Ferrero UK Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 12 July 1995 |
| Date | 12 July 1995 |
| Court | Queen's Bench Division |
VAT Tribunal
The following cases were referred to in the decision:
C & E Commrs v Clark's Cereal Products Ltd ELR[1969] 1 QB 755
C & E Commrs v Popcorn House Ltd ELR[1969] 1 QB 760
C & E Commrs v Quaker Oats Ltd VAT(1987) 3 BVC 119
E Round and Son Ltd VAT(MAN/85/165) No. 2069; (1986) 2 BVC 208,094
Huczek VAT(MAN/92/507) No. 8850; [1993] BVC 1311
Kathy's Kones Ltd VAT(MAN/93/994) No. 11,705; [1995] BVC 1390
Marks & Spencer plc VAT(LON/88/1316) No. 4510; (1990) 5 BVC 537
Swedish Snowball Production Ltd VAT(MAN/86/305) No. 2311; (1987) 3 BVC 1313
UB (Biscuits) Ltd VAT(LON/85/560 and LON/86/18) No. 2040; (1986) 2 BVC 208,089
United Biscuits (UK) Ltd (No. 2) VAT(LON/91/160) No. 6344; [1991] BVC 818
Zero-rating - Food - Whether products manufactured by the appellant were biscuits or confectionery - Value Added Tax Act 1983, Sch. 5, Grp. 1, excepted item 2, Note (5) (Value Added Tax Act 1994, Sch. 8, Grp. 1, excepted item 2, Note (5)).
The issue was whether two of the products manufactured by the appellant, Giotto and Melody, were zero-rated supplies of biscuits or standard-rated supplies of confectionery.
The appellant was a member of an international group whose product range included fruit drinks, cakes, biscuits and confectionery. It manufactured five brands of food in the UK, mostly chocolate-based. Sales of chocolate products tend to fall in the summer months whereas sales of biscuits are not so seasonally variable. Accordingly, the appellant wished to manufacture a product which would keep its factories busy in the summer months and thus for these reasons Giotto and Melody were developed.
Giotto was a small wafer sphere with a diameter of 19mm filled with a soft hazelnut filling and covered with chopped hazelnuts. Melody was a small wafer sphere with a diameter of 19mm filled with a soft hazelnut filling (the ingredients of which differed from the filling used for Giotto) and covered in a light meringue and chopped hazelnuts. Neither product was individually wrapped, ten Giottos being packed into a paper tube and two Melodies packed together in a cellophane tube . The packaging of both products is such that they should be consumed within about eight months of manufacture.
Neither Giotto nor Melody has yet been marketed in the UK but they have both been marketed in Luxembourg and Giotto in Germany. An English advertisement for Giotto called it "a little biscuit-snack" and one for Melody called it a "speciality biscuit".
The appellant submitted that both products were biscuits and should be zero-rated. It suggested that the correct test was the answer to be given by the "man in the street" who was informed as to the ingredients, manufacturing process, appearance and taste and packaging and marketing of the products. These four factors had to be given equal weight. The ingredients of both products was very similar to those of "Japonais" by Bahlsen which was classified as a biscuit. In the manufacturing of both items the wafer spheres were baked which was a strong indication that they were biscuits. Whilst their appearance was not the normal shape of the biscuit the same products could be manufactured with a conventional flat biscuit shape and the small size of the product did not mean that it was not a biscuit. Finally, the products were not individually wrapped like confectionery but were packaged in sealed packs like biscuits to protect their freshness.
Customs submitted that both products were confectionery. Both were normally eaten with the fingers, both were prepared by a cooking process and both contained a substantial amount of sweetening. The word biscuit derives from an old French word meaning "bis" (twice) and "cuit" (cooked). Neither product was cooked twice, nor were they flat and thin in shape. Further, the method of marketing was not of great relevance compared with other factors; what was relevant was the view of the ordinary "man in the street" as to the nature of the product.
Held, allowing the company's appeal (the chairman dissenting):
1. After considering the appearance and size, the ingredients, the manufacturing process, the taste and texture, the time and place at which the product would be eaten, the shelf life and the packaging and marketing the tribunal concluded that the products had some of the characteristics of biscuits.
