[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	First-tier Tribunal (Tax)
You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Royal National Lifeboat Institution v Her Majesty's Revenue & Customs [2009] UKFTT 39 (TC) (07 April 2009) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00017.html Cite as: [2009] SFTD 55, [2009] STI 1938, [2009] UKFTT 00017 (TC), [2009] UKFTT 39 (TC)

[New search] [Printable RTF version] [Help]

TC00017

VAT –zero rating – Article 148(d) of the Principal VAT Directive – services which meet the direct needs of vessels used for rescue or assistance at sea –meaning of "direct needs"- whether alterations or repair and maintenance services for lifeboat stations and other equipment meet the direct needs of lifeboats.

LONDON TRIBUNAL CENTRE

ROYAL NATIONAL LIFEBOAT INSTITUTION

and

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS

Tribunal: CHARLES HELLIER (Chairman)

MRS R.S. JOHNSON

Sitting in public in London on 19 and 20 January 2009

Mitchell Moss and Edward Brown instructed by Ernst & Young for the Appellant.

George Peretz instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2009


 


DECISION

Background

1. These appeals concern the meaning and application of the words "direct needs" in Article 148 of the Principal VAT Directive. The issues before us were to determine whether certain supplies made to RNLI met the direct needs of its lifeboats.
2. The RNLI is a well known and well loved charity which provides rescue and assistance to those in danger at sea and on the shores of the UK and Ireland. Those who operate its lifeboats at sea put themselves in considerable danger, and all those involved in this appeal were united in their admiration for the commitment and bravery of those involved.
3. Each of the RNLI's lifeboats is associated with a lifeboat station. The RNLI incurs expenses in relation to supplies of services made in connection with those lifeboat stations. If those supplies meet a direct need of a lifeboat they must be zero rated. The question at issue in this appeal was which of those supplies should be so zero rated. The supplies at issue divide into three categories: (i) alterations and improvements, (ii) repairs and maintenance; (iii) other services such as dredging of harbours and the maintenance of cliff hoists .
4. Broadly, HMRC say that things done to a lifeboat station meet the direct needs of the lifeboat station but do not meet the direct needs of the lifeboat. The Appellant says that the direct need of the lifeboat is a functioning lifeboat station, and that need is met by the services provided. It is irrelevant that those services may also meet the need of the station.

The Evidence and Findings of Fact

5. We had before us a bundle of documents and helpful photographs and plans. We had witness statements from George Rawlinson, the Head of Coast Operations for RNLI and Darren Spivey, RNLI's Head of Financial Management and Indirect Tax. HMRC did not challenge any of the factual witness evidence. From that evidence we find the following facts.
6. The RNLI operate 235 Lifeboat stations around the coast of the UK and the republic of Ireland. It responds to over 8,000 rescues each year.
7. Crew members are summoned to a rescue by pager. When the pager goes off they travel to the lifeboat station and don their equipment. When sufficient numbers have arrived the boat is launched. The average time from the pager being sounded to launch is 7 minutes for an inshore lifeboat and 12 minutes for an all weather boat.
8. The RNLI sets Strategic Performance standards. They aim to (i) achieve an average launch time of 10 minutes from notification.(they achieved an average of 8 minutes in 2007), (ii) reach all notified casualities where a risk to life exists, in all weathers out to a maximum of 100 nautical miles; (iii) reach at lest 90% of all casualties within 10 nautical miles within 30 minutes of launch; (iv) reach any beach casualty within 300 metres of the shore within 3 ½ minutes. These are exacting standards. It is clear to us that meeting these standards requires specially designed boats. To meet the purpose for which they are designed those boats must be ready to launch quickly and to operate effectively at all times and in all weather.
9. Each lifeboat is designed, or has been adapted, specifically for its rescue purposes. Those purposes include ready response to rescue calls in accordance with the RNLI's operational standards.
10. These standards require higher standards of maintenance for the boats than would be required if they had another purpose. The boats operate in more exposed conditions and worse weather than other similar vessels.
11. Proper shelter for a lifeboat extends its lifespan and improves the proportion of the time it is in service.
12. The RNLI operate five classes of All Weather Lifeboat, classes B and D inshore boats, inshore rescue hovercraft, and, on the Thames, E Class inshore boats.
13. Most lifeboats are housed in lifeboat stations. The B and D class boats are, and need to be, stored in lifeboat stations: they and their equipment would deteriorate rapidly otherwise and they would become unfit for their purpose. Other lifeboats can be kept permanently in the water, but keeping them out of the water ensures that they remain operational for longer periods, reduces maintenance and repairs (because of the reduced exposure to the seaside elements) and enables more routine repair work to be carried out locally and speedily. For example a lifeboat kept in the water needs its bottom scraped every six months, a housed lifeboat does not need such regular scraping
14. A lifeboat station which houses a lifeboat contains principally the space for the lifeboat. There may also be launching aids, such as a winch or a launching carriage. In addition there will be a workshop for repair work and keeping spares, there may be a changing room in which the crew's equipment is kept, a crew room where training is conducted, an office with a computer and space for radio communications equipment (for communication with the boat or the coastguard), and storage space. Some lifeboat stations also have a small souvenir outlet. Sometimes these separate functions are amalgamated in fewer rooms. The Blackpool station has a visitor centre.
15. A lifeboat station which does not house a lifeboat will have the additional facilities only.
16. Without the maintenance of the lifeboat a lifeboat could not operate. Spare parts may be kept in the workshop. Records of maintenance work and instruction manuals are kept in the office. The records are an essential feature of the maintenance of the boats. Lifeboat crew need to wear special personal protective equipment; that equipment is stored at the lifeboat station so that it is ready for use when needed. The safe, secure and dry storage of equipment is essential for the safe operation of the lifeboat. The crew will change into their special equipment when they arrive at the station. All crew receive regular mandatory training which is essential for lifeboat maintenance and the safe handling of the boat at sea. . It is efficient and effective to carry out some of the training in a lifeboat station. The general admisistration carried on in the office relates to the safe and effective operation of the lifeboat.
17. Repair and maintenance of lifeboats is carried out at lifeboat stations if it is fairly routine, and at third party boatyards or specialist facilities if it is not. Where a lifeboat is housed in a lifeboat station more of the maintenance can be carried out in situ.
18. Mr Rawlinson identified four categories of operations on and around lifeboat houses. The first was major alterations for replacement vessels. When boats are replaced with new and more advanced craft the existing station may be adapted or enlarged to accommodate the new type of vessel. Some of these works are extensive, others relatively minor. The costs of such changes may include architects' and lawyers' fees.
19. The second category was scheduled maintenance. Lifeboat stations are situated in exposed locations and are inspected and repaired at regular intervals. There will be regular servicing of key parts. One example given by Mr Rawlinson was the regular maintenance of the station doors of a station which housed a lifeboat. The doors needed to open to let the boat out. Another example was the maintenance of tilting and launching machines. Walkways to floating boats would also be maintained. This category could also include cliff stabilisation works where a station was situated on a cliff.
20. Dredging work was also carried out on the channels in which lifeboats would launch.
21. This class also included some extensions, and improvements such as an extension to allow a tractor to be permanently coupled to the lifeboat launching rig.
22. His third class was maintenance of similar types but unscheduled and carried out where repairs were urgently needed.
23. His Fourth category was minor works carried out as the case required from time to time.
24. RNLI account for the related costs under three codes : 3403, which captures modification on, and work to, crew properties; 3402, which captures large scale alterations and capital projects that are not treated as separate new building works for VAT purposes, and 3400 which captures maintenance work on stations which does not fall into the other two categories. Fees paid to architects and structural consultants, and to solicitors for planning and lease negotiation work are included in the costs so captured.

