Customs and excise

Ryanair Ltd v Revenue and Customs Commissioner: Court of Appeal, Civil Division: 4 April 2014

Air passenger duty – Taxpayer airline paying air passenger duty (APD) during relevant period – Taxpayer subsequently taking view many of its flights qualifying for exemption from APD as connected flights – Taxpayer claiming repayment of excess duty from Revenue and Customs Commissioners

Finance Act 1994, section 30. Section 30 of the Finance Act 1994 (the 1994 act) provides, so far as material: ‘(5) Subject to subsection (6) below, the journey of a passenger whose agreement for carriage is evidenced by a ticket ends for the purposes of this section at his final place of destination. (6) Where in the case of such a passenger— (a) his journey includes two or more flights, and (b) any of those flights is not followed by a connected flight, his journey ends for those purposes where the first flight not followed by a connected flight ends. (7) The journey of any passenger whose agreement for carriage is not evidenced by a ticket ends for those purposes where his flight ends. (8) For the purposes of this chapter, successive flights are connected if (and only if) they are treated under an order as connected.’

Air passenger duty (APD) was introduced by the Finance Act 1994 and was payable by the airline as a charge on the carriage of each passenger on a flight that originated in the United Kingdom. The rate of duty prescribed by section 30 of the act was by reference to the place where the passenger’s journey ended. Special provisions had been made for passengers who took connected flights.

That included passengers who took a domestic flight from one UK airport to another where they changed to a flight to a foreign destination, or to passengers whose journey originated abroad but who used a UK airport to continue their journey by an internal domestic flight to another UK journey or who transited in the UK to another international flight. In each case, there was at least one flight which began in the UK so as to attract duty. The relevant order for the purpose of section 30(8) was the Air Passenger Duty (Connected Flights) Order 1994, SI 1994/1821 (the CFO). The schedule to the CFO set out the rules for determining whether successive flights were connected flights for the purposes of APD.

The first rule applied to passengers who transferred to a domestic flight (case A), the second to passengers who transferred to an international flight (case B). Each rule was accompanied by notes of interpretation (for notes 5 and 6 to case A see [14] of the judgment). The taxpayer airline sought to recover APD totalling in excess of £10m which it contended had been overpaid. No issue arose as to whether the aircraft were chargeable, therefore APD had been payable on each chargeable passenger, namely, each passenger whose flight began at an airport in the UK (section 28(4) of the act).

The taxpayer’s claim related to the APD payable on connected flights. The taxpayer had accounted for the APD in respect of every passenger who had departed on one of its flights from a UK airport. It contended that it had done so in the mistaken belief that, because its ticketing procedures had not satisfied the conditions set out in notes 5 and 6 to the case A rule, it had not qualified for the connected flights exemption under the case A and B rules. That was because it no longer issued paper tickets but instead operated a paperless electronic system.

If a passenger had wished to book consecutive flights to an ultimate destination, the second flight had had to be made through a separate booking with its own flight details which made no reference to there being a connected flight. Therefore, it had not satisfied the ticketing conditions set out in notes 5 to 7 which required the details of all flights in the journey to be summarised on one ticket or a combination of tickets which stated that they were to be read together.

Other airlines operated different computerised booking systems which allowed the passenger to print out his entire itinerary. The Revenue and Customs Commissioner refused the claim. It took the view that the notes to the CFO were to be construed so as to apply to computerised online booking systems which produced a single record of the whole journey that evidenced that the flights involved satisfied the temporal requirements of the case A and B rules. The taxpayer appealed to the First-tier Tribunal (Tax and Chancery Chamber) which transferred to the Upper Tribunal (the tribunal) issues of the proper construction of the relevant provisions of the Act and the CFO and whether, on the proper construction of those provisions, the taxpayer was entitled to the benefit of the exemption for connected flights. The tribunal found that the taxpayer was not entitled to the benefit of the connected flights exemption. The taxpayer appealed.