2. The tribunal concluded that the view and perception of the informed "man in the street" would be that the products were more akin to biscuits. The chairman concluded that the products were not biscuits and did not consider the informed man or woman in the street would regard them as such.
[The tribunal set out the facts summarised above and continued as follows.]
1.1 Ferrero UK Ltd (the appellant) appeals against a decision of Customs, contained in a letter dated 13 June 1994, that two of the products manufactured by the appellant, which products are called Giotto and Melody respectively, are standard-rated supplies and not zero-rated supplies of biscuits.
2.1 The legislation in force at the date of the decision under appeal was the Value Added Tax Act 1983 (the 1983 Act). Section 16 provided that a supply of goods was zero-rated if the goods were of a description specified in Sch. 5.
2.2 Schedule 5, Grp. 1 specified supplies of food comprised in the general items but excepted supplies of anything comprised in the excepted items.
2.3 General item 1 specified that food of a kind used for human consumption was zero-rated. Excepted item 2 excepted:
Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or with some product similar in taste and appearance.
2.4 Note (5) provided:
… for the purposes of item 2 of the excepted items "confectionery" includes chocolates, sweets and biscuits; drained, glacé or crystallized fruits; and any item of sweetened prepared food which is normally eaten with the fingers.
2.5 The 1983 Act was consolidated in the Value Added Tax Act 1994 (the 1994 Act) which came into force on 1 September 1994 and which applies to supplies, acquisitions and importations after that date. The provisions of Sch. 5 to the 1983 Act are now found in Sch. 8 to the 1994 Act.
3.1 The only issue for determination in the appeal was whether the products known as Giotto and Melody were biscuits. The appellant contended that they were, and that they should be zero-rated. Customs contended that they were not and that they should be standard-rated.
…
6.1 On behalf of the appellant Mr Ewart submitted that both Giotto and Melody were biscuits and should be zero-rated.
6.2 The correct test was the answer to be given by the man in the street who was informed as to the ingredients, manufacturing process, appearance and taste, and packaging and marketing of the products. The four factors had to be given equal weight.
6.3 The ingredients of both Giotto and Melody were very similar to those of "Japonais" by Bahlsen which was classified as a biscuit. Melody had been classified as a biscuit in various European countries. The comparatively low sugar content of both Giotto and Melody was what would be expected of a biscuit and not of confectionery.
6.4 In the manufacturing process the wafer spheres of both Giotto and Melody were baked which was a strong indication that they were biscuits.
6.5 As to appearance, Mr Ewart accepted that the spherical shape of the products was not the normal shape of a biscuit but that could not prevent the products from being biscuits. The same products could be manufactured with a conventional flat biscuit shape and samples of Giotto in that format had been prepared for the purposes of the tribunal hearing. Also, the small size of the product did not mean that it was not a biscuit. The taste of both products was that of a crisp wafer texture which was commonly found in biscuits and the products were no sweeter than the average biscuit. The wafer was a significant amount of the total product.
6.6 The products were not individually wrapped like confectionery but were packaged in sealed packs like biscuits to protect their freshness. The larger packets in which the products were sold resembled packets of biscuits and not confectionery. They were sold with biscuits in shops. They were advertised as an accompaniment to coffee where one would expect a biscuit to be consumed. Also the advertisements assumed that consumers would purchase the products to eat themselves, rather than to give as gifts, and that the products would be eaten every day, and not only on special occasions.
6.7 Mr Ewart submitted that a number of previous tribunal decisions had been reached on their own facts and it was important to extract the relevant principles. He relied on the principles in Quaker Oatsand submitted that any decision before that date was not helpful. He cited:
C & E Commrs v Quaker Oats Ltd VAT(1987) 3 BVC 119;
Marks & Spencer plc VAT(LON/88/1316) No. 4510; (1990) 5 BVC 537; and
United Biscuits (UK) Ltd (No. 2) VAT(LON/91/160) No. 6344; [1991] BVC 818.
7.1 On behalf of Customs Mr Jimdar submitted that Giotto and Melody were confectionery and not biscuits. Both were normally eaten with the fingers; both were prepared by a cooking process; both contained a substantial amount of sweetening and also some fat; and the filling was not cooked.
7.2 Mr Jimdar submitted that the word biscuit derived from an old French word meaning "bis" (twice) and "cuit" (cooked). In theShorter Oxford Dictionary...
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