The Law

25. The supplies at issue spanned the period from 1979 to 2006. During that period the relevant provision was Article 15 of the Sixth Directive. However, in their correspondence and before us, the parties referred to the provisions of Article 148 of the Principal VAT Directive. The arrangement of the relevant material is slightly different in Article 148, but we saw no change which relevantly affected its meaning. For convenience we therefore refer principally to Article 148 in this decision.
26. Article 15 bore the heading "Exemption of exports from the Community and like transactions and international transport", and its paragraphs encompassed the export of goods, services connected to such export, and supplies for ships and aircraft. Article 148 is headed, and deals only with, "Exemptions Related to International Transport". The exemptions referred to take effect with refund of tax on the related supply: this is translated into UK terminology as zero rating. Article 148- 150 provide:

"Article 148

Member States shall exempt the following transactions:

(a) the supply of goods for the fuelling and provisioning of vessels used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities, or for rescue or assistance at sea, or for inshore fishing, with the exception, in the case of vessels used for inshore fishing, of ships' provisions;

(b) the supply of goods for the fuelling and provisioning of fighting ships, falling within the combined nomenclature (CN) code 8906 10 00, leaving their territory and bound for ports or anchorages outside the Member State concerned;

(c) the supply, modification, repair, maintenance, chartering and hiring of the vessels referred to in point (a), and the supply, hiring, repair and maintenance of equipment, including fishing equipment, incorporated or used therein;

(d) the supply of services other than those referred to in point (c), to meet the direct needs of the vessels referred to in point (a) or of their cargoes;

(e) the supply of goods for the fuelling and provisioning of aircraft used by airlines operating for reward chiefly on international routes;

(f) the supply, modification, repair, maintenance, chartering and hiring of the aircraft referred to in point (e), and the supply, hiring, repair and maintenance of equipment incorporated or used therein;

(g) the supply of services, other than those referred to in point (f), to meet the direct needs of the aircraft referred to in point (e) or of their cargoes.

Article 149

Portugal may treat sea and air transport between the islands making up the autonomous regions of the Azores and Madeira and between those regions and the mainland as international transport.

Article 150

27. The Commission shall, where appropriate, as soon as possible, present to the Council proposals designed to delimit the scope of the exemptions provided for in Article 148 and to lay down the detailed rules for their implementation.
28. Pending the entry into force of the provisions referred to in paragraph 1, Member States may limit the scope of the exemptions provided for in points (a) and (b) of Article 148.
29. We note that in para (d) and (g) the test is whether the supply meets a need. The question arises as to what is meant by meeting a need: does it require the need to be satisfied, or extinguished, by the service or is it enough if the service satisfies part of the need?
30. At this stage we also note that these provisions do not apply only to lifeboats, and that the phrases used to describe the exempt supplies in relation to vessels are identical to those used to describe the exemptions in relation to aircraft operating for reward chiefly in international routes. It seems clear to us that the meaning of those words must be the same in each context There are three types of supply designated:

(i) in (a),(b) and (e), the supply of goods for fuelling and provisioning,

(ii) in (c) and (f), the supply, modification, repair, maintenance and chartering of the craft and equipment

(ii) in (d) and (g) the supply of the services to meet the direct needs of the craft or their cargoes.

31. Although the issues before us related to the proper application of the Directive, neither party sought a reference to the ECJ.
32. The UK's domestic legislation includes, in Group 8 of Sch 8 VATA, the zero rating of certain supplies to sea rescue charities and to qualifying ships and aircraft. The Appellant does not rely upon that domestic legislation in this appeal. It argues that the supplies at issue are zero rated by the provision of the Directive. It is common ground that the Directive is directly applicable, and is therefore theoretically capable of providing greater zero rating than the domestic legislation. We note the following provisions in the domestic legislation:

"3. (a) The supply to and repair or maintenance for a charity providing rescue or assistance at sea of—

(i) any lifeboat;

(ii) carriage equipment designed solely for the launching and recovery of lifeboats;

(iii) tractors for the sole use of the launching and recovery of lifeboats;

(iv) winches and hauling equipment for the sole use of the recovery of lifeboats

.(b)The construction, modification, repair or maintenance for a charity providing rescue or assistance at sea of slipways used solely for the launching and recovery of lifeboats.

(c)The supply of spare parts or accessories to a charity providing rescue or assistance at sea for use in or with goods comprised in paragraph (a) above or slipways comprised in paragraph (b) above.

(d)The supply to a charity providing rescue or assistance at sea of equipment that is to be installed, incorporated or used in a lifeboat and is of a kind ordinarily installed, incorporated or used in a lifeboat….

"6. Any services provided for—

(a)the handling of ships or aircraft in a port, customs and excise airport or outside the United Kingdom; or

(b)the handling or storage—

(i) in a port,

(ii) on land adjacent to a port,

(iii) in a customs and excise airport, or

(iv) in a transit shed,

of goods carried in a ship or aircraft…

"7. Pilotage services.

"8. Salvage or towage services.

"9. Any services supplied for or in connection with the surveying of any ship or aircraft or the classification of any ship or aircraft for the purposes of any register."

33. The parties took us to a number of authorities. Some of these related to the proper approach to the construction of Directives and others were decisions of the ECJ and the UK Courts in relation to Article [148].

The Proper approach to the construction of the Directive.

34. The ECJ has frequently stated that, since exemptions are exceptions from the common system of VAT, they must be construed narrowly. As the Court said in Stichting Uitvoering Financiele v Staatssecretaris van Financien [1989] ECR 1737:

"12…Article 13…does not provide exemption for every activity performed in the public interest, but only for those which are listed and described in great detail

"13. It is clear from the foregoing that the terms used to specify the exemptions envisaged by the Directive are to be interpreted strictly since they constitute exceptions to the general principle that turnover is levied on all services supplied for consideration by a taxable person."

