Kalron Foods Ltd v HM Revenue and Customs

JurisdictionEngland & Wales
JudgeMR JUSTICE WARREN,Mr Justice Warren
Judgment Date30 March 2007
Neutral Citation[2007] EWHC 695 (Ch)
Docket NumberCase No: CH/2006/APP/0732
CourtChancery Division
Date30 March 2007

[2007] EWHC 695 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

ONAPPEAL FROM THE VAT & DUTIES TRIBUNAL

Royal Courts of Justice

Strand, London, WC2A 2LL

Before

Mr Justice Warren

Case No: CH/2006/APP/0732

Between
Kalron Foods Ltd
Appellant
and
The Commisioners for Her Majesty's Revenue & Customs
Respondent

Michael Thomas (instructed by Freeth Cartwright LLP)appeared for the Appellant

James Puzey (instructed by the Solicitor for Her Majesty's Revenue and Customs) appeared for the Respondent

Hearing date: 15th February 2007

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

MR JUSTICE WARREN Mr Justice Warren

Introduction

1

This is an appeal by Kalron Foods Ltd (“Kalron”) against a decision of the Value Added Tax and Duties Tribunal, Manchester Tribunal Centre (Michael Johnson Chairman) and John Lapthorne FCMA (“the Tribunal”). The decision was released on 24 August 2006. The Tribunal decided that Kalron's product sold under the designation “Zumo Fresh Blend” (and which I shall refer to as “the Product”) is a “beverage” within Item No 4 of the Excepted items in Part 2 Group 1 Schedule 8 Value Added Tax Act 1994 (“ VATA”) and thus standard rated.

The Legislation

2

Schedule 8 concerns zero-rating for VAT purpose. Group 1, Part 2 Schedule 8 is headed “Foods” which are accordingly usually zero-rated. We are concerned with Item 1 of the General items –“Food of a kind fit for human consumption”.

3

Following the General items is a list of Excepted items. Summarising, they are, following the item numbers set out:

1. Ice cream, ice lollies frozen yoghurts and similar frozen products and prepared mixes and powders for making such products.

2. Confectionery (with certain exceptions).

3. “Beverages chargeable with any duty of excise specifically charged on spirits, beer, wine or made-wine and preparations thereof”.

4. “Other beverages (including fruit juices and bottled waters) and syrups, concentrates, essences, powders, crystals and other products for the preparation of beverages”.

5. Potato crisps and similar products, savoury foods obtained by the swelling of cereals; and salted or roasted nuts other than nuts in shell.

6. Pet foods and certain other foods for birds.

7. Goods in General items 1, 2 and 3 used for domestic brewing/making/production of beer, cider, perry, wine and wine-made.

4

Following the Excepted items appears a list of Items overriding the exceptions. Again summarising, they are, following the item numbers set out:

1. Yoghurt unsuitable for immediate consumption when frozen.

2. Drained cherries.

3. Candied peels.

4. Tea, maté, herbal teas and similar products, and preparations and extracts thereof.

5. Cocoa, coffee and chicory and other roasted coffee substitutes and preparations and extracts thereof.

6. Milk and preparations and extracts thereof.

7. Preparations and extracts of meat, yeast or egg.

5

The Notes at the end of these lists include the following:

•“Food” includes drink

• Items 4 to 7 of the overriding exceptions relate to item 4 of the excepted items.

6

The first of those Notes is clearly an extension of the meaning of Food; it is not saying simply that liquid foods (which might also be called drinks) are included for the avoidance of doubt. But a particular item might in theory be both a liquid food and a drink: such an item is clearly included in “Food” since it is both a food and a drink; or, if it is argued that food ordinarily means solid food, liquid food comes in as a drink. However, if food in its ordinary meaning does include liquid food, as I think is the case, it is not necessarily the case that food and drink are mutually exclusive items which only come together as “Food” because of Note 1. It would be a question of the ordinary use of English words whether an item could at one and the same time be a liquid food and a drink.

7

I will consider the meaning of “beverage” later. At this point I merely observe that all beverages are drinks (although not necessarily vice versa). Unless food (including liquid) and drink are, as a matter of ordinary language, mutually exclusive classes, a similar point arises in relation to food (including liquid food) and beverages. It is a question of the ordinary use of English words whether an item could at one and the same time be a liquid food and a beverage. I raise this point now because some of Mr Thomas' submissions seem to be based on the proposition that food and beverage are mutually exclusive classes.

