GlaxoSmithKline Services Unlimited v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 03 September 2010 |
| Neutral Citation | [2010] UKFTT 418 (TC) |
| Date | 03 September 2010 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] TC 00688
[2010] UKFTT 418 (TC)
Sir Stephen Oliver QC (Chariman); John Coles (Member)
Roderick Cordara QC and Edward Brown, counsel, for the Appellant
Nicholas Paines QC and Alan Bates, counsel, instructed by the General Counsel for the Commissioners of HM Revenue and Customs, for the Respondents
Zero-rating - Food for human consumption - Lucozade Sport - Whether food or standard-rated beverage - The dispute concerned the liability to VAT of Lucozade Sport Isotonic Drink sold as a drink or in powder form - The commissioners ruled that the product was a beverage or a product for the preparation of a beverage and was excluded from zero-rating by the Value Added Tax Act 1994, Value Added Tax Act 1994 schedule 8 group 1Sch. 8, Grp. 1, excepted item 4 - The appellant contended that the products were liquid food or functional food and were zero-rated under general item 1 of Grp. 1 - Specifically, the appellant maintained that they were sources of nutrition for use in conjunction with exercise - The commissioners submitted that the fact the products were sports beverages did not stop them from being beverages - Moreover, they were commonly consumed outside the context of sport and exercise, which reinforced the conclusion that they were beverages - Held, that "Energy Research" analysis of Lucozade Sport showed that the majority of both sports and non-sports consumers said they drink it because it was hydrating - A smaller number, but still a majority, said it was refreshing and that they liked the flavour - It followed, taking the approach adopted in Bioconcepts Ltd No. 11,287; [1995] BVC 545, that Lucozade Sport came within the scope of the word "beverage" in excepted item 4 - Turning to the question of whether the nutritional contents of the product had the effect of re-characterising it as something other than a beverage, the tribunal took the view that it did not - A significant proportion of sales was to armchair enthusiasts - The nutritional values of the product did not outweigh its attributes as a source of pleasure or a means of rehydration or refreshment - Lucozade Sport in both liquid and powder form were excluded from zero-rating - Appeal dismissed.
1. Glaxosmithkline Services Unlimited ("GSK") appeals against a ruling of HM Revenue and Customs as to the liability of one of its products "Lucozade Sport". The product is sold as a drink, namely Lucozade Sport Isotonic Drink, and as a powder, namely Lucozade Sport Isotonic Drink Mix. In a letter of 4 November 2005 HMRC ruled that the product was standard-rated in both forms.
2. It is common ground that Lucozade Sport Isotonic Drink (which we refer to as "Lucozade Sport") is a drink and that Lucozade Sport Isotonic Drink Mix (which we refer to as "the Drink Mix") is a powder for mixing Lucozade Sport drinks. The issues are whether, as HMRC contend, Lucozade Sport is, in the words of Value Added Tax Act 1994 schedule 8 group 1Group 1 of Schedule 8 to VAT Act 1994, a "beverage" and that the Drink Mix is a product for the preparation of a beverage within the meaning of Group 1. GSK maintains that, despite being a drink, Lucozade Sport is not a beverage.
3. Lucozade Sport, as a drink, is available in still orange, lemon, mixed citrus, lemon and lime, pink grapefruit and mixed berry flavours. At the time of the decision Lucozade Sport was available ready to drink and sold in bottles, cans and "sports packs" (food pouches) by specialist retailers, fitness centres, supermarkets and convenience stores. Lucozade Sport is also available in other presentations such as Lucozade Sport Lite. This appeal does not extent to those other products.
4. The Drink Mix is a powder to which water is added to produce a drink. The product is available in 500g packages and 36g sachets. It is supplied through the Lucozade Sport website and specialist retailers.
5. Value Added Tax Act 1994 schedule 8Schedule 8 of VAT Act 1994 provides for the zero-rating of:
GROUP 1 - FOOD
The supply of anything comprised in the general items set out below, except -
(a) …
(b) a supply of anything comprised in any of the excepted items set out below, unless it is also comprised in any of the items overriding the exceptions set out below which relates to that excepted item.
General items
Item No.
(2) Food of a kind used for human consumption.
Excepted items
Item No.
(2) …
(3) …
(4) Beverages chargeable with any duty of excise specifically charged on spirits, beer, wine or made-wine and preparations thereof.
(5) Other beverages (including fruit juices and bottled waters) and syrups, concentrates, essences, powders, crystals or other products for the preparation of beverages.
NOTES:
(2) "Food" includes drink.