35. We note however that the Court gives weight to the fact that the conditions were precisely formulated: any interpretation which broadened the scope of the provision would therefore be incompatible with the object of the provision.
36. Mr Moss submits that this principle does not require all substance to be drained from an exemption by giving it the narrowest possible interpretation. He referred us to Canterbury Hockey Club v Revenue and Customs Commissioners [2008] STC 3351. That case concerned the exemption in the Sixth Directive for the supply of certain services closely linked to sport "supplied to persons taking part in sport". England Hockey supplied to Canterbury services closely linked to sport, rather than to the individuals who played Hockey at that club. The quoted words could be interpreted as requiring a supply made directly to the players. On that, narrow interpretation, the supply by England Hockey would not fall within the exemption since Canterbury did not itself play hockey. The Court said:

"17. The terms used to specify the exemptions under Art 13 of the Directive are to be interpreted strictly, since they constitute exemptions to the general principle that VAT is to be levied on all supplies of services for consideration. However, that requirement of strict interpretation does not mean that the terms used to specify those exemptions should be construed in such a way as to deprive them of their intended effect…They must be interpreted in the light of the context in which they are used and the scheme of the Sixth Directive, having particular regard to the underlying purpose of the exemption in question…."

37. In a similar vein, in Staatssecretaris van Financien v Velker International Oil Co Ltd NV [1991]STC 640 ("Velker Oil"), a case we shall return to later, the Court noted (at para [19]) the requirement for strict interpretation, but in reaching its conclusion on the second question said, at para [27]:

…it needs merely to be said that nothing in the wording of the relevant provisions... nor the context in which they appear, nor the objective which they pursue, justifies a construction of those provisions which…"

38. It seems to us that the principle of strict interpretation may be put thus: where the words admit more than one possible interpretation, that meaning should be adopted which provides the narrowest possible exemption which is consistent with the context (which may include the degree of detail of the words used to specify the exemptions) and purpose of the exemption.

Cases in which the ECJ have considered Article 15 ([148])

39. In Gunter Berkholz v Finanzamt hamburg-Mitte-Altstadt [1985] ECR 2251, one of the questions before the ECJ related to whether the supply of gaming machines to ships benefited from the exemption in the provision now in para (a), (c) or (d) of Article 148. The Court held:

"It appears from all of the provisions cited that the only services exempted under Article [148(d)] are those which are directly connected with the needs of sea-going vessels or their cargoes, that is to say services necessary for the operation of the such vessels. The installation of gaming machines whose object is to entertain passengers and which themselves have no intrinsic connection with navigational requirement cannot be classed as such."

40. Mr Peretz says that the Court is concerned here with whether the supply was "needed" by the vessel rather than whether it was "directly needed". He urges us not to put too much weight on "navigational requirements" bearing in mind the gaming machines which were the underlying subject matter of the reference.
41. We note that the Court appears to reformulate the Directive's words, "services which meet the direct needs" as "services which are directly connected with the needs". That reformulation may suggest a looser test than one which seeks simply to identify a direct need (because under it a service which was directly connected to an indirect need would fall within the exemption) but it seems to us that it is more likely that the Court is providing an answer to the question we ask in paragraph 27 above as to the meaning of "meets", and is saying that a service "meets" a need if it is directly connected with that need. . The Court then appears to equate the service which meets the need of a vessel with the services necessary for its operation. The language used by the Court does initially suggest that, in the words following "that is to say" it is referring to both the "direct" requirement and the "need" requirement, but it seems to us that these are explanatory words rather than tight words of limitation: the Court refers to the needs of cargo in the preceding words but it is clearly not equating the needs of cargo with the things necessary for the operation of vessels. What is clear is that a need must be something necessary for the operation of the vessel.
42. In Velker Oil, the Court held that (i) the exemption provided in Article [148(a)] for the refuelling of ships was limited to supplies made to the vessel operator rather than antecedent supplies in the chain, and (ii) it was not further limited by a requirement that the fuel had to be loaded on the vessel (so that delivery to a tank on land would suffice). In relation to the first issue, the Advocate General had noted that the words of Article [148(a)] did not suggest a narrow approach and that it was not illogical to assume that earlier supplies in the chain of supply to the vessel could be zero rated. But he considered that such a wide exemption required imperative grounds, that the structure of the provisions assimilated the supplies to exports, and the exemption for exports required actual despatch for the operation of the exemption.This suggested delivery to the operator was required rather than supply to an earlier person in the chain. Furthermore administrative considerations pointed to only one stage of exemption. The Court noted the need for strict interpretation, the assimilation to exports and the administrative complexity which would be involved in allowing the exemption at an earlier stage.
43. In Elmeka NE v Ipourgos Ikonomikon [2006] ECR I-8167, the ECJ held that the reasoning in Velker applied equally to the words of [148(d)], and that services meeting the needs of vessels were therefore exempted under that paragraph only if they were made to the vessel operator. There was no reason why a distinction should be made between the supply of goods and the supply of services.
44. It seems to us that the principles applicable to the construction of Article[148(d)] which can be derived from these two cases, are (i) the need to consider the context, which was an assimilation to exports (the Advocate General had indicated that the assimilation took place because it was to be expected that consumption would take place outside the UK), (ii) the need to consider the purpose of the provisions, and (iii) the need to consider administrative complexity.

Consideration by the UK Courts.