8

I should also mention that item 4 of the Excepted items was worded differently in the earlier VAT legislation. It originally referred to “manufactured beverages” but the reference to “manufactured” was removed by the Value Added Tax (Beverages) Order 1993 (1993/2498). According to an HMRC Manual, this was apparently to end uncertainty in the fruit juice trade following contradictory tribunal decisions. At the same time, Excepted item 6 was added to remove any doubt about the zero-rated status of milk.

A preliminary point

9

It is difficult to detect any policy behind these detailed exceptions and overrides. Mr Thomas (who appears for Kalron) claims to identify a policy which is to exclude what he calls junk food: thus ice-cream, confectionary and crisps are excluded and become standard rated. He suggests that the paradigm beverages within Excepted item 4 are branded fizzy drinks typically bought in cans or plastic bottles which can, again, be seen to be in the nature of junk drinks. On that basis, he says that healthy products such as the Product should, if there is a doubt about their status, be put the non-beverage side of the line.

10

I reject that line of reasoning. It is impossible, in my judgment, to spell out of the structure and content of Group 1 a policy such as Mr Thomas submits can be detected. There are plenty of “junk” foods which do not fall within the exceptions; and there are healthy drinks which are within the exception, for instance, freshly squeezed orange juice. The way in which Excepted item 4 deals with juices – that is to say describing beverages as including fruit juices (and bottled waters) – shows that the draftsman regards fruit juices (and bottled waters) as within the meaning of the word beverages as used in item 4: he did not draft the exception as “beverages, fruit juices and bottled waters”. It is also difficult to detect the policy which Mr Thomas refers to when it is noted that fruit juices are expressly included as beverages, but vegetable juices are not. Why orange juice should be expressly excluded but not carrot juice, I do not know. And although tomatoes are fruit, it is not really common to regard tomato juice as a fruit juice, but it is surely a beverage.

11

It is, of course, the case that Excepted items1 and 2 are items which might be regarded as unhealthy: but that does not indicate a policy. Moreover, it is equally clear that Excepted item 4 includes fruit juices, many of which are healthy: there is no policy, therefore, in item 4 to exclude only“junk drinks”.

The Decision

The facts

12

The Tribunal described the Product in this way:

“[It] is the liquefaction of fresh raw fruit and/or vegetables into a thick drink, not unlike cold soup in consistency. This process is performed by a special machine, demonstrated to us at the tribunal hearing. The resultant product is retailed by [Kalron] to the general public at an increasing number of outlets in England. It is sold in disposable takeaway cups.”

13

The Tribunal made the following relevant findings of fact:

a. The product is supplied at “Zumo Fresh Smoothie Bars”. These are retail outlets with counters in which are colourfully displayed different kinds of raw fruit and vegetables. Behind the counter is a menu of blends from which customers order. The blend could be 100% orange, 100% carrot etc or a blend constituting a mixture of different fruits or vegetables, or a mix of fruit and vegetable. The menu is not exclusive, customers being able to order any combination which they wish.

b. The order is blended for the customer on the spot. The machine used resembles a large metal liquidiser into which the fruit and/or vegetables are fed, one by one and pulped by the machine. The process discards any parts of the fruit or vegetable that are unsuitable to be liquefied for consumption, leaving a thick drink containing not just the juice of the fruit or vegetable, but also the rest of the fruit or vegetable itself, in drinkable form.

c. The resultant product, a cold, uncarbonated drink, is allowed to “settle” for a short period, and is then handed over in a plastic cup, with a lid if required, with or without ice as the customer prefers, and with the option of taking a straw. The thickness of the product is such that it is not always suitable to be consumed through a straw. Typically the product is not consumed at the outlet—although some outlets have a small number of kiosks or tables and chairs to sit at – but is taken away by the customer for consumption elsewhere.

d. The concept is advertised to be unique and the Tribunal considered it in their opinion to be clearly distinctive. The distinctiveness lies in the customer being offered a ready-to-consume drink, individually made for the customer on the spot, containing only the goodness of natural fruit and vegetables, with nothing added and nothing taken away, except what is inedible. The produce is prepared and sold at a “bar” that is unlike other bars in the marketplace. As the practical expression of a good idea, the Product has a fresh attractiveness, both in content and presentation.

e. The Tribunal clearly enjoyed the Product, tasting both a fruit blend and a vegetable blend saying:

“Both were unlike anything we had previously...

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