6. GSK's case is that the products are liquid food or functional food. In both forms the products are zero-rated by Schedule 1 Group 1. They are not "excepted" by Note 4 as being "other beverages … products for the preparation of beverages". Specifically, GSK say, the products are sources of nutrition for use in conjunction with exercise: they are, as the message on the label states, a "body fuel". (The expressions "liquid food", "functional food" and "body fuel" do not, GSK stress, have any special meanings in the context of the legislation. Rather, they are used as convenient shorthand expressions for distinguishing the types of product in question here from "beverages". )
7. HMRC say that the products are within Excepted Item 4 of Group 1, being either beverages or products for the preparation of beverages. They are therefore standard rated products. They do not cease to be beverages because they are sports beverages. Moreover, because the evidence shows that they are commonly consumed outside the context of sport and exercise, that reinforces the conclusion that the products are beverages.
8. The term "beverage" as found in Schedule 1 Group 1 is used in its ordinary English sense. The application of Group 1 is not, as Toulson observed in R & C Commrs v Procter & Gamble UKVAT[2009] BVC 461, paragraph 63, "a scientific question". And, as Warren J pointed out in paragraph 35 of the judgment in Kalron Foods Ltd v R & C CommrsVAT[2007] BVC 509 at 516, the question whether a product is a beverage is a question of fact with the consequence that where (as has been the case here) HMRC have determined that the product is a beverage, the onus is on the taxpayer both to establish the primary facts on which it relies so as to displace that conclusion as well as to establish that its product is not a beverage. In paragraph 58 of the Kalron judgment, Warren J advises that caution should be "exercised in placing major reliance on any supposed distinction between drinks and beverages".
9. The Tribunal decisions on beverages have followed the approach taken in Bioconcepts Ltd No. 11,287; [1995] BVC 545 in which the Tribunal were referred to the Oxford English Dictionary definition of a "beverage" as -
Drink, liquor for drinking, especially a liquor which constitutes a common article of consumption.
Dealing with the former wording of Item 4, which referred to manufactured beverages, the Tribunal in Bioconcepts directed themselves that they had "to decide whether as a matter of ordinary usage the words "manufactured beverage" and "beverage" covered or applied to "Bio-Light". The Tribunal went on to reason that the meaning of "beverage" in ordinary usage -
… covers drinks or "liquors" that are commonly consumed. This is the primary meaning in the Oxford English Dictionary. Liquids that are commonly consumed are those that are characteristically taken to increase bodily liquid levels, to slake the thirst, to fortify and to give pleasure.
10. In Unilever Bestfoods UK Ltd No. 20,016; [2007] BVC 4069 the Tribunal described the Bioconcepts' approach as "workable and producing an intelligible set of results" (paragraph 31). They further explained at paragraph 28 that:
The purpose of the Tribunal in Bioconcepts of including "to fortify" as an example of a liquid characteristically consumed as a drink (and consequently a beverage) was to recognise as beverages liquid products taken to enhance energy.
We should add that the Tribunal in Bioconcepts was not (as Warren J inferred in Kalron, at paragraph 61) attempting to lay down an exhaustive definition of what a beverage is.
11. Further Tribunal cases show examples of products that are not commonly consumed or do not have the characteristics of liquids that are commonly consumed. The Bio-Light fluid in Bioconcepts was one. The "creatine" products in the Science in Sport Ltd [2000] V&DR 195 decision were rejected from the scope of beverages because they were barely palatable and were best taken in conjunction when mixed with food. As regards the Science in Sport "("SIS") product based on carbohydrate", the Tribunal accepted that something consumed only by athletes and sports people for nutritional purposes was nonetheless "commonly consumed"; the Tribunal decided that the product, a powder, was excluded from being a beverage because it was not "for the preparation of beverages" but for the preparation of food supplements and it was "incidental" that they were consumed in liquid form. The Soya milk products were excluded by the Tribunal from the scope of beverages in Alpro Ltd No. 19,911; [2007] BVC 4049 because they did not have the characteristic of liquids commonly consumed: they neither slaked the thirst nor increased bodily fluids and gave no distinct pleasure to the consumer. The "Knorr Vie Shots" manufactured by Unilever, in Unilever Bestfoods UK Ltd No. 20,016; [2007] BVC 4069, were found to be drinkable food; they were too concentrated to slake the thirst or replace bodily fluids and were not characteristically consumed to fortify.
12. With those...
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GlaxoSmithKline Services Unlimited v R & C Commissioners
...Sch. 8, Grp. 1, Value Added Tax Act 1994 schedule 8 group 1excepted item 4. This was an appeal by the taxpayer against a decision ([2010] UKFTT 418 (TC); [2011] TC 00688) that certain "Lucozade Sport" products were not zero-rated as "food" within Grp. 1 of Sch. 8 to the Value Added Tax Act ......