45. In Societe Internationale de Telecommunications Aeronautiques v Customs and Excise Commissioners [2004] STC 950, the appellant, SITA, provided a telecommunication network to its members in the air industry. The issue was whether this was a service which met the direct needs of the aircraft. The tribunal had found that it was the airlines' needs which were being met and that "only at one remove, at the least, [were] the needs of the aircraft and their baggage being met. The connection is too remote for us to be able to say that SITA provides for their "direct" needs."
46. Before Morritt V-C, SITA had submitted that the exemption depended on the nature of the service rather than the identity of the recipient (a distinction earlier rejected by the ECJ in Velker Oil which was not cited to the Court although the ECJ's decision was in 1990), but that as the aircraft were inanimate, their needs were their operational needs, and that as the aircraft were passenger carrying, such direct needs included those associated with the carriage of passengers. Counsel for Customs contended that "not only can an inanimate object have needs but that the provisions of art [148(d)] predicated that an aircraft or its cargo do. In the case of an aircraft the needs are for whatever is required to make it work for the purposes for which it was made [,and that,] although what mattered was the nature of the service in deciding for whose need the service in question catered, some consideration of the supplier and the recipient was necessary and correct in law.". Morritt V-C had no hesitiation in preferring the latter submission . He noted: first the strict construction of exemptions; second, the Berkholz formulation "services necessary to the operation of the ships"; third that a restriction of the types of aircraft could not extend the exemption to the direct needs of the airlines or passengers; fourth, "the restriction is to the direct needs of the aircraft and its cargo. The use of the word "direct" is a clear prohibition on any extension of the relevant need"; and fifth, "what matters is the nature of the service rather than its supplier or recipient, [nevertheless,] in considering what or whose direct need is being catered for it is inevitable that the identity of the recipient is mentioned." He went on to say that the passage from the tribunal in para 43 above betrayed no error of law. That passage includes the finding as to the remoteness of the connection.
47. We should exercise some initial hesitation in drawing conclusions from SITA because Velker Oil was not considered by or cited to the Court. However, there is a difference between an acceptance that some consideration of the supplier and recipient is necessary to determine the nature of the relevant supply, and the acceptance of a requirement that the supply has to be made to the operator in order to benefit from the exemption. Further in the passage quoted above the Court does not rely on the identity of the supplier for its conclusions- indeed,in the fifth point noted above and also by its acceptance of the tribunal's conclusion, the reverse. It does not seem to us therefore that the approach adopted by the Court is vitiated by an acceptance that some consideration of the supplier and the recipient was necessary.
48. We draw the following guidance from SITA. First that a consideration of what is necessary to the operation of the vessel is relevant; second that a need is "whatever is necessary to make it work for the purpose for which it was made" is a useful paraphrase of that test (Morritt V-C does not specifically approve that formulation but casts no doubt upon it); and third that "direct" must prevent any extension of "need", and that if a service meets a need of a craft, but at one remove – because the service first meets a different need – then it may be said not to meet a direct need of the craft.
49. Revenue and Customs Commissioners v EB Central Services Ltd [2008] STC 2209 concerned baggage handling facilities. The taxpayer stored baggage of passengers who had not checked in. The issue was whether the services met "the direct needs of the aircraft…or of their cargoes" for the purposes of Article[148(g)]. Mummery LJ at [45] noted that the baggage was not cargo. He said it was "not necessary for the operation of the aircraft or their cargo that the taxpayers supply left luggage services for the passengers. The direct needs met…are …those of the passengers who for one reason or another have not checked in and consigned to the operators…their luggage. Until that has been done the services supplied by the taxpayers are for the convenience of the passengers not to meet the direct needs of the aircraft or their cargoes." Dyson LJ, referred to the passage quoted at para 37 above from Berkholz and approved the approach adopted by the Vice Chancellor in SITA applying that test. The storage of luggage, landside, did not meet the direct needs of the aircraft because there was no certainty of connection. He said, at [75], that once the passenger had checked in the luggage it became cargo and that thereafter

"that storage is a service to meet the direct needs of the cargo. Only then is there the necessary direct connection between storage and the luggage being carried on the aircraft"[our italics].

50. We were also referred to the tribunal decision in George Hammond VATD 20353. The issue was whether hotel and taxi services supplied to a ship-owner for the transport of a ship's crew were zero rated. There were two headings for zero rating considered by the tribunal. The first was the domestic heading of services provided for the handling of ships in item 6, group8 Sch 8 VATA; the second was Article[148(d)]. The tribunal also considered to what extent the domestic legislation could be read so as to be compatible with the Directive. The tribunal found that the supplies fell within the scope of the domestic legislation: the Appellant [was] entitled to rely upon the wider wording of Sch 8 rather than the Directive, but such an analysis did not appear to be inconsistent with the Directive "which must be that matters essential to allowing a ship to sail are exempted, whereas the supply of matters which are no so central are taxable." However there is an earlier passage in the decision which suggest that the tribunal considered that taxi and hotel services could not be considered as direct needs of the ship.
51. Given that Hammond was decided upon the domestic legislation, it is of little help to us in a case which has been argued only upon the basis of the Directive. We tend to agree with the tribunal however that taxi and hotel services supplied for the benefit of the crew did not meet direct needs of the ships.

The Contentions of the Parties

52. Mr Moss says:

(1) para(d)/(g) provides for services other than those at (c)/(f). The exclusion in the language is significant: it means that (d)/(g) refers to a wider range of things than (c)/(f). And, since (c)/(f) is exhaustive of the provision of the craft and things used in or with it, para (d)/(g) must be wider still;

(2) the domestic legislation attempts to implement the open words of Article 148 with a closed narrowly defined list. That is a dangerous approach and has left gaps;

(3) given that domestic legislation zero-rates the repair of slipways for lifeboats (Item 3(b)), the Commissioners cannot argue that the repairs to a lifeboat station should not be zero rated; and

(4) if lifeboat stations meet a direct need of a lifeboat (which the Commissioners accept) then alterations, repairs and maintenance also meet direct needs of lifeboats.