It submitted, first, that the ticketing conditions, even if literally complied with, did no more than indicate that the two flights had been part of one journey and what had been the booked transfer time between them. Therefore, they provided an evidential tool to determine whether the temporal conditions were satisfied. The absence of conjunction tickets removed from the airline the prescribed method of proving whether the flights were connected, but should not be treated as disqualifying the airline from the benefit of the exemption.

Secondly, on the basis of the principle of surplusage, note 5(b) to the case A rule should be ignored for the purpose of determining what conditions had to be satisfied in order to qualify for the connected flights exemption. Notes 5(b) and (6) created a distinct and substantive ticketing requirement. Whilst no airline issued paper tickets, if the rules about conjunction tickets were to be strictly applied, no airline would be eligible for the connected flights exemption.

The appeal would be dismissed.

(1) Section 28 1994 imposed the charge to APD on the operator of an aircraft in respect of the carriage on any chargeable aircraft of any chargeable passenger. Since chargeable passenger included every passenger on a flight beginning at a UK airport, the duty was payable on each single flight of that description unless the provisions of section 30(6)-(8) applied (see [32] of the judgment).

The construction of the provisions that related to connected flights had to be considered in the first place free from the complications created by the changes in technology which had led to the abandonment of paper tickets. The provisions which introduced the connected flights exemption began at section 30(6) which qualified what would otherwise constitute a passenger’s final place of destination under s 30(5) in cases where the passenger’s journey involved taking more than one flight. 

The default position, as section 30(6) made clear, was that the place of destination in respect of each flight was to be treated as final and the section 43 definition of ‘ticket’ accommodated that (section 30(5) and (7)). The difference in treatment arose only when the second or subsequent flight was a connected flight (section 30(6)(b)). There was no definition as such of a ‘connected flight’. Instead, section 30(8) provided that successive flights were connected ‘if and only if they are treated under an order as connected’. 

Accepting that the purpose of delegated legislation was, or ought to be, to add to the content of the primary legislation, it was clear from those words that the definition of what constituted a connected flight was to be provided by the terms of the CFO. Section 30(8) made no distinction between particular parts of the order it referred to or as between the potential subject matter of such an order. More particularly, there was nothing in section 30(6) which qualified what was meant by a ‘chargeable passenger’ under section 28(4) so as to indicate what the substance of the criteria or conditions for the exemption should be. 

That was left to the delegated legislation. Section 31(3) did not introduce any such limitation. Section 31(3)(b) simply replicated the clearly general provisions of section 30(6)-(8) even though s 31(3)(a) contained what might be described as a ticketing condition in respect of the second or successive flight (see [33]-[35] of the judgment).

(2) The correct approach was not to delete notes 5(b) and (6) from the schedule (see [39] of the judgment).

The conditions that note 5 imposed were substantive. There was no basis on which, as a matter of construction, one could read note 5(a) as imposing a limitation on what constituted a connected flight under case A but not give the same effect to note 5(b). They were, as a matter of ordinary language, of equal application. Taking the provisions of the CFO at the time when they had come into effect, the ticketing conditions contained in notes 5(b) and (6) had been capable of being satisfied. It was difficult to see any obvious reason why they should not be given effect according to their terms rather than simply deleted as part of the test of what constituted a connected flight (see [37], [38] of the judgment).

Accordingly, the appeal would be dismissed (see [41]-[43] of the judgment).

R (on the application of Quintavalle) v Secretary of State for Health [2003] 2 All ER 113 applied; McMonagle v Westminster City Council [1990] 1 All ER 993 considered.

Decision of Upper Tribunal (Tax and Chancery Chamber) [2013] STC 1360 affirmed.

Lord Pannick QC and Eleanor Campbell (instructed by Enyo Law LLP) for the taxpayer; James Eadie QC and Simon Pritchard (instructed by HM Revenue and Customs) for the Revenue.