University community and is potentially an “institution” of the University.  However, the Commissioners’ argument is that the term “institution” must have some narrower meaning than its dictionary meaning in note 1(b), and I now turn to examine that argument.
55.	Note 1(b) uses the expression “the university” and “of the university”.  In the latter expression the word “of” cannot mean “belong to” or “form part of” since the former is not the case with regard to Oxbridge colleges (which are presumably intended to be covered) and the latter is included within the expression “the university”.  In other words, the expression “of the university” seems to me to denote a state of affairs whereby the university is in some sense an umbrella organisation which provides education and related services in conjunction with other bodies or wherein the body in question has some form of status under the University statutes, for example to present candidates for matriculation.
56.	In respectful disagreement with Peter Gibson LJ I do not consider that a college, institution or hall of a university for the purposes of note 1(b) has itself to be a supplier of education in the sense of supplying systematic instruction.  Some college and halls at Cambridge, for instance, as I understand the position, accept only postgraduate students who receive their education almost exclusively from the University.  At least one college at the older universities, namely All Souls in Oxford, (according to my understanding) as a college provides no teaching.  Within the United Kingdom the structure of universities is diverse.  Some have colleges, some do not.  Some have colleges which are the constituent parts of the university, as for example in the case of the Universities of Wales and London (see The Colleges in the University of Cambridge, P.R. Glazebrook [1993] Camb. L.J.501).  Others, like Oxford, Cambridge and Durham are collegiate universities:  the functions of the colleges and halls on the one hand, and the University on the other, are separate but interrelated.  There are thus many variations in the organisation of universities in the United Kingdom and that indicates that there must be some flexibility of approach to the word “institution”.  The key to being an “institution” within note 1(b), as it seems to me, is whether the body in question has academic links of some kind with the university and recognition accordingly from the university.  If it does, it comes within note 1(b) whether it supplies education (in the sense given above) or not.   However, in the context of note 1 (b) the links must be of an academic nature rather than pastoral or recreational or for the purpose  (however valuable) of providing representation for one section of the university community on organs of the university, and thus in my judgment the Students’ Union in this case cannot bring itself within the term “institution” as used in note 1(b).
57.	Mr Baldry would need to succeed on a further argument if he had established that the students’ union was an “institution” of the University or a body within note 1(e).  As matters stand if the students’ union were an eligible body on either of these bases, it would not on the face of it come within item no. 4 because it is not the eligible body making the principal supply and it is not making a supply to such a body.  To meet this point, Mr Baldry submits that by imposing those restrictions on the exemption, item no. 4 does not properly implement Article 13(A)(1)(i) of the Sixth Directive.  The Commissioners contend to be within the exemption conferred by Article 13 A.1(i) the organisation must have “similar objects” to bodies governed by public law having “such as their aim” and in the context of Article 13 A.1(i) “their aim” must in the case of a university be primarily the supply of education. 
58.	In my judgment, this question of the proper interpretation of the Sixth Directive does not arise in the light of my above conclusions.  Moreover there has not been full argument on it.  While the Court has been given the text of Article 13.A.1 in French, German and Spanish the possible distinctions between them with respect to the relevant wording were not explored.  On the face of it the German text may have a different connotation.  In addition the Court has not been informed how the exemption is conferred and operated in other member states or been shown any travaux préparatoires.  Nor indeed have we been addressed in any detail on the structure of universities.  Exemptions in the Sixth Directive must be construed narrowly but the diversity of the University organisation in the United Kingdom suggested by my observations above may mean that to interpret Article 13A.1 in the way contended for may result in uneven and irrational operation of the exemption.  Additionally, I have already concluded that a body may be an institution within note 1(b) even though it does not supply education in the sense of teaching.  
59.	Furthermore, the contention of the Commissioners is inconsistent with the United Kingdom’s own implementation of Article 13A.1(I) in item no.4 of Group 6, and this was accepted in argument by Mr Thomas.  This is because there is nothing in the United Kingdom definition of “eligible body” within note 1(e) which requires it to have as its aim the supply of education, and the supply by such an eligible body of “closely related” goods or services  to another eligible body would fall within item no.4.  (By contrast, item no.5A, which was inserted in 2000, expressly provides that any ancillary supply must be by the person providing the education or training.)  
60.	The implications of the restrictions for which the Commissioners contend in this case may have implications far beyond the present case in ways I cannot foresee and accordingly in my judgment, and with respect to Peter Gibson LJ and Morland J, the question of the correctness of the further contentions on the scope of the exemption in this respect should, as I see it, be left to be decided in a case where it directly arises for decision.
61.	For the above reasons, I agree that the appeal should be dismissed.
Mr Justice Morland: 
62.	When I read the papers before the oral hearing I had hoped that it would have been possible for the appeal to be allowed.  In modern Universities today Student Unions undertake a very important and worthwhile role in furthering the interests of students and the effectiveness of their University education.  With the huge size of most modern universities the Students Union is an invaluable link between the students and the University Authorities.  It may be said to be the heart of a modern University.
63.	Although I never considered that the University of Leicester Students’ Union could be an “eligible body” entitled to exemption under “Schedule 9 Exemptions” under “Group 6 Education”, I was attracted to the argument that the University of Leicester Students’ Union was part and parcel of the University fulfilling an important ancillary function which facilitated the education of its students (see the observations of Brightman J. in London Hospital v. I.R.C. [1976] 1 W.L.R. 613 when deciding that the Students’ Union “was itself a charity and entitled to be registered under Section 4 of the Charities Act 1960” at pages 623G to 624B).  Although the ordinances shew that the University has a substantial degree of supervision over the Students’ Union particularly in financial matters, having heard the oral submissions of Mr Owain Thomas for the Commissioners I am satisfied that the contention that the Students’ Union is “an integral part of the University” is invalid.  It is clearly a separate entity.
64.	For the reasons given by Peter Gibson L.J. in his judgment with which I entirely agree, I would also dismiss the appeal.
Order: Appeal dismissed with costs subject to detailed assessment.  Permission to appeal to the House of Lords refused.
(Order not part of approved judgment)