53. Mr Moss adopts the test proposed by the Commissioners in SITA in the approach preferred in that case by Morritt V-C: the direct needs are whatever is required to make the vessel work for the purpose for which it is designed. He says that is a specific test dependent upon the purposes for which a specific craft is designed. Lifeboats and passenger airliners have quite different purposes, and their direct needs are different too. Lifeboats have a direct need for a properly maintained lifeboat house.
54. Mr Moss says that the facilities provided by the lifeboat stations, in addition to housing the lifeboat, meet the direct needs of the lifeboats for maintenance, storage of equipment, crew changing and preparation, administration and radio contact. Without such services the boats could not function properly. He accepts that souvenir outlets do not meet a direct need of the lifeboat. Dredging harbours meets the need of the boats to launch. The maintenance of cliff hoists enables loads to be moved to the lifeboat or its station satisfying the need of the boats for equipment and provision, and cliff stabilisation ensures that the station can function to meet the needs of the lifeboat. Major alterations are conducted precisely in order to meet a need to accommodate and launch the boat, and other alterations meet the need for improvements in the functioning of the launch or the boat.
55. Mr Peretz accepts that the storage of a boat could meet a direct need of the boat. That much could be taken from the EB case: the storage of the luggage could meet a direct need of the luggage.
56. He notes that Article 148 is only incidentally concerned with vessels for rescue at sea: its main concerns he says are commercial vessels and international airlines. It would be wrong to construe it on the assumption that its purpose is to benefit sea rescue services.
57. He says we should apply three principles: we should adopt a narrow construction, we should adopt a construction which gives effect to all the words, and we should apply a recognised principle of construction, the eiusdem generis principle.
58. First, a narrow construction. He says that we should be careful to adopt a construction which leads to the narrower application of the exemption, and that is particularly so where the transactions with which we are concerned take place in the UK and do not in fact have any connection with export activity. Mr Peretz says that the supplies are those which are tied down to the craft.
59. Mr Peretz prays in aid the eiusdem generis principle. He cites the approach of the Advocate General in Victoria Films [1998] ECR I-7023 at [39] ff and of the ECJ in Lindquist [2004] All ER (EC) 561 at [44] as authority for the proposition that the principle applies in the construction of European legislation. The application of that principle presupposes that a genus can be identified for the matters enumerated in the text under scrutiny which precedes the general words: a common element emerges from the perusal of a number of specific which may be used in construing the general words. We agree that it may be a proper aid to the construction of a Directive. He says that Article 148(c) and (d) is an example of a case where the principle should be applied.
60. Mr Peretz says that Article 148(c) sets out a list of (mainly)services, all of which have the common characteristic, namely, that they involve the supply of the vessel or the doing of things directly to the vessel (or the equipment used therein)which are physically close to the vessel. He says that that characterisation of the genus is consonant with the fuelling and provisioning of vessels in Article (a)/(f) as being something done "to" the vessel. Services such as the storage of cargo (something done to cargo); salvage or towage (see Item 8 Group8) ; and surveying (Item 9 Group8) all fall within that genus as being something done to the craft or cargo. He says that unless such a genus is read into the words it is difficult to see why Article 148(c) is necessary in its application to services other than chartering, modification and hiring .
61. Mr Peretz says that Article 148(d) is concerned with the "direct" needs of the vessels. Some meaning must be given to "direct": it is not enough for a supply to meet a need of a vessel, not enough for it to be simply necessary for the vessel, it must be a direct need. The import of "direct" is given by the application of the eiusdem generis principle: the need must be for something to be done "to" the vessel – for something physically close to the vessel.
62. We asked Mr Peretz whether the genus could be viewed as being of things needed to be done "for" the craft rather than "to" it. His answer is that "direct" moves one from something needed "for" to something needed to be done "to" the craft. He contrasts something done "in order to" meet a need of a vessel which deals with the way in which a need is met, with something done which directly meets a need, which is narrower.
63. Thus says Mr Peretz, things done which fulfil the needs of a lifeboat station, if they do not fulfil a need of the lifeboat for something to be done "to" it, and if are not sufficiently physically close to the lifeboat, cannot meet the direct needs of the lifeboat. Repairing or maintaining a lifeboat station does not meet a need of the lifeboat to have something done "to" it.
64. Finally HMRC say that administrative complexity is a relevant consideration – as it was for the ECJ in Velker Oil. Normally a supplier will know if he is doing something "to" the craft; if repairs to buildings were to be capable of being within Article 148(d) then the supplier would have to verify the need of a relevant craft before knowing how to treat his supply. Uncertainty would arise in the case of a building of mixed use. A certification procedure might be possible but would be complex.

Discussion

"need"

65. It seems clear to us that a "need" of a craft is something "necessary for its operation", and we adopt the formulation of the Commissioners in SITA: the craft needs whatever is required to make it work for the purposes for which it was made. We agree with Mr Moss that the needs of one craft may be radically different from those of another.
66. We also note that different supplies may meet the same need. For example a need for a trained crew could be met either by the supply of a ready trained crew, or by the supply of an untrained crew and the supply of training to its members.
67. Something which meets a need, may itself be a need, but only if it is the only way in which the first need may be met. Otherwise it is not necessary for the boat's operation.

"direct"

68. We agree with Mr Peretz that it is necessary to give some meaning to "direct". It seems to us that the effect of this word was not specifically considered by the ECJ in Berkholz. In determining its effect we bear in mind Morritt V-C's comment that the word direct is a prohibition on "any extension of the relevant need", but, because that formulation could be seen as relying upon a prior determination of what the "relevant need" is, we presume that what he meant by this phrase was that the exemption was to be strictly construed in accordance with the principles applicable to exemptions under EU law. That principle, as we have understood it, is that the exemption should be given the narrowest possible interpretation having regard to the words used, their context and the purpose of the legislation.
69. We turn first to the words of the provision.
70. It seems clear to us that the natural meaning of "direct" would be immediate, or free from intermediation or interposed stages. In SITA, the telecommunications services met the needs of the aircraft "at one remove" because they first met the needs of the airlines: they therefore did not meet the direct needs of the aircraft The judgements in EB indicated that meeting the prior need of another person (in relation to the passengers' luggage) can mean that the need of the plane was too remote (this was in relation to the argument that the storage met the needs of the aircraft). In Berkholz the phrase used by the Court, "directly connected with the need" is consistent with a lack of connection through an intermediate need.
71. We did not find the distinction between something done "in order to" meet a need, and something done to meet a need helpful insofar as it concentrated on the question of "meeting" a need . But we found it a helpful aid to the identification of an intermediate step. If B was needed, but it was needed in order to have A, then it seemed more likely that B would not be a direct need.
72. We now turn to consider whether other considerations of the context of the provision require a more limited approach to the meaning of "direct need".
73. Mr Peretz submitted that the eiusdem generis rule required a meaning which limited direct need to something needed to be done "to" or in close physical proximity to the craft. It seems to us that the following features of paras (c)/(f) and (d)/(g) point away from the strict application of the eiusdem generis principle:

(1) that the drafting does not take the simple form of a list coupled with a phrase such as "other items" or "similar items". Although the principle is not tied to any particular formula, the most usual form is a list or string of genus describing words followed by wider residuary or sweep up words ;

(2) that the services within (d)/(g) are not described as "other services which meet direct needs" but rather as services of a particular description but excluding those in (c)/(f); and

(3) that the supplies in (c)/(f) are supplies both of goods and of services whereas (d)/(g) apply only to services. If para (d)/(g) are intended to form part of a genus it is odd that items are described in (c)/(f) which cannot form part of that genus.

74. On the other hand, the words "other than those referred to in point (c)" serve no purpose if they are not intended to infect (sic) the type of services covered by (d). As Bennion, Statutory Interpretation 5^th Edition (2008) section 379 says, the eiusdem generis principle is an aspect of a broader principle that the meaning of a word may be known by the company it keeps. It is clear that the services which meet direct needs are expected to encompass at least some of the services in (c): to include services such as repair and maintenance and services which permit the use of equipment in the craft. And that expectation colours the meaning of "direct".
75. But whether or not the eiusdem generis principle applies, we do not agree that there is any suggestion in the context which would cause one to limit the services within (d) to those done "to" the craft. The repair of equipment used in the craft and the repair of an engine which has been removed from the craft for that purpose are both clearly within (c)/(f). Both may be said to be done "for" rather than "to" the craft to meet its direct needs (although if the equipment were incorporated in the craft, it could be said to be done "to" the craft). The storage of cargo is done as much "for" the cargo as it is "to" it. The repair of fishing nets is physical but not done "to" the fishing boat. It seems to us that the place of the words in the legislation dictates that things done "for" the craft may meet its direct needs. This is consistent with the exemption in para (a) for the supply of oil delivered to an onshore tank "for" the craft.
76. On the other hand, the items in para (c) meet (perhaps with the exception of repairs to fishing nets) needs of the craft which are not intermediated by the need of something else unless that something else exists only for the purpose of the craft (such as equipment used or incorporated therein) so that its need might be regarded as part of the craft's need.
77. We have found it difficult to describe what it is which differentiates a direct from an indirect need. On one level the exercise can seem to become a semantic one. It seems generally possible to describe a need in such a way as to make it look like a direct rather than an indirect need: rather than saying that a vessel needs a crew and the crew need food, so that the feeding of the crew is an indirect need, one could say that the vessel needs a crew which has been properly fed before coming on board- so that feeding the crew meets that seemingly more direct need. But it is often the exercise of finding the relevant words which highlights the remoteness of the need, or the intermediate steps between the prime need (for a crew) and the more indirect need (for a crew which has been fed). The need of the members of the crew is separate from the need of the lifeboat. The crew have lives other than those of being crew, and feeding them onshore fulfils other needs as well. On the other hand if an analysis of a need involves the articulation of a step in the description of that need and that step is something which is there solely for the craft it is clearer to us that the need is direct. Thus (taking examples from para (c) which in our opinion colour the meaning of direct need) if a craft has an engine which is repaired, the repair meets a need of the engine, but it also must meet a direct need of the craft; if the craft has a spare propeller, the cleaning of the propeller meets the need of the propeller, but that propeller has no other function other than to serve the craft and can be seen as effectively part of the craft, and the cleaning of the spare propeller would in our view meet a direct need of the lifeboat. In each of these cases the need of the propeller or of the engine can be seen as part of the need of the craft.
78. In our judgment therefore the meaning of the words "direct need" in their context is a need which is not consequential on the meeting of a primary need of the craft and which therefore does not by its nature involve the meeting of a prior need of someone or something else, unless that other person or thing is effectively part of the craft.
79. We now turn to consider whether the principle of narrow interpretation of exemptions requires any further restriction. That requires a consideration of the purpose of the provision. (This is not a case where the Directive makes exhaustive detailed provision.)
80. What is the objective of the exemptions in Article 148? In Velker Oil the ECJ said that fuelling was exempted because it was "equated with exports". This reasoning in relation to fuel was accepted by the Court in Elmeka to extend to the other limbs of Article [148]. The Advocate General in Velker Oil said that Article 148 transactions were treated like exports because it was to be expected that consumption would take place abroad.
81. Supplies such as repairs may be provided onshore but their benefit is obtained when the boat is at sea. The consumption to which the Advocate General refers must surely therefore refer to the taking of the benefits from the supply while at sea. Given that inshore fishing boats and rescue craft may not go abroad, it seems to us that consumption at sea rather than strictly abroad is what is expected. Such supplies can therefore be seen as supplies which meet the needs of the vessel to set to sea and to stay at sea. And the purpose is that such supplies are equated with exports.
82. It does not seem to us that the assumption of consumption on the seas affects the proper interpretation of "direct". It may affect what is a "need", but not whether it is a direct need. We conclude that the purpose of the Directive does not compel any particular further restriction other than that the needs be those of the craft to set to sea and to stay at sea (or in the case of an aeroplane, the air).
83. We then ask whether our interpretation is the narrowest possible in the context. There did not, however, seem to us to be a narrower construction of "direct need" than that we have set out above.

Administrative concerns

84. Mr Peretz was concerned that any interpretation which led to supplies made other than directly to the boat would create administrative difficulty. He said that, if repairs to the roof of a lifeboat house were exempt, repairs to the roof of a cargo storage building would also be exempt. How would a supplier know whether he was repairing the roof of a cargo storage hold or that of an ordinary warehouse?
85. The same issue arises in relation to the zero rating of any supply which depends on the nature of the building or the recipient, or upon actions taken by the recipient of the supply. It seems to us that the kind of administrative complexities considered in Velker Oil which would have arisen if the supply of fuel to anyone other than the operator of the ship had been exempted do not arise in this case. A supply is made to the operator of a craft; that alone is not sufficient to attract exemption: instead the operator must make the use known – whether or not it is fuel for qualifying ships or aircraft. That does not add unconscionable administrative work or uncertainty
86. Mr Peretz cautioned us against a result which led to problems with the use of supplies for more than one purpose. It seems to us that this is not something which should overly concern us. The Directive lays down a test as to whether supply to a vessel operator meets a direct need of the vessel. That supply may also meet another need; if it does it is irrelevant. But the problem of mixed use is there in other parts of Article 148: it may arise under para (a) if for example fuel is supplied for fuelling both on an inshore pleasure craft and for a commercial vessel to depart on the high seas.

Anomalies

87. There were two competing anomalies canvassed before us. First, if the supply of a lifeboat station met a direct need of a lifeboat, then if the accommodation of the station were supplied by an independent supplier, his supply would be zero rated and his input tax on repairs would be creditable and so would not form a cost component of the onward supply of the use of the station; whereas if the repairs were not themselves zero rated when supplied to RNLI as the owner of the station (and end consumer), the VAT on those repairs would be a cost suffered by the end consumer. Second, Mr Peretz said that if Mr Moss' approach was correct then there would be an anomalous distinction between goods and services since para (d)/(g) applied only to services and imposed a wider test than the limited categories of goods in (c)/(f): the supply of slates to mend the roof would not be zero rated, but a composite supply of a repair to the roof (incorporating the slates) would be: the supply of parts for a cliff hoist would not be zero rated but the supply of repairs to the hoist would be.
88. In the end we found neither of these anomalies assisted our interpretation. In relation to the first, the principle of fiscal neutrality did not go so far as to require that the different chains of supply through which a consumer eventually received his supply should always bear the same VAT cost. In relation to the second, the very fact that para (d) refers to services rather than goods and services, means that a wider category of services is exempted than of goods, and must be intended to be.

Summary of our conclusions on the law

89. The words of the Directive raise three questions:

(i) What is a need?

(ii) What is a direct need?

(iii) When is a need met?

Each has to be answered bearing in mind that these provisions do not apply only to lifeboats: they apply to commercial vessels, and aircraft operating for reward chiefly on international routes: the meaning of the words must be the same in each context.

(i) What is a need?

90. In relation to the first question it seems clear that a need is something necessary for the craft to operate, and in our view that means to operate for the purpose for which it was designed. The expectation that the supplies will be consumed at sea indicates that the relevant needs should be limited to those necessary for getting to sea and operating at sea in the manner for which the craft was designed. (Or in taking off and in the air in the case of aeroplanes.) But we note that the needs of one craft may be radically different from those of another.

(ii) What is a direct need?

91. In relation to this question we offer three propositions:

(1) If A is necessary for the craft's operation, and B is necessary for A, then B is also necessary for the boat's operation, and is thus a need of the craft. On the other hand if B merely meets A's need B will not be a need unless B is the only way in which A can be provided.

(2) If B is needed for the craft's operation because B is necessary for A, and A is needed, then B is more likely to be an indirect need of the craft because there is an intermediate need: because B is a consequence of A.

(3) But that will not be the case where B is a part or an aspect of the boat's primary need, or is the need of something which is part or almost part of the operation of the craft. Thus where the primary operational need is to get to and to operate at sea, the need to be able to get to sea quickly is part of that primary operational need of the boat, and so is a direct need; and the needs of the engine are direct needs because it is a part of the vessel, and thus its needs are part of needs of the vessel.

92. In the discussion above we accepted that: (i) it is necessary to give some meaning to "direct"; (ii) the natural meaning of the words "direct need" is a need which is not a consequential need of the primary operating need and therefore not a need of someone or something else, unless that other person or thing is effectively part of the craft; (iii) a craft may have a direct need for things to be done "for" it as well as "to" it; and (iv) the words, the context and the purpose of the Directive did not justify a narrower construction than that such needs be limited to those relevant to setting to sea and being at sea.
93. We conclude that a direct need is the need of the craft (in its context) to get to sea and to operate at sea, or any part of that need, but not a consequential need which is not part of such need.

(iii) When does a supply meet a need?

94. We found that different supplies may meet the same need;
95. The condition that a service "meets" a need raised the question as to whether it must completely satisfy that need or whether it is sufficient if it satisfies merely part of that need: fuel for a craft does not satisfy every aspect of the need for the craft to be able to set to sea – it also needs a crew and maintenance; a repair does not provide the fuel for setting to sea. We concluded that a service meets a need if it is directly connected with that need and satisfies it in whole or in part. It is not necessary for it to extinguish the need.
96. We found that the dissection of the condition in para (d) often led us down paths dominated by semantics, and that there was some degree of overlap in our detailed consideration, since a supply might both meet a need and be a need. Also a conclusion that a service did not meet one need, or that it met a need which was not a direct need, did not preclude a conclusion that there was a direct need which that service did meet As a result in our approach to the types of service at issue, although we have attempted a dissected analysis we have also been guided by a more general overall test, namely to ask as a single question whether it appears that the services meet a need which is part of or an aspect of, or closely related to the boat's need to set to sea and operate at sea.

Conclusions

97. The needs of a lifeboat are different from those of other vessels because they are intended for the special purpose of being able to set out at very short notice in all weather.
98. At the highest level of generalisation a lifeboat needs to be able to go to sea very quickly and to operate effectively at sea in any weather at any time. That is a need consistent with the purpose of the Directive. That is its prime or most direct need. We see two aspects or parts of that need each of which are direct needs because they are part of the primary need: in order for a lifeboat to operate for the purposes for which it was designed it needs: (1) to be kept in a state of readiness; and (2) to be able to get to sea quickly. We also tend to the view that the need of a craft for an appropriately trained and equipped crew is a direct need, because, although the need for the crew could be said to be consequential upon the need to operate at sea, it is so fundamental to the craft's operation, that it should be regarded as an aspect of the need to operate at sea and to get to sea.

The need for a crew

99. Although not strictly relevant to this appeal, the costs of the supply of the services of maintenance of crew accommodation were referred to by Mr Spivey. It is clear to us that those services are not within the exemption. Even if the need for a crew is a direct need of the boat, such services do not meet the direct needs of the boat because they are not directly connected with the operational needs. They meet remote needs: they meet the needs of the crew for accommodation, and the crew are not, when living in that accommodation, merely creatures of the lifeboat's needs. The crew's need for accommodation is not an aspect of the operational need of the ship to get to sea quickly: it is at most an indirect need of the boat.
100. A lifeboat also needs a properly equipped crew. It needs a crew who, on embarkation have changed into proper gear. Does that mean that the boat needs a room in which equipment is stored or in which the crew can change? We think not. The provision of such rooms is a way in which the need of the boat for the embarkation of an equipped crew may be met, but the provision of such a room is not necessary for the boat to operate. Nor is the provision of such a room a part of or an aspect of the boat's need. We therefore cannot see how the repairs to such facilities could meet the direct needs of the boat.

Repairs to Lifeboat Stations

101. Subject to the exceptions noted below, it seemed to us that repairs to lifeboat stations did not meet direct needs of the boats. That was because, at a general level the repairs to the station did not meet a need which was an aspect of the need of the craft to set to sea, but met a need which was a consequence of that need. Put another way, the need for repairs to the station was not closely related to the need for the craft to get to sea, and the repairs were not directly connected with the operational needs of the craft. And at a more linguistic level we could not find a formulation of the boat's direct need which was met by the repairs.
102. The exception related to repairs which were necessary to ensure the speedy launch of the boat from the station. The boat has a direct need to get to sea quickly: it needs the doors to open and the launching gear to work. That need is so closely related to the boat's operation that it can be regarded as an aspect of the boat's need to get to sea quickly. That need is met by the maintenance of that equipment because that maintenance is directly connected with the need to get to sea quickly.
103. We now address the types of repair more specifically.

(a)Repairs to stations housing B and D class boats

104. Mr Rawlinson's unchallenged evidence was that these boats would rapidly decay unless they were properly housed. Thus shelter was necessary in order for them to operate as designed: without it they would not be able to get to sea quickly or to operate at sea. They therefore need a watertight and secure shelter. That need is in our view clearly met by the provision of a station which houses them. But that need for a shelter was not in our view a direct need of the boats because it was not part of or an aspect of the need to get to sea quickly and to operate at sea. So meeting that need for shelter by repairing those stations was thereby not meeting a direct need, although it may meet the need to be able to set to sea quickly.
105. Those boats also need that shelter to be kept watertight and secure. That need does not meet the need of anything else other than something which only serves the boat. But it seemed to us that it is not part of that need to get to sea but is something consequent upon it, and is not therefore a direct need. But, in our view, such repairs did not meet the need to get to, and to be at sea, since they were not directly connected to it nor satisfy it in whole or part.
106. The repairs to those stations therefore did not meet a direct need.

(b)Repairs to the lifeboat station housing boats other than B and D class boats

107. For these boats the import of Mr Rawlinson's evidence was that it is not necessary – although it could be highly desirable- for them to be accommodated in a station. Therefore being accommodated in a station could not be a "need" of such boats. The need for maintenance does not imply a need for accommodation, although accommodation could meet a need to be kept ready for action. (We emphasise that we are not saying that the provision of the station may not meet a direct need. The provision of the station is simply not itself a need of the boat. In EB the Court held, not that cargo needed to be stored, but that storage met a need of cargo.)
108. Likewise the boat does not need the station to be kept secure and watertight as accommodation. If it does not need the station for accommodation, it cannot need the station to be kept watertight as accommodation.
109. Is there any other direct need of the boat which repairs to the station might meet? Do those repairs meet a direct need to be able to launch at short notice? It seems to us that, except to the extent that the maintenance affects mechanisms such as doors through which the boat launches, the repairs cannot be said to meet that need because they play no direct part in satisfying it: they are not directly connected to the need.
110. Are the other activities carried on in such stations such that the repairs to the station are directly needed by the boat because of the importance of those other activities to the boat? We address this question below in relation to stations which do not house lifeboats.
111. Can the needs of the boat in relation to a crew be framed in such a way as to give rise to a need for the boat housing station to be kept secure and watertight? We have dealt with the needs relating to a crew above. It is hard to prove a negative. We have tried to formulate such a need and have failed
112. We conclude that the repairs to a station housing a lifeboat (other than those directly related to the launching of the craft) do not meet a direct need of the lifeboat.

(c)Repairs to lifeboat stations not housing boats

113. These stations accommodated crew, changing, storage and lifeboat maintenance facilities.
114. The findings at para 16 above lead to the conclusion that maintenance of the boat for the purpose for which it was designed is a need of the boat. But even if maintenance were a direct need, it does not seem to us to be met by repairs to the lifeboat station: there is not direct connection to that need and no satisfaction of the need in whole or part. It also follows from para 16 that the safe and dry storage of equipment and clothing are necessary for the operation of the lifeboat and thus a need of the boat. But it is not a need which is a part of or an aspect of the primary direct need of the boat, and therefore is not a direct need. We also found that crew training was necessary for the handling of the boat at sea, but it was not found to be essential that it be conducted in a lifeboat station. Neither was it essential that administration be conducted in the station.
115. Thus the repair of the station to meet those needs did not thereby meet direct needs of the boat. Neither, in our view, are repairs to a station which provides such maintenance, storage, changing and training direct needs of the related boat, nor do they meet the direct needs of the boat to set to sea, since they are not directly connected to those needs.
116. We now ask whether there is any other need which those repairs meet. Does the boat have a need for a well repaired station? If it did, would the repairs meet it? We ask therefore whether a well repaired station is necessary for the boat's operation. It is necessary only if there is no other way of satisfying those operational needs. But it seems to us that there are other ways. It would be possible to meet the needs identified above by having separate buildings each fulfilling one of the functions. If a lifeboat was stationed in a town it might be possible to have the lifeboat maintenance equipment kept at a local garage, the crew's equipment kept in a locker on the shore, the communications room in a house. There would be other ways of fulfilling the need. Therefore having a well repaired station is not a need of the boat. Even if it were a need of the boat, we do not consider that it would be a direct need because it is not part of or an aspect of the need of the boat to set to and operate at sea.
117. We conclude that the repairs did not meet direct needs of the boats.

Alterations and modifications

118. In so far as the alterations make for the speedy or speedier launch of the boat, it is clear to us that they meet the direct need of the craft to be able to get to the sea quickly.
119. In so far as the alterations enable a lifeboat to be housed in a station in which it could not otherwise properly be housed, it seems to us that on balance the alterations meet a direct need of the boat. A life boat needs to be kept ready to go to sea. That is an aspect of its operational need. It is a direct need. That need may be met either by providing a lifeboat house and with modest regular maintenance, or by greater regular maintenance. The provision – or adaptation to fit- of a lifeboat house therefore satisfies the direct need in part (rather than part of the direct need) – the other part being satisfied by the more modest maintenance. It might therefore be said that such an alteration does not meet the need of the lifeboat since it meets it only in part. However, not only have we concluded that "meets" is not so tightly defined (see above) but the provision of the alteration is directly connected with the direct needs of the boat and to some extent takes the place of the maintenance of the boat which is exempted by para(c); the context of the provisions suggests that the alteration should also to be exempt.

Cliff stabilisation

120. It does not seem to us that cliff stabilisation is itself a direct need of the lifeboat operating from the bottom of the cliff: it is not part of the need to set to sea. Nor does it meet the need of the boat to set to or to operate at sea, because it is not directly connected with that need nor does it satisfy that need in whole or in part. The works are not directly connected with the direct needs of the boat but indirectly. Such works do not do not meet direct needs of the boats.

The need to get to sea quickly

121. The following services meet this direct need:

(i) the dredging of channels which if not dredged would not accommodate the boat on its way to the sea. Such services might also benefit other boats. But the test is not one of what the service benefits, but whether it meets the need of the boat;

(ii) the maintenance of any slipway -to the extent that lack of such maintenance would delay the boat's speedy progress to the sea.; and

(iii) the maintenance of hoists, winches and other equipment whose purpose is to get the boat into the water.

In each case the service directly relates to the progress of the boat to the sea and is directly connected to that need. It therefore meets that need.

122. It did not seem to us that the maintenance of gangways met a direct need. Gangways could well meet a need to get to sea quickly since they helped meet the need to get the crew on board, but their maintenance was not directly connected to getting the boat to sea and did not itself satisfy any part of the boat's need to get to sea: it therefore did not meet that need. Neither could their maintenance be termed a direct need of the boat .

Other Matters

123. The claims made by RNLI relate to the VAT attributable to the supply to it. It has not itself accounted for that VAT to the Respondents although it will have borne the cost thereof in making payment to its supplier. It was common ground that RNLI had sufficient standing to bring this appeal, but there was some uncertainty as to how the results of our decision should be implemented, if it was to any extent in RNLI's favour, since it is the suppliers to RNLI who will have accounted for the tax and not RNLI. The Commissioners indicated that they would negotiate a sensible result following our decision. The Appellants rely upon Reemstsma Cigarettenfahren GmbH v Finance Minister [2007] All ER (D) 266 as authority for the proposition that as a matter of law in appropriate cases, the recipient of a service would be entitled to reimbursement of wrongly charged VAT. As this is a decision in principle on which we have adjourned for the parties to consider the figures, we also adjourn consideration of this issue, and invite the parties to apply for its consideration if they are unable to agree a way forward.
124. Our decision was unanimous. We make no award of costs. The issues were difficult and we found the argument finely balanced.
125. The appeal is adjourned. We have endeavoured to provide decisions in principle in relation to the categories of expense described to us. The parties have leave to apply to return to the tribunal in relation to the computation of the relevant figures if they cannot agree on them, and also in relation to the issue mentioned in the antepenultimate paragraph.
CHARLES HELLIER
CHAIRMAN RELEASE DATE: 7 April 2009

LON/2